Multifamily fundamentals are showing encouraging signs for investors. CBRE reports that more than two units were absorbed for every unit completed during the second quarter of this year, lowering the national vacancy rate to 4.1 percent, down from 5.5 percent one year prior.
Year-over-year effective rent growth increased to 1.2 percent during the second quarter, the first time in two years the rate surpassed 1 percent.
CBRE estimates that multifamily construction starts at midyear were 74 percent below their 2021 peak and 30 percent below their pre-pandemic average. Yardi Matrix projects 536,000 completions this year, reflecting a drop from last year’s figure of 663,000 units. As the construction pipeline shrinks, CBRE contends, strong renter demand will lower the vacancy rate further and lead to above-average rent growth in 2026.
Many brokers expect these trends will drive an increase in asset performance as excess inventory is absorbed, priming the investment playing field for a more active season for the rest of 2025 and into 2026. Meanwhile, a more diverse, eager-to-act buyer pool is emerging, including family offices, regional banks and mission-
driven capital.
While the Federal Reserve opted at its July meeting to hold the fed funds rate steady at a target range of 4.25 to 4.5 percent, pressure is growing on the central bank to lower interest rates as the economy shows signs of slowing. There remains great uncertainty as to whether the 10-year Treasury yield, which was hovering around 4.3 percent as of Aug. 25, will hold steady, rise or fall in the near term.
Multifamily & Affordable Housing Business caught up with investment sales leaders for a midyear check in on what’s happening in their markets. Their edited comments follow.
Multifamily & Affordable Housing Business: In which segments — such as market rate, workforce, affordable housing, mixed-income — is investor interest highest this year and why?
Asher Hall, Cushman & Wakefield: As it relates to Dallas-Fort Worth, core and core-plus products are generating the most interest across investor profiles. We are seeing capital of all shapes and sizes come to the table for well-located, new-construction product with the mindset of buying at attractive price points with a longer-term perspective in mind.
Matt Mitchell, Berkadia: Investor interest in affordable housing has remained the most consistent. Operations have not been negatively impacted by supply, so investors can underwrite cash flows with confidence. And the ability to get more favorable financing than market-rate housing provides additional liquidity to the affordable market.
Investor interest in workforce housing is probably lower now than in years past if you consider 1970s and 1980s product to be naturally occurring workforce housing. Currently, investors that focus on 1970s and 1980s product are being impacted by capital markets volatility, insurance costs and negative absorption as some renters are moving up an asset class to take advantage of leasing incentives in high-supply markets.
Brian O’Boyle, Newmark: We’re seeing the strongest demand for newer-vintage, high-quality assets. Over the past several years, there has been a clear flight to quality, with investors prioritizing stabilized occupancy and minimal deferred maintenance. Meanwhile, capital for Class B and C product has been more difficult to source, as many syndicators have been sidelined and are no longer raising equity at the levels seen previously.
Derrek Ostrzyzek, CBRE: Investors are most interested in market-rate, core-plus and naturally occurring affordable housing.
MAHB: In which markets or submarkets are buyers and sellers most active currently and why?
Courtney Crowder, Newmark: In Metro Denver, buyers are most active in the western suburbs. The reason for this is twofold. First, properties located on the west side of our metro area allow residents quicker access to the mountains and a variety of outdoor recreation activities. Second, we generally see our western suburbs as having more supply constraints and a much more limited supply pipeline, which in today’s environment is very important to buyers. Given that this is where we are seeing the most active and aggressive buyers, we tend to see more activity from sellers in these pockets as well.
David Mitchell, Newmark: So far in 2025, 81 percent of Houston trades were in suburban locations. This is slightly higher than the 2024 average of 78 percent, but still below the historical average of 83 percent from 2020 to 2024.
In both infill and suburban locations, buyers have been the most aggressive in supply-constrained areas, enabling more bullish rent growth assumptions. Fortunately, many Houston submarkets are currently benefitting from rapidly diminishing supply pipelines with continuing strong demand. This is a large reason why numerous third-party providers rank Houston first or very high in projected rent growth over the next several years.
Matt Mitchell: Investor interest has picked up in the Midwest, in markets like Columbus, Indianapolis and gateway markets that have high barriers to entry, like Boston and California. These markets are exhibiting stronger fundamentals than markets like the Southeast and Texas, which are digesting a lot of new supply. That said, interest in the higher supply markets is picking up as those markets are starting to recover.
O’Boyle: Well-located suburban assets are attracting the most attention, particularly those trading at a discount to replacement cost. Investors are targeting markets that are past peak supply and have strong projected rent growth, making below-replacement-cost acquisitions especially compelling.
Rachel Parsons, CBRE: Preferred investor markets include San Diego and Orange County. These markets are historically low-trade markets with high barriers to entry, high incomes, high home values and great schools.
MAHB: What cap rate trends have you been seeing over the past year?
Crowder: Cap rates have remained fairly static over the past year. 2023 is when we first started experiencing elevated capital markets volatility and when we saw cap rates rapidly expand. Since then, buyers have adapted their underwriting to account for continued rate fluctuation. Although we have seen material swings in interest rates on a week-by-week basis, outside of a few brief anomalies, longer-term U.S. treasuries, which are most influential to cap rates, have stayed within a 50 basis-points range over the course of the past 12 months, keeping cap rates flat year-over-year.
Hall: We spend the majority of our time selling new-construction product in Dallas-Fort Worth. In this segment of the market, we have continued to price these assets in the low to mid 5 percent cap range on a stabilized basis.
Patton Jones, Newmark: 2024 brought significant challenges to the commercial real estate market, particularly within the multifamily sector. Many owners adopted a cautious approach, awaiting greater clarity around a potential decline in interest rates and the outcome of the presidential election. There was optimism that lower interest rates in the latter part of the year would result in lower cap rates and higher asset pricing.
However, an oversupply of apartments contributed to negative rent growth across Central Texas. The combination of high borrowing costs and depressed rental rates exerted pressure on property values. Despite three interest rate cuts toward the end of 2024, these did not result in lower borrowing costs for investors, causing asset values to remain subdued.
Matt Mitchell: Cap rates have generally trended down in the past 12 months, but the market continues to be volatile, and cap rates are diverging when comparing primary locations with secondary locations. The two main factors impacting cap rates are interest rates and supply. In the past 12 months, we had two periods where the 10-year Treasury yield dropped below 4 percent, and when that happened, cap rates compressed. We have seen cap rates get tighter in primary markets with limited supply, while cap rates have widened in secondary markets where supply is causing softer fundamentals.
O’Boyle: Cap rates for institutional-quality assets have compressed into the mid-to-upper 4 percent range, driven by sustained demand for high-quality, well-located product and
increasing investor confidence in the market’s long-term fundamentals. With peak new supply now behind us — and strong job and population growth on the horizon — Dallas-Fort Worth is well-
positioned to remain a top-tier
investment market for years to come.
Ostrzyzek: Cap rates have been trending down. This is largely driven by new investment allocations. Institutional capital investors, who have been sidelined for the past three years, are stepping back into the market.
MAHB: Which investor groups have been the most active buyers in the multifamily sector so far this year?
Crowder: The buyer pool across metro Denver has been quite diversified, including institutional investors, REITs, private equity firms and high-net-worth individuals. We are also seeing capital groups with a variety of risk profiles — core, core-plus, value-add and opportunistic — active across metro Denver. While most open-end diversified core equity (ODCE) vehicles remain on the sideline, we are seeing nearly every other investor type show up on our bid sheets.
Hall: For the right piece of real estate in Dallas-Fort Worth, every single type of investor group will show up, and we’re certainly seeing heightened interest from major institutional investors on the region’s core and core-plus product. Our bid sheets will cover the full gamut as it relates to capital structures, such as all-cash institutions, major family offices, pension fund advisors, sovereign wealth funds and private equity shops.
David Mitchell: The current buyer pool in Houston is as diverse as it has ever been. In 2024, the Newmark Houston multifamily team saw more than 200 unique Class A bidders on marketed deals. Of the selected buyers for Class A product, more than 40 percent were either first-time buyers in Houston or had been inactive in the market for eight or more years. The diverse bidder/buyer pool has continued into 2025, with institutions, REITs, private equity firms and high-net-worth individuals all being represented.
Interestingly, we are increasingly seeing developers show up on bid sheets as well. Though moderating, rising material and labor costs have driven overall construction costs higher. At today’s market prices, developers can acquire newer product at a substantially cheaper basis than the cost of building it in many cases.
Matt Mitchell: While total transaction volume has been sluggish, we are seeing a diverse mix of buyers active this year. Household-name institutional investors have been active buying the macro trends of market recovery and discount to replacement value. REITs have been active, flexing their lower cost of capital to pick up higher quality assets that others can’t compete for. And family office/high-net-worth investors have been buying deals that present good long-term values. The value-add and opportunistic buyers are very eager to take advantage of distressed capital stacks, but to this point, only a few opportunities have come to market.
O’Boyle: Over the past 12 months, private equity firms and high-net-worth individuals have been the most aggressive buyers. However, we’re beginning to see larger institutional investors re-enter the market as pricing stabilizes and capital becomes more accessible.
Ostrzyzek: Separate account clients through pension fund advisors have been the most active buyers in 2025.
MAHB: Which combinations of debt structures, interest rates and sponsorhip entities are currently working best for getting deals across the finish line?
Hall: The majority of deals getting done are being financed with five- and seven-year fixed-rate debt via the agencies. Additionally, there have been a number of institutions that have started to buy with floating-rate debt via debt funds where they are trying to get in and out in
approximately three years.
O’Boyle: Shorter-term, fixed-rate agency executions — with rate-buydown features — are proving most effective. Life companies are also becoming more aggressive, particularly for high-quality assets with strong sponsorship and location fundamentals.
Ostrzyzek: Long-term, fixed-rate debt is the preferred debt structure.
MAHB: Is there a discount to replacement value today in the multifamily sector and, if so, how big is the difference between the two?
Hall: That has been the entire story on the buy side over the past two-plus years. Everyone is trying to buy well-located real estate below replacement cost in growth markets around the Dallas-Fort Worth metroplex. The story with these properties and transactions is they are, in some cases, as great as 20 percent below the cost to build.
Jones: All properties we are marketing today are selling well below replacement cost. Developers are seeing minor cost reductions, but nothing material. Land, labor and commodities remain highly priced for myriad reasons. Meanwhile, the double whammy of rising interest rates and soft rental fundamentals have brought disposition pricing down. It is common to see stabilized assets sell at a roughly 25 percent discount to replacement cost.
Matt Mitchell: We’re observing a divergence in pricing metrics depending on location. Properties in secondary locations with low barriers to entry tend to price at a discount to replacement value and wider cap rates, whereas properties in primary in-fill locations with high barriers to entry are trading at tighter cap rates and pricing on par with, or, arguably, above replacement cost.
O’Boyle: Yes, the discount to replacement cost remains one of the most attractive aspects of current investment opportunities. In many cases, buyers are acquiring assets at 10 to 20 percent below replacement cost.
Ostrzyzek: The discount to replacement cost is generally between 15 to 30 percent, depending on the product type.
MAHB: How are buyers weighing value-add opportunities when construction costs and interest rates remain elevated?
Jones: There is pent-up buyer demand for value-add opportunities, which have been scarce over the past 18 months. When these opportunities do come to market, seeing high investor tour traffic and 20-plus offers is not uncommon.
Interestingly, while many buyers are raising their capital with a value-add business plan, they are not actually instigating the renovation in the initial phase of their hold period. Most buyers tend to wait a couple of years to allow the soft rental market to firm up before kicking off their upgrade program. Buyers are being prudent about their upgrade timing and their ability to push rents post renovation.
Matt Mitchell: Light value-add opportunities, such as properties built in the early 2000s with 9-foot ceilings, are in very high demand. These properties can be acquired and renovated at an all-in basis below replacement cost and provide an opportunity to achieve attractive risk-adjusted returns. By contrast, heavier value-add, older-vintage assets, such as those built in the 1970s and 1980s, are not seeing as much interest. At this point in the cycle, many investors don’t want to take on the risk of unforeseen capital expenditures that can arise with older assets.
O’Boyle: We’re seeing many groups delay the implementation of their value-add strategy until year two, giving time for fundamentals to stabilize and new construction deliveries to be absorbed.
Ostrzyzek: Value-add investment strategies are driven by the property level fundamentals and trade-outs. Properties with flat to negative trade-outs will not start a value-add program. Properties with large trade-outs and high occupancy will start an immediate value-add
program. (A trade-out is the difference in rental income between a previous tenant’s lease and the new lease for the vacant unit.)
MAHB: Are lenders less cautious, more cautious or about the same as they were a year ago when underwriting multifamily loans?
O’Boyle: Lenders remain cautious but continue to be competitive when it comes to quality product and strong sponsorship. Well-located, newer assets with stable cash flow are still attracting aggressive lending terms.
Ostrzyzek: Lenders have not changed their position from a year ago.
MAHB: What indicators, economic or otherwise, are you watching most closely to predict a shift in pricing or transaction velocity this year?
Matt Mitchell: Rent growth and interest rates. Rents have generally been trending down or flat, which makes it difficult for buyers to underwrite growth in the near term. Once you can confidently underwrite 3 percent rent growth in year one versus zero percent, your unlevered internal rate of return could improve 80 to 100 basis points, all other things being equal.
So, not only will signs of rent growth give investors the confidence that we are recovering from the glut of supply that has caused weaker fundamentals, but it also will positively impact values such that more sellers will be interested in selling.
As for interest rates, there were two periods over the past 12 months when the 10-year Treasury yield dropped below 4 percent, and during those small windows, buyers were able to lock in more favorable financing and could justify paying lower cap rates. If rates drop to that level again and stay at that level, we’ll be able to get a lot more deals done.
O’Boyle: We’re closely monitoring the debt market volatility, new legislative policies under the current administration and global economic developments, such as tariffs, that affect material costs.
Ostrzyzek: The focus remains on U.S. Treasuries.
MAHB: Is 2025 a good year to be a net buyer, a net seller or to stay on the sidelines? What advice are you giving clients?
Hall: 2025 has been a year of inconsistencies. Every time we think we know where we are going, the market pivots. It has continued to ebb and flow. I do think if you have a long-term perspective, it is a great time to buy.
There is an interesting window where you can buy substantially below replacement cost, and as supply continues to taper, we believe you will see significant rent growth once we get over this supply wave, putting you in a very strong position to reap the benefits on the back end. If you can find good real estate at an attractive entry point, I think you are going to have a big smile on your face five years down the line.
Jones: 2025 has become a year of decision-making. Multifamily owners are increasingly moving forward with key investment decisions, driven by pressure from limited partners and lenders to recapitalize, refinance or sell their assets. A prevailing theme is the recognition that higher interest rates may persist for an extended period, possibly delaying the rebound of values to the peaks seen in 2021 and 2022. Many investors are optimistic that a reduction in apartment supply will improve multifamily fundamentals and stimulate positive rent growth.
Still, uncertainty around the timing of this recovery has driven some investors to refinance as a time-buying measure or opt to sell — even at a loss — to preserve some capital. In some cases, selling at a partial loss is the better alternative to rectify poorly timed investments. Meanwhile, many buyers are entering the market hoping to ‘buy the dip’ (an investment strategy where buyers intentionally purchase assets after their values have declined, with the expectation that prices will rebound) and capitalize on depressed asset values. Encouragingly, as more properties are sold or refinanced, the multifamily industry is on the road to recovery.
Mitchell: I think the present time is an excellent time to be a net buyer. The market has seen values drop and fundamentals soften over the past few years. I feel we are at a point of inflection, where fundamentals and values are starting to turn for the better. We are now past the peak of this big wave of supply, and depending on the submarket, it won’t be long before all that supply is absorbed, and rents may snap back quicker than people realize. At some point, new development will start again, but construction costs and land pricing remain high, so being able to buy at today’s values below replacement cost feels like a very good bet.
O’Boyle: We believe 2025 offers a compelling opportunity for buyers, with assets trading below replacement cost and fundamentals expected to rebound as the current supply pipeline is absorbed and rent growth accelerates. For sellers, the key is having a strong story and a well-maintained asset to attract capital. We’re advising clients to stay nimble, as timing will be critical over the next 12 to 18 months.
Ostrzyzek: 2025 is the year of net buyers. Most investors are not sellers because they believe the interest rate environment is elevated. We’re advising clients to sell in 2025 as there is limited inventory on the market and a
scarcity premium.
Affordable Housing: Developers Face Hurdles, Buyer Pool Widens
MAHB: Demand for affordable rental housing exceeds supply nationwide. What are the biggest impediments today for developers in the affordable housing space?
Childers: Historically, affordable housing development has relied heavily on the Low-Income Housing Tax Credit (LIHTC) program. Traditional
LIHTC financing structures combined senior debt, equity raised through selling tax credits to corporations, and a portion of deferred developer’s fee. State and local governments typically contributed modest subordinate
financing to balance project budgets.
However, recent challenges including escalating construction costs, higher interest rates, declining LIHTC pricing and government budget limitations have significantly strained developers’ capital structures, leading to a substantial reduction in new affordable housing units delivered through the LIHTC program.
Frank McGough, Cushman & Wakefield: Developers continue to face a dynamic set of challenges as they navigate today’s market. Rising construction costs, increased scrutiny in the capital stack and evolving state-level qualified allocation plan (QAP) criteria are all playing a role. (Each state’s QAP determines how low-income housing tax credits are awarded, which is typically through a scoring system. Developers must meet the criteria to receive the tax credits.)
In the Southeast, we’ve seen developers respond by forming stronger partnerships with local housing authorities and mission-aligned nonprofits, which in turn help unlock abatements and soft funding sources. While these tools can be effective, success often depends on local execution. As the investment landscape shifts, it’s our responsibility to interpret these changes and advise stakeholders accordingly. Georgia and North Carolina have implemented updates in the past 24 months that adjust QAP scoring in favor of cost containment and public-private
leverage.
Liz Diamond, Berkadia: The biggest impediments are the cost to develop, decreased LIHTC equity pricing, increased cost of borrowing and interest rates for construction and permanent debt. We are working to provide creative financing solutions to help mitigate these impacts, including partnering with a tax-exempt bond investor who can offer creative structuring to maximize proceeds through longer amortizations or subordinate bond structures.
MAHB: What trends are you seeing in pricing or buyer profiles for affordable deals? Is this space still dominated by mission-driven capital, or is interest broadening?
Doug Childers, JLL: We’ve observed a natural trend in capital allocation toward affordable and workforce housing assets. These properties generate secure, stable cash flows that align well with investors seeking core and core-plus returns. In our assessment, this shift parallels the growing interest in impact investing. (Impact investing targets investments that not only yield a financial return but also make a social difference. Affordable housing can be considered an impact investment.)
Fund managers are increasingly drawn to affordable and workforce housing investments as a means to diversify their portfolios across the commercial real estate spectrum, particularly within the core and core-plus categories. Investors in this sector typically target annual leveraged cash-on-cash yields of 5 to 6 percent, with expected returns calculated using a 12 to 14 percent discount rate over the investment’s lifespan.
Diamond: Generally, we are seeing that the majority of buyers are mission-driven and focused on affordability. Well-located, well-maintained affordable assets are attracting strong interest. Cap rates have been rising, which is expected, given increased interest rates, but that is across all asset types, and not specific to affordable housing.
Ostrzyzek: This space is largely mission-driven capital pursuing affordable deals.
McGough: While mission-driven buyers remain active, there’s been a gradual broadening of the buyer base. We’re seeing increased participation from regional banks, family offices and hybrid investors who appreciate the relative downside protection offered by affordable assets. Each execution is nuanced, and buyers are evaluating opportunities with a focus on local-market fundamentals, operational complexity and long-term regulatory commitments. Several recent transactions in Texas and Kentucky reflect this shift in the buyer profile and a heightened focus on stabilized income assets.
MAHB: How are rising construction and financing costs impacting investor appetite for new
LIHTC developments, and are any creative capital structures helping deals pencil out in this
environment?
Marge Novak, Berkadia: Investor appetite for LIHTC investing continues to be strong. Given the current volatility and uncertainty in the market, investors are more focused on the financial strength of the developers/sponsors. Investors are looking for information on the developer’s experience, track record and financial capacity earlier in their review process.
Childers: Developers face mounting pressure to maximize underutilized internal resources to create new affordable housing. Escalating construction and financing expenses are compelling these developers to either inject equity beyond their deferred fee during development or partner with joint venture entities, sacrificing potential future appreciation in the asset.
McGough: Underwriting strategies are becoming increasingly disciplined. Debt assumptions are more conservative, with stress-tested coverage ratios and heightened reserve requirements. Cap rate spreads have widened slightly in response to rate volatility, and investors are placing a premium on certainty of income.
Properties backed by Housing Assistance Payments (HAP) and Project-Based Rental Assistance (PBRA) continue to attract demand due to their predictable cash flow and inflation-linked subsidy structure. As interest rates remain variable, we’re seeing underwriting shifts toward longer-term asset planning and more structured compliance oversight. Tools like lease-up reserves, tighter pro forma stress tests, and partnerships with compliance consultants are increasingly standard in current transactions.
MAHB: Are public-private partnerships or local incentives — like gap financing or property tax abatements — playing a bigger role in making affordable new construction feasible today, and where are they working best?
Childers: Yes, states and local municipalities offering real estate tax abatements enable lenders to provide increased debt proceeds, as they can underwrite loans based on enhanced NOI figures, thereby alleviating stress on a developer’s capital stack.
Diamond: Both are still really important in terms of the role they play in making new construction feasible given development costs, higher interest rates and lower LIHTC equity pricing. Last year, Florida put forth a tax exemption for new construction LIHTC properties, which we’ve seen have a positive impact.
In California, the longstanding welfare exemption (a property tax exemption available to affordable housing developers) is critical to new and existing affordable transactions across the state. Texas 392 exemptions (which cover the exemptions allowed by public housing authorities) play an important role, and I would note that the recent changes to 394 (which could restrict housing finance corporations by limiting their ability to operate across jurisdictional lines or issue exempt bonds) will have a detrimental impact on workforce housing.
Nationally, RAD (rental assistance demonstration) conversions are very important in terms of improving our public housing stock and are a true testament to the importance of public-private partnerships.
McGough: Yes, these tools are playing a more visible role, particularly in markets where they are institutionalized and supported by consistent policy frameworks. Property tax abatements administered through housing authorities or nonprofit-controlled ownership structures continue to be leveraged successfully in several Southeastern metros. In Oklahoma and South Carolina, incentive mechanisms tied to public land contributions or bond infrastructure support have gained traction. In our experience, these tools are most impactful when paired with streamlined approval processes and clarity around long-term compliance expectations. They continue to play a central role in capital stack formulation for new development and long-term preservation deals.
MAHB: Are affordability mandates shifting investor appetite in key metros?
Childers: Research indicates that inclusionary housing policies can discourage new development, potentially worsening housing shortages across all income segments. While mixed-income properties attract a somewhat narrower investor pool compared with traditional multifamily assets, the stability of cash flow from affordable units counterbalances concern about cap rate expansion relative to fully market-rate properties. Despite compressed operating margins and lower per-unit pricing, we believe these assets maintain comparable yield profiles to their market-rate counterparts.
McGough: Investor appetite is adjusting based on how affordability mandates are structured. In cities where mandates are tied to practical incentives — like PILOT agreements, streamlined entitlements or local infrastructure support — interest has remained strong. When mandates are imposed without balancing tools, investors may take a more cautious approach. (A PILOT agreement, payment in lieu of taxes, requires developers to pay a yearly fee to a municipality instead of paying property tax.)
Overall, we’re seeing some enthusiasm where public-private collaboration creates a stable investment environment. This underscores the importance of a consistent local framework that allows investors to plan and price risk effectively. Examples from metros like Raleigh and Atlanta demonstrate how local governments are responding to feedback from developers and capital partners. Raleigh has implemented expedited permitting for affordable housing projects, while Atlanta has expanded its housing opportunity bond program to support LIHTC development and preservation.
This article originally appeared in the July/August issue of Multifamily & Affordable Housing Business.