16.6% Concessions, 8 Takeover Lessons, & Deploying A.I.

release edition [059]

read time [9 minutes]

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Today at a Glance:

• Concessions: New 12-Year High
• Takeover: 8 Lessons Learned
• A.I.: 5 Questions To Ask
• Weekly Listen: TreppWire 380

Concessions

The average national rent growth is technically positive right now.

A recent Costar report noted a 0.4% year-over-year increase in February 2026 as shown on the graph below. Month-over-month, rents ticked up $2 to $1,716 nationally.

The headline suggests that leasing may be stabilizing or improving, but the data beneath the surface tells a different story.

Here's the number I keep coming back to: According to RealPage Market Analytics, a whopping 16.6% of stabilized apartments were offering concessions in January 2026.

That is the highest monthly usage since mid-2014. Notably, the average January rent discount was 10.7%. Class C properties were the most impacted, with 23.1% of units offering a concession at an average discount approaching 11%.

Said differently: Approximately 1 in 6 apartments nationally is giving away free rent to attract new residents.

When a 10.7% discount is applied, effective rent growth looks materially different than what the headline number suggests.

I've written about concessions in the past. First, in TMD 017, I laid out the difference between monetary and non-monetary concessions and why the ROI on non-monetary offers is often underestimated.

Then in TMD 019, I warned that concession wars are real, that they can quickly cannibalize a submarket, and that operators who are slow to react to competitor concessions risk a vicious and expensive downward spiral.

I also predicted that concessions would persist throughout 2025 given the combination of elevated new supply and a softening economy.

Well, for better or worse, that prediction held. And the recent January concessions data suggests it isn't over.

The "Hidden Demand Risk" that I wrote about in TMD 033 is worth revisiting here.

In August 2025 I called it "incentivized demand" in which concession-driven occupancy creates false positives.

Meaning, new leases get signed and occupancy appears healthy, but then the following question emerges:

A renewal conversation becomes far more tricky once a resident discovers that today's actual market rent is meaningfully higher than what the net effective rent that they paid during their initial lease term (thanks to their prior concession).

So, what happens next?

Well, some residents renew, a few may try to negotiate their renewal offer to stay, but many opt to move out.

That dynamic is now playing out at scale across all Multifamily asset types, but particularly in Class C product.

In TMD 019, I noted that concessions become especially dangerous when the rent spread between Class A new construction and Class B/C value-add product narrows.

When a resident can filter up to Class A for $150-$200 more per month on a net effective basis, the value proposition for older product quickly erodes. This compressed 'rent spread' dynamic is still present in many high-supply markets today.

The market bifurcation is also worth noting.

Class A properties are offering the deepest discounts by dollar amount (11.0% average), while Class C has the broadest usage (23.1% of units). Class B sits at 10.3% depth and 14.6% usage. The only segment showing any pullback is Class A, which dipped 0.9 points month-over-month.

It would logically follow that the Class C concession levels are a leading indicator of potential future credit loss problems. Residents underwritten at a discounted rent who face a material step-up at renewal are at risk of future non-payment.

For operators running Class C portfolios in high-supply markets, this is a risk worth quantifying.

The markets with the worst rent growth performance are (somewhat predictably) located in the Sun Belt: Austin is down 5.1% YoY, Denver is down 3.4%, and Phoenix is down 3.3%.

Meanwhile, San Francisco, Chicago, and many Northeast markets continue to outperform.

As I've highlighted since I wrote about "Contrarian Investing" in TMD 039 published last October, supply-constrained markets are winning in the early recovery of this new cycle and the data continues to confirm it.

Keep an eye on concession burn-off timing as we move into the Spring leasing season. If owners begin pulling concessions back and demand doesn't step up to fill the gap, effective rent growth may fall even further in Q2 2026.

Summary

Headline rent growth of 0.4% nationally obscures a concession environment at its most aggressive since 2014. As I wrote in TMD 019, concession wars can cannibalize a submarket fast. Effective rents are lower than they appear, and Class C operators likely face the sharpest renewal risk when existing residents with previous move-in concessions burn off later this year.

Takeover Lessons

Acquiring a property is great, but what happens after closing day?

Enter: The beloved (and often dreaded) takeover process.

The due diligence process is imperative for understanding the investment opportunity and potential risks. But the riskiest period of any business plan are the first 90 days when complete responsibility is required but asset knowledge is limited.

After three recent acquisition takeovers, here are a few lessons that I've come to appreciate.

1. Rent Roll Evaluation

A lease might show what appears to be true market rent of $1,350, but a one-time concession is often nowhere to be found. When that concession period ends, the effective rent that the resident had been paying may be closer to $1,150. If underwriting assumed $1,350 in go-forward revenue then a problem arises.

Lesson: Always request a full concession report in due diligence, and verify it against individual lease files.

2. Immediate Deferred Maintenance Schedule

Sellers know how to prepare a property for sale, but that doesn't mean the property is prepared for operations.

Cosmetic improvements can mask deferred capital needs, particularly in HVAC, plumbing, and roofing.

Lesson: Older and/or capital starved assets may merit an independent capital needs assessment in addition to a typical Equity PCA. The delta between the two is often where the surprises live.

3. Inherited Vendor Contracts

Existing vendor relationships can be an asset or a liability. For example, contracts such as landscaping, pest control, pool maintenance, laundry may come with auto-renewal clauses, quirky cancellation penalties, or unique pricing based on the previous owner's portfolio size that may not transfer.

Lesson: Review every vendor contract prior to due diligence expiration. Know which ones can be terminated, which ones can't, and which ones must be rebid as soon as possible.

