Multifamily Investors: Buying Time?

At the beginning of 2025, multifamily investment was set up for another strong year, with investors more interested in assets across a wider range of markets than than at any point since the rate hikes began in 2022.

Early trends this year bore out that expectation. In the first quarter, multifamily investment sales jumped 33 percent year-over-year to $28.8 billion, the highest volume for the quarter in three years, according to CBRE. That represents one-third of all commercial real estate investment, as well as a 4.9 percent increase in the rolling four-quarter volume to $154 million. The lending environment showed early promise as well. In February, the Mortgage Bankers Association estimated that multifamily originations would jump 16 percent this year to $361 billion.

The market has recently produced a smattering of big deals, notably PCCP’s $540 million acquisition of a portfolio from Veritas and Ivanhoé Cambridge in early May. Consisting of 76 properties, the deal is the San Francisco Bay’s largest multifamily transaction of the year so far.

There’s uncertainty out there that’s impacting volume, but at this point it doesn’t seem to be impacting price.

—Brad Hill, CEO, Mid-America Apartment Communities

Yet as the midyear point approaches, the trajectory is less than certain and investors face several new wild cards. “There’s an awful lot of capital on the sidelines, ready, willing and able to invest, but there are some considerations weighing on our clients’ minds—uncertainty around interest rates; uncertainty around perceived or actual risk of a recession; global and U.S., geopolitical issues; and tax policy,” observed Amy Carbins, partner & chair of DLA Piper’s Washington, D.C., real estate practice.

“Maybe there’s a slight reticence of inbound foreign investors, who tend to be more cautious generally, but everyone else—family offices, life companies, pension funds—everyone wants to invest, but has similar constraints in that they can’t just blindly invest without regard for cap rates,” said Carbins.

Uncertainty might make investors hesitate some in 2025, but it won’t keep them out of the game, according to Tyler Chesser, co-founder & managing partner of CF Capital. The firm owns a $200 million portfolio, primarily in the Midwest and Southeast.

To a large degree, hesitancy is a function of economic uncertainty. “That is, the market not being able to really price out where deals should be transacting at because of volatility,” observed Chesser. “You put a deal on your contract, and 60 days later, Treasuries are 75 basis points different. That kind of thing makes deals challenging.”

Nevertheless, the current climate hasn’t been affected so far by anything like the interest-rate volatility of 2022. According to Chesser, that means investment volume will continue to rise, if not surge, in no small part on the strength of the sector’s fundamentals.

The multifamily sector continues to benefit from steady household formation and the ongoing affordability challenges in the home-sale market. During the first quarter, nearly 102,000 units were absorbed nationwide, a 12 percent year-over-year increase, according to Cushman & Wakefield. That also compares favorably to the pre-pandemic average of 73,000 net move-ins per quarter.

Also of note, demand outpaced supply in the first quarter for the first time since 2021, with new deliveries totaling 95,000 units, down 25 percent year-over-year, Cushman & Wakefield reported. The construction pipeline is now 34 percent lower than a year ago, returning to 2018 levels.

By April, the market was still recording modest growth. Although occupancy slipped to a decade low of 94.4 percent nationally, average advertised asking rents ticked up $5 to $1,736 per unit. That represented a 0.9 percent year-over-year increase, according to a recent Yardi Matrix report.

“If we’re measuring vs. last year and the year before, I’d guesstimate that we’re going to see continued increase in deal volume, like we saw a bit of a progression in ’24 versus ’23,” said Chesser. “But I would say that it’s still going to be a pretty selective environment.”

Another edge for buyers may be the multifamily sector’s relatively fragmented ownership. “It can be easier for multifamily investors to snag off-market opportunities, because there are older projects that have been held by individuals or families for 30, 40 or 50 years, and now the matriarch or the patriarch is retiring, or has passed away,” cited Carbins.

Because the next generation may not be inclined to manage the asset, they present an opportunity for off-market pickups by institutional investors and others. That will be a factor in keeping investment sales firm even in the longer term, provided the economy stays relatively stable.

