721 Exchanges, A Data Trifecta, & NMHC Top 50

release edition [065]

read time [8 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:

Exit Strategy: 721 Exchange
Trifecta: 3 Record Data Points
NMHC: New Top 50 Rankings
Weekly Listen: Henry Chin, CBRE

The 721 Exchange

Most real estate investors know the 1031 exchange, and for good reason.

Buy here, sell there, defer the tax hit, rinse and repeat.

It is the default exit strategy for investment property owners, and it works.

But there's another tool in the tax code that most multifamily owners have never seriously considered, and it has existed for decades.

Section 721 of the Internal Revenue Code allows a property owner to contribute real estate into a partnership or fund in exchange for ownership units, without triggering capital gains taxes.

Institutional investors and public REITs have used it quietly for just as long, yet it remains largely unknown to individual operators that have spent 10, 15, or 20+ years building a rental portfolio.

Unlike a 1031 exchange, a 721 exchange does not have a 45-day identification window, there's no 180-day closing deadline, and there's no scramble to find a sufficient (or attractive) replacement property in a competitive market.

Owners that execute a 721 exchange are not trading one property headache for another, but instead they get to transition from active ownership to passive participation in a professionally managed portfolio.

Plus, any eventual heirs can inherit this passive position with a stepped-up basis, which makes it an effective estate planning tool as well.

In my past life of Investment Sales brokerage at Cushman & Wakefield here in Southern California, I spoke regularly to owners that were sitting on long-held, appreciated real estate with a very low cost basis, and they desperately wanted out of day-to-day management.

However, when they'd run the numbers on a traditional sale, the capital gains tax and depreciation recapture would eat into years of compounded appreciation. And executing a 1031 exchange felt inherently risky due to the time constraints.

The typical solution? Do nothing.

This is a problem worth solving, as some estimates suggest there's $6 to $8 trillion or more in trapped equity in situations exactly like the one I described from my brokerage days.

One company that's working to provide this "third exit strategy" is Flock Homes. Founded in 2020 and backed by a16z, Flock has built a platform to make the 721 exchange accessible to individual property owners, managing over 860 homes across 17 states with nearly $200 million in total real estate value and targeting 8 to 10% annual returns.

Their process covers everything from initial valuation through legal and tax work at closing, and they have expanded beyond single-family rentals into multifamily and manufactured housing, which makes this increasingly relevant for operators across asset classes.

If you want to pressure-test the math, the Flock vs. Sell calculator is a practical starting point.

I am not suggesting everyone run out and execute a 721 exchange, but rather that owners of long-held, appreciated real estate should at least evaluate and consider a 721 exchange as one potential exit path.

Summary

The 721 exchange is an IRS-approved, institutionally proven exit strategy that converts active property ownership into passive fund participation without triggering a tax event. For Multifamily owners with long-held, low-basis assets and fading operational appetite, the 721 Exchange is a powerful yet underutilized tool for tax advantaged Real Estate investing.

Actionable Takeaway

If you own rental property with a cost basis that is a fraction of today's market value, model three exit scenarