Q3 Multifamily Update & Contrarian Debt Advice

release edition [045]

read time [10 minutes]

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

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Today at a Glance:

Update: A Few Quick Thoughts
Q3 2025: Multifamily Update
Leverage: How to Avoid Pain
Weekly Listen: PassivePockets

Update

In many ways, 2025 has been both incredibly rewarding and immensely challenging.

One of those challenges has simply been keeping up with this newsletter and my writing on LinkedIn.

As you may have noticed, I unfortunately missed publishing last week's newsletter.

(Yes, I actually write this newsletter every week).

Q4 2025 has proven to be incredibly busy, and even so, I feel an immense pressure to publish this newsletter each week, as promised, and to deliver on my goal of helping you build an exceptional career in Multifamily.

So, thank you for bearing with me as I navigate an incredibly busy season.

I appreciate you being a reader of The Multifamily Download.

As a thank you, I'll be hosting Friday "office hours" between now and year-end.

Just hit reply to this email if you want to chat & we'll get something on the calendar (no cost, & no strings attached).

Let's finish 2025 strong!

I hope you enjoy today's newsletter.

Q3 Multifamily Update

Newmark recently released their fantastic quarterly report, and I'm looking forward to unpacking a few themes in today's newsletter that I'm watching closely heading into 2026.

Below, I will share my favorite three graphs from each of the four sections with a few quick comments.

My hope is that you'll spend time reading the Newmark report, as it will further inform your outlook for 2026.

As always, my goal is to inspire critical thinking and careful reflection so that you can arrive at your own conclusions.

1. Demand Drivers

I shared the graph above on LinkedIn this week here, but I think it's worth reiterating: For-sale housing is either unaffordable or undesirable, and something has to give eventually. I expect affordability to improve over the next few years through some combination of price softening, wage growth, and lower interest rates.

The graph above shows the power of the "lock in effect", which I detailed in TMD 005 here. I expect the lines on this graph to continue converging over the next 24-36 months as more single family sellers give up their low interest rate mortgages.

The graph above conveys two themes clearly: Single family homes are expensive (grey line), and year-over-year growth is slowing rapidly (blue line). I would not be surprised to see both trend downward over the next 24-36 months.

Final Thoughts: While this section of demand drivers focused heavily on the Single Family market, I think it's for good reason. Many homeowners have low fixed rate mortgages that they'd rather preserve by renting to tenants than sell, and that's putting downward pressure on competing apartment rents, and buoying home prices. Falling home prices will lead to more home sales, and I'm curious to see if the ripple effects are positive or negative for Multifamily.

2. Leasing Market

I also shared the graph above on LinkedIn this week here. In my opinion, and based on the research that I've observed, supply growth is the preeminent leading indicator of the possibility for near-term organic rent growth. (Yes, demand matters too).

The graph above shows rent growth year-over-year by market (colored bars) compared to the 2015-2019 average for that market (dots). It's interesting to see that only the top four YoY markets are outpacing their 2015-2019 averages (SF, Chicago, NY, and Pittsburgh), where as the bottom ~75% are lagging their 2015-2019 averages, and half of the markets are negative YoY. Yikes.

The graph above is one that I find fascinating, and it's exactly what I predicted in TMD 016 when I wrote the following:

"I don't know how Sunbelt rent growth will look or perform in 2025, but if I had to place a bet today, I would bet on supply constrained markets (SF, LA, Chicago) outperforming most or all of the Sunbelt markets.

And I'd be surprised if it's close."

As the spread on this graph widens (blue line) between the top market (blue bar) and bottom market (grey), I will continue to be reminded that the upcoming Real Estate recovery in Multifamily will not be a rising tide, but rather a mix of winners & losers.

Final Thoughts: Low supply markets with strong fundamentals will outperform high supply markets with strong fundamentals over the next 12-24 months. Individual market performance thereafter will be determined by institutional appetites and capital flows more so than market fundamentals, just like we saw in 2021-2022 in markets like Austin and Phoenix when cap rate spreads evaporated.

3. Debt Capital Markets & Investment Sales

Debt origination has accelerated 48% year-over-year thanks to narrow loan spreads, improved confidence in fundamentals as construction is slowing, and continued belief in future performance. Willy Walker said recently that Walker & Dunlop is seeing 75-80% of their refinances choosing a 5-year term, compared to closer to 50% historically. Borrowers are betting that asset values and fundamentals will be stronger over the mid-term (3-5 years), and are viewing refinancing today as a bridge to get them from here to there.

The graph above has many buyers (myself included) excited about the next few years in the Multifamily sector. Banks hold 24% of the maturities from 2025 to 2033, but 43% of those maturities come due between 2025 and 2027. As banks tighten to brace for non-performing loans, write-downs, and the like, I expect some incredible buying opportunities to emerge.

