Higher for Longer, Market Selection, & More

release edition [007]

read time [10 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional career in Real Estate.

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Today at a Glance:

Apollo: Higher For Longer
NMHC: President Géno's POV
Markets: Selecting A Winner
Weekly Listen: Chris Porter of JBREC

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Apollo

Since the beginning of 2025, I've shared charts and commentary from Private Equity giant Apollo.

Today, I'd like to revisit a number of those observations.

To begin, I've shared publicly that I'll be surprised if the themes in Apollo's 2025 outlook come to fruition. (You can read my public take here).

Below are the key themes and predictions from Apollo's 2025 Global Outlook (with the latest data shown in parentheses).

Elevated GDP growth (GDP +2.3% in 4Q24)
Strong employment (Dec '24 Jobs +256K)
Tamed inflation (Jan '25 CPI +0.5%)
Easing monetary policy (Jan '25 Fed held)
Robust consumer spending (Jan '25 Retail sales -0.9%)
Corporate spending (BK's/defaults down, AI/infrastructure spend up)

We're already seeing cracks in the economy that pose headwinds for these themes to hold true in 2025, as you can see in the latest data above for numbers 3, 4, and 5.

(By the way, Apollo publishes excellent research and I highly recommend The Daily Spark by Torsten Sløk, Apollo's Chief Economist. You can sign up for free here.)

On Thursday, Apollo shared several graphs that I believe are telling for how our economy may play out in 2025.

While the central theme of this newsletter is Multifamily, investing doesn't occur in a vacuum, and I believe that keeping a strong pulse on the economy is the best (only?) way to make intelligent investment decisions, especially domestically.

As I wrote about last week in the 'Tariffs' section of TMD 006 here, the U.S. has just 4% of the world's population but produces 30% of the world's GDP.

As America goes, so goes the world.

I don't know about you, but the chart above sends chills down my spine.

The Fed's 2024 rate cuts do not bode well for avoiding a repeat of the 1970's stagflation economy.

While I'm not predicting stagflation, it would appear that the U.S. Economy must be prepared to dig itself out of a hole.

I realize that the economy has evolved tremendously since the 1970s, so the comparison on the chart above is certainly not apples-to-apples, but as I become more of a student of history, I am constantly reminded of this Mark Twain quote:

“History doesn't repeat itself, but it often rhymes”

The Fed looks closely at PPI in conjunction with CPI, and while PPI was down MoM in January, it was still elevated.

According to the BLS release on Thursday, the Producer Price Index (PPI) for final demand increased 0.4 percent in January and +3.5% YoY.

Additionally, the CPI print this past week (shown below) came in hotter than expected at +0.5% and up +3.0% YoY with Core CPI +3.3% YoY (excludes energy and food).

The trend is what's most concerning, especially since the Fed cut 100bps in 2024 and then paused by holding steady in January.

Unfortunately, it feels like the Fed is caught in no man's land, and there's no end in sight for 'higher for longer'.

What does this mean for Multifamily?

Here are my observations midway through Q1 2025.

1. 'Higher for longer' is here to stay.

Based on what I've seen, heard, and read, it is becoming readily apparent that the Fed stopped hiking rates too soon and they began cutting rates too soon. This has proven a lethal combination, and has stifled the Fed's goals of crushing inflation and reverting back to a 'neutral rate' that's closer to the post-GFC norm. Because of this reality, it appears that both the front and long end of the curves will remain elevated for the foreseeable future.

2. Fence sitting is ending.

Owners that must make sell, refinance, or recapitalization decisions in the next 12-18 months are being forced off of the fence to confront the implications of this 'higher for longer' reality. In my opinion, now is the time to either hunker down for another several years (cash-in refinance, raise pref equity, modify or extend existing loans), or meet the market ASAP. The only place that any owners currently sitting on the fence don't want to end up is somewhere in the middle. Either act early, or hold on.

3. Balance sheets matter.

Owners and developers of Multifamily are being tested in this 'higher for longer' cycle. Operations are challenging, inflation is sticky, the Capital Markets are volatile, and transaction volume is low. Because of these factors, owners and developers that have rapidly-deteriorating balance sheets may be forced to sell to meet the market with their 'in the money' assets (i.e. when there's existing equity to be unlocked) in order to shore up their balance sheet and/or other bleeding assets in their existing portfolio. I'm seeing this more today than ever, and it's a trend that I expect to continue. As the old saying goes, "The market can remain irrational (or, unforgiving) far longer than you can stay solvent".

As I've written many times before, and as I'll continue to write in the future, I'm not an Economist and I don't pretend to have all of the answers.

But, I do take a genuine interest in trying to understand the story that the data tells, and right now I don't see much relief on the horizon for any component of the Multifamily sector.

The only potential bright spot is the potential for above-average rent growth in supply-constrained markets in 2025.

NMHC

On the heels of the 2025 NMHC conference in Vegas, I had the opportunity to attend to a fireside chat in San Diego this past week with featured guest speaker, NMHC President Sharon Wilson Géno (bio).

Below are 12 of Sharon's comments that stood out:

1. National Debt at 6-7% of GDP is problematic.

2. Oversupply is largely concentrated in ±10 markets.

3. Tariffs require a 'wait and see' approach.

4. Deportations will be felt only locally in the short-term.

5. PropTech is hot. Rent Guarantees and Construction Tech are interesting.

6. Insurance markets need reinsurers to come back to the U.S.

7. GSE Privatization is doable, but will be difficult. Agency construction lending is much needed.

8. Recessionary pressures are pervasive and must be closely monitored.

9. DOGE should use a 'scalpel not a sledgehammer'

10. Capital Markets 'Extend and Pretend' could end sooner than later.

11. Housing would benefit from federal incentives at the local level; both carrot ("more housing = more dollars") and stick ("less housing = fewer dollars").