Cap rates and geography

Midway through 2025, multifamily cap rates don’t appear to have moved drastically since late last year. The national average stood at 5.6 percent by the third quarter of 2024, according to Berkadia. During the first half, anecdotal reports from industry participants put cap rates in the range of 5 to 5.5 percent. The ups and downs of first-half transaction volume in some markets make it a challenge to fine-tune estimates. “We did see a slight uptick in the number of deals that we tracked in the first quarter,” pointed out Mid-America Apartment Communities CEO Brad Hill during the company’s first quarter earnings call.

Then in April, the number of deals on the market declined noticeably in locations where the company is active. Cap rates tracked by Mid-America have been in the sub-5 percent range, a few ticks lower than some other observers have reported. However, Hill added, asset pricing continues to be consistent: “There’s uncertainty out there that’s impacting volume, but at this point it doesn’t seem to be impacting price.”

A wildcard for cap rates, as well as for multifamily investment generally, would be a drastic change in economic conditions. If a recession were to set in and trigger a flight to quality, Treasuries and the cost of capital could also come down, noted Marcus Duley, CIO at Walker & Dunlop Investment Partners. “And as a result, you may have a net neutral in terms of cap rates.” (See sidebar, “Mixed Signals.”)

Some multifamily REIT executives cite the lack of short-term clarity about cap-rate movement. “It’s a pretty uncertain market right now to even start and peg the acquisition cap rate, but for the moment assume it’s around a 5,” said Equity Residential CIO Alexander Brackenridge during the company’s February earnings call.

Generally speaking, inflation isn’t a bad thing when you’re investing in real estate, particularly multifamily. The challenge will be if it’s not just inflation but also stagflation.

—Marcus Duley, CIO, Walker & Dunlop Investment Partners

In its most recent report, Newmark noted that there’s been a shift in investor interest regarding market desirability. As of the beginning of 2025, non-major markets accounted for 71.8 percent of rolling four-quarter sales volume in the multifamily sector, with the balance in major markets.

“Secondary and tertiary markets have been more and more attractive as the primary markets become oversaturated, and investors are competing for the same deals, which still have to make financial sense,” Carbins said. “That means investors are branching out to different markets.”

Investor interest has also shifted geographically. The Sun Belt’s development boom and softening fundamentals in some markets is increasing the focus on opportunities elsewhere. “The Midwest hasn’t seen the oversupply or the overbuilding visible in the South and Southeast,” said Duley. Reshoring has the potential to help drive demand by boosting employment growth.

What’s more, he noted, owners of Sun Belt properties are often reluctant to sell while rent growth and other fundamentals are still soft. “So they want to hold on and wait till new supply gets absorbed, making a better profit than they would selling today in a market that’s still going through absorption. You never want to sell at a time like that if you don’t have to.”

Mixed Signals
By late spring, the key economic signals that influence multifamily investment were decidedly mixed. New tariffs increased concerns of a slowdown or recession. Gross domestic product edged down during the first quarter (ahead of the administration’s gyrations on tariffs) by 0.3 percent, according to the Bureau of Economic Analysis.
 On the other hand, the employment report for April brought good news as the economy added 177,000 net new jobs. That could support additional household formation and apartment demand.
These mixed signals and fluid conditions are complicating the challenge of shaping investment strategy. “There’s a difference between the official definition of a recession and what consumers feel is a recession,” observed Walker & Dunlop Investment Partners CIO Marcus Duley. “But if we’re in a recession, and it causes job loss and reduced demand for multifamily housing, that will certainly have an impact on investment.”
As Duley noted, the flip side is that a recession could bring the cost of capital down. Past cycles have shown that might help offset weaker fundamentals by making deals more attractive. High tariffs also pose the threat of renewed inflation, but that by itself wouldn’t necessarily discourage investment.
“Generally speaking, inflation isn’t a bad thing when you’re investing in real estate, particularly multifamily, because you can adjust the rents on an annual basis and with the pace of inflation,” Duley said. “The challenge will be if it’s not just inflation but also stagflation.”
Stagflation’s double whammy of higher prices and weak economic growth poses a dilemma for the Federal Reserve—lower interest rates might help spur the economy, but also spike inflation. Higher interest rates might help put a lid on inflation, but could also depress the economy even more.

Read the June 2025 issue of MHN.