The graph above shows that 40% of securitized Multifamily loans that mature before 2027 are either underwater (26% / $18.9B) or require additional equity (14% / $10.5B). To put this in perspective, that's nearly $30B in loans, or property value if sold at par, which could equate to ~200,000 units assuming pricing of $150,000 per unit.

Okay fine, let's look at one more graph. The above shows that there are potentially $91B in troubled Multifamily loans coming due in 2025, and another $80B in 2026. Combined, this $171B in loans could equate to more than 1M units using the same math as before.

Final Thoughts: The wave of maturities will crest at some point in the future. Lenders cannot, and will not, 'extend and pretend' forever. The looming question is this: Will market fundamentals recover faster than the loans need to be repaid, or not?

4. Investment Sales

The graph above shows Multifamily quarterly sales volume by year. Of note, 2025 sales are up +12.6% YoY, +8.7% YTD thru Q3, and +22.9% on a trailing 12-month basis versus the prior 12-month period.

The graph above shows that Multifamily is still the preeminent commercial Real Estate sector among investors, as it continues to be the top recipient of capital. In fact, the 32.9% shown above surpasses the combined totals for office + retail.

The graph above highlights total sales volume (colored bars) and their respective YoY change (gold dots). It's interesting to see which markets are coming back into favor like the NYC Boroughs, Orlando, San Diego, and East Bay California.

Final Thoughts: Multifamily is poised for a strong recovery in the upcoming years, compared to other sectors, based on the fact that capital is still flowing into the sector and fundamentals are still relatively strong (market specific, of course).

In closing, I think it's helpful to zoom out.

In doing so, I think you'll see that our Multifamily sector is primed for a strong recovery over the mid-term (3-5 years). However, I anticipate the next 18-24 months to be choppy as consumers grapple with a higher cost of living, A.I. / employment fears, more choices than ever before due to higher supply, and more broadly, negative market sentiment (see: fear & greed index), midterm elections, and typical FUD.

The result?

Success in Multifamily over the next five years will require extreme discipline, strategic vision, and excellent execution. Aligning with operators that possess these qualities will determine your success, not the market.

You can access the report [here].

For the extended edition, contact my good friend Mason Wikoff at Newmark.

Leverage

There's a secret to being in the Real Estate business.

Want to know what it is?

(Hint: It's simple, but not easy).

The secret is longevity.

Why?

Longevity leads to compounding.

For most of us investors, our largest partners are our lenders.

Understanding how debt works, and when to use which type of debt, is critically important to enduring in the Multifamily business.

(Just ask anyone that's ever lost a property to foreclosure...)

A mentor of mine shared the following advice, and it stuck with me, so I thought I'd share it with you.

First, some context behind the advice:

Most investors choose the wrong type of debt, and it gets them into trouble.

Let's look at two opposing scenarios; the market peak and the trough.

At the peak of a market cycle, prices run away and almost nothing pencils. So, in order to complete a transaction, investors stretch with high leverage bridge debt that's sized on a Proforma Debt Yield with little regard for if takeout financing will be viable once the business plan is executed.

Then, in the trough of a market cycle, prices are soft and uncertainty is high. So, in order to mitigate risk (whether real or just perceived), these same investors get fixed rate Agency loans that have extremely high yield maintenance prepayment penalties that makes it cost prohibitive to exit at an opportune time in an upward market.

My mentor's advice is simple yet profound, and it's to do the opposite of the above scenarios.

Instead, at the peak of a market cycle, underwrite and size every acquisition opportunity to a fixed rate Agency loan. If the acquisition doesn't pencil then there's a strong likelihood that the property is simply too expensive. Yes, this makes transacting much, much more difficult, but what's the alternative? Purchasing a property that causes headaches, heartburn, and eventually a total erosion of the Equity?

No thanks.

Sometimes it's better to sit these periods out than it is to acquire overpriced properties.

Then, in the trough of a market, instead of financing with fixed rate Agency financing, use Bridge financing with a flexible prepay so that you preserve optionality to refinance or sell into an appreciating market environment.

Plus, Bridge financing is often paired with a funding facility that allows for CapEx to be financed at the cost of debt instead of equity.

Lastly, remember that market troughs are typically associated with a falling interest rate environment (due to FUD and/or economic calamity), so Bridge financing could get cheaper during a hold period as compared to fixed rate financing.

Every investor must choose the right debt strategy based on their business plan, anticipated hold period and exit, but the above is a relatively contrarian and interesting way to think about financing in the context of the market environment.

How are you thinking about financing currently?

Weekly Listen

This week's listen is the recent episode of PassivePockets, in which Paul Shannon moderates a panel with brokers Beau Beery, Reid Bennett, and Jakob Andersen.

A few of the topics discussed include where multifamily deals are actually clearing in late 2025, why the bid ask gap is narrowing, and how underwriting has shifted from headline cap rates to year one cash on cash, DCR, and debt yield.

You can listen to the full episode here.