4. Rapid On-Site Staffing Changes

This may seem counterintuitive, but cleaning house in week one is not always the best approach.

The on-site team knows the residents, knows the quirks of the property, and knows which vendors actually show up when called.

Lesson: Even if changes are inevitable, taking 30 days to observe and learn before acting can be invaluable. Don't let tremendously valuable historical context and property knowledge walk out the door too soon.

5. Marketing Pipeline Reliance

A healthy-looking prospect pipeline at closing can disappear quickly. Sellers have every incentive to show strong activity during due diligence and leading up to closing.

Lesson: Confirm the status of pending applications, if credit has been run, if deposits are paid, and if move-in dates are confirmed. A pipeline is only as strong as the eventual conversions.

6. Evaluating Bad Debt Accurately

Outstanding bad debt doesn't always surface cleanly in the financials. Residents who are behind on rent, in the eviction process, or on payment plans may not be reflected accurately in the trailing income figures.

Lesson: Request an aged delinquency report as close to closing as possible and use this data to inform the near-term operating budget.

7. Establishing Vendor Relationships

The time to find a reliable emergency plumber is not at 11pm on a Saturday night in month two.

Lesson: Before close, or within the first week of takeover, build (or request) a market vendor contact list. Know the local preferred vendors, which have worked the property before, and which GCs you'd call for significant repairs or capital work.

8. Communicating With Residents

A change of ownership can be unsettling for residents. If they don't hear from you directly, they'll hear from each other, and that narrative is unlikely to be favorable.

Lesson: Distribute a clear, professional letter on day one of ownership from the new management company. It doesn't need to promise anything, but should acknowledge the transition and provide a point of contact.

9. Bonus: Show and Tell

The greatest fear of any resident is that the new owner will push their rents without getting anything in return. Major capital improvements should be told and shown to existing residents before and as they're occurring.

Lesson: Print large poster board images that display "before and after" photos of the various capital improvement projects that will be completed. This enhances the likelihood that existing residents renew at an increased rent.

Summary

The first 90 days of a property takeover reveal what due diligence couldn't. The owners/operators that are laser focused during this critical time period are the ones who move methodically, verify everything, and resist the temptation to move fast before they've seen the full picture. Walk before you run!

A.I. in CRE

There has been no shortage of A.I. headlines this week, especially yesterday.

Without addressing the obvious political or ideological angles, I want to focus on the question underneath it all, because it's one that every owner the Multifamily industry needs to start taking seriously:

When deploying an A.I. tool, are the terms under which it operates actually clear?

A.I. adoption in multifamily is accelerating faster than vendors can be reasonably evaluated, and that gap is an inherent risk.

Here are 5 questions that I'm thinking about before deploying any A.I. tools in 2026:

1. What data does this tool access, and where does it go?

If an A.I. leasing agent is running then it's interacting with prospective residents, handling sensitive personal information, and potentially accessing the property management system. Make best efforts to understand what data the vendor collects, how it's stored, and whether it's used to train future models.

2. Who is liable when the tool makes a mistake?

A.I. tools still make errors. A leasing chatbot might quote the wrong or outdated rent. An A.I. screening tool might produce a result that creates fair housing exposure. (And the A.I. vendor contract almost certainly indemnifies the vendor). Make sure it's clear where liability begins for you as the user/customer.

3. Can you exit the relationship cleanly?

Vendor lock-in is real in the A.I. space, and for good reason: Tools that are here today might be gone tomorrow (quite literally). Plus, if a tool becomes embedded in the leasing workflow, resident communication stack, or revenue management system then the switching costs can become incredible high. Evaluate this before signing, not after.

4. What are the guardrails, and can they be changed without your knowledge?

Every A.I. model operates within a set of constraints defined by its developer, but those constraints can change. Future decisions by the vendor may alter their model's behavior in ways that affect your operations. Ask how you'll be notified of material changes to the product and if those changes trigger an early opt-out clause or similar.

5. Does the tool have a track record in multifamily specifically?

General-purpose A.I. tools are powerful, but purpose-built A.I. tools for multifamily deserve extra scrutiny. Before deploying anything at scale, ask for case studies from operators of similar asset class, geography, and portfolio size.

The reality is that A.I. is not going away, and operators that understand how to navigate these governance topics early should have a meaningful first-mover advantage.

I realize that slowing down the adoption of A.I. in your business or workflow may not be an option, but like any Multifamily acquisition, it's reasonable to conduct proper due diligence on potential A.I. risks vs rewards prior to implementing any tool(s) at the enterprise level.

Summary

In many cases, Multifamily A.I. adoption is beginning to outpace the due diligence that prospective users are applying to it. Asking these 5 simple questions before deployment can help alleviate future product exposure and risks.

Weekly Listen

This week's listen is Episode 380 of The TreppWire Podcast, hosted by Lonnie Hendry, Stephen Buschbom, and Hayley Collier.

Their guest is Larry Connor, founder and managing partner of The Connor Group, a $5 billion multifamily platform built from a single $400,000 investment in 1992.

Larry's thesis is simple and worth hearing firsthand: Treat every apartment community as a distinct operating business, not a passive investment. Over 32 years and 241 acquisitions, The Connor Group has delivered over 30% average annual IRR with losses on only 8 deals. I thought the sections on counter-cyclical investing and building a culture of accountability were both insightful for navigating today's market environment.

You can listen to the full episode here.

Wrap Up

That's it for today. I hope you found this edition of The Multifamily Download insightful.

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