12. Tax Super Bowl in 2025 where everything tax-related is on the table.

I may unpack these comments further on LinkedIn in the coming weeks, so you might consider turning on notifications (click the bell in my profile) to make sure you receive my daily posts each morning at 8:30am PST.

In reflecting on Sharon's comments, I have two thoughts that may be worthy of sharing.

1. If DOGE doesn't use a sledgehammer then America will eventually go bankrupt. Period, end of story. In my opinion, Sharon's comment about using a scalpel is how America got to this point in the first place. Our Government hasn't run a surplus budget since 2001, and even that surplus was tiny at just 1.2% of GDP. As Dave Ramsey would say, the U.S. Government needs a total money makeover.

2. Taxes are incentives, and incentives drive behavior. Sharon alluded to the fact that D.C. policy makers see tax adjustments as a 'this for that' exchange that requires an "offset" as Sharon called it. I disagree. Remember, taxes are incentives, and incentives drive behavior. Take Dubai for example. Over the past few decades, it has transformed into a diverse global economy where 90% of the population are foreigners in large part due to 0% individual taxes on income and capital gains.

Policy makers should focus on both fiscal responsibility and sustainability (ex: DOGE), and increasing the velocity of capital by reducing taxes and incentivizing businesses to hire more people, promote spending and increase GDP growth.

If these can be solved then America may be able to outgrow it's current liabilities and regain the prosperity that it once enjoyed.

NMHC Survey Responses

Below are the results from the quarterly NMHC Market Conditions Survey. Respondents are CEO's and Senior Executives from apartment-related firms nationwide, and each quarter's data includes at least 100 responses.

It's interesting to see how drastically sentiment shifted from October 2024 (pre-election, pre-Treasury sell-off) to January 2025 (post-election, and post-Treasury sell-off), particularly in rows 1 and 2 of questions 2 and 4.

I have the utmost respect for NMHC and their mission as an industry leading membership-based association, and I'm curious to see the role that they play in the landscape of working to improve housing affordability in the future.

Sharon joked that TSA didn't allow her to bring her crystal ball on the airplane (she lives in D.C.), and I certainly realize that nobody can accurately predict the future, so please take the time to formulate your own opinions and market perspectives.

Markets

My firm, Tailwind Investment Group, owns and operates ±1,500 units across four markets in the Southwest and Mountain West United States. We've raised equity capital of ±$150M from institutional investors, and the firm's two Principals both grew up in the business working for what is currently a top-20 Multifamily owner.

In short, we take an institutional, data-driven approach to how we select markets each year. In fact, four of our top five chosen markets were also in the ULI Emerging Trends Top 20 for 2025 (and our fifth market was inside the top 25 on the ULI list).

My goal below is to provide a glimpse into our thought process.

Although I unfortunately can't give away all of our secret sauce, I am hopeful that the below will still be helpful.

There are several key drivers that must be carefully considered when selecting markets, including (but not limited to) the following. I've included several questions for each that should also be considered.

P.S. If you'd like to incorporate a data-driven approach for evaluating markets, trends, and the economy, then you'll certainly enjoy The CRE Research Vault.

The Vault contains 210+ links to institutional research and it's my go-to research source.

1. Supply

How much of the current stock is under construction on a percentage basis? What does the pipeline look like? How difficult or easy is it to build in the market? How has the market performed in times past when large amounts of supply were introduced? How likely is it that elevated supply may occur during the foreseeable future?

2. Demand

How large is the Metropolitan area? Are there any paths of progress, and if so, where are they? What is the YoY rent growth and population growth? Are new residents inclined to rent apartments or buy a home? What are the age tranches of the population and how might that help or hinder demand in the coming years?

3. Job Growth

What types of jobs are available in the market? What type of employers are moving into, or leaving, the market? What is the quality of those jobs? How well do they pay? Where in the market are their offices? Are the jobs white collar, blue, or a mix?

5. AMI & SFR Prices

What are the area median incomes (AMI) in the market and target submarkets? How do those incomes compare to average rents? What are the rent-to-income ratios? How much does a single family residence cost in the market? What is the delta to owning a home versus renting an apartment?

6. Political Climate

What is the political climate and resulting potential risks as a Multifamily owner? How likely is it that the political climate remains unchanged? Will those policies lead to more housing or less over the foreseeable future? Will those policies make being a landlord easier or more challenging over the foreseeable future? Would you rather have supply risk or political risk?

Real Estate investing is both an art and a science. If the art component is largely dependent upon experience, then investors without much experience would be well served to get the science component right.

Reducing the number of variables allows for fewer blindspots and therefore a higher chance of success.

Weekly Listen

This week's listen is The Rent Roll Episode 19, hosted by Jay Parsons and with featured guest Chris Porter.

Jay and Chris discuss demographic trends that are shaping the current investing landscape including the latest data on household formation, population by age, migration, incomes, renter preferences — and then tie back how these data points impact the trajectory of the apartment and single-family rental markets.

Chris also looks back at the book he co-authored nearly a decade ago, Big Shifts Ahead, and shared what he got right (the boom of the suburbs) and what he got wrong (homeownership went up, not down) — and why. They also talk about demographics differ between apartments, SFR and BTR.

You can listen to the full episode here.