Feedback from the Pipeline

By Hunter Graul

Texas and the Mountain West are working through a supply hangover. Elevated Class A deliveries in 2024–2025 pulled renters up-market and pressured B & C assets on rents and occupancy. Sponsors who paired value-add plans with high-leverage, floating-rate debt are running out of cash, and lenders are increasingly pushing resolutions. We’re now seeing the first meaningful wave of distressed and lender-nudged sales in San Antonio, DFW, and select Austin submarkets often at or below outstanding loan balances. With pipelines thinning into 2026, this is the window to buy durable, well-located 1980s vintage at compelling per-pound pricing. The edge is simple: day-one positive leverage on conservative debt, valuations struck on suppressed rents (10–20% below peak), and a property-tax reset we underwrite prudently. The opportunity favors disciplined buyers who can close, fund capex up front, and operate cleanly without relying on aggressive rent growth. We’ll continue to pursue newer, nicer assets when pricing is right, but the best near-term risk-adjusted returns are in workforce housing acquisitions where basis and operational simplicity drive outcomes.

Acquisition Blueprint & Deal Criteria

Our target profile is renovated (or partially renovated) 1980s product in good locations, strong schools, proximity to employment nodes, and quality retail while avoiding high-crime pockets. We prioritize assets with resident-friendly features (e.g., widespread W/D connections), durable site infrastructure, and recent common-area upgrades that reduce near-term execution risk. Basis is paramount: many sellers from 2020–2022 have expended significant capex but face maturities or operating shortfalls; we step in where our price reflects today’s NOI and the remaining work. Capital structure must be simple and right-sized agency debt, 5-year fixed or Freddie floaters with rate-cap reserves and we fully capitalize post-close capex with realistic replacements for older systems. We underwrite today’s rents, elevated bad debt, and normalized trade-outs; upside from stabilization and supply roll-off is treated as optionality, not a requirement. Hold periods are 3–5 years with a sell-early bias once return hurdles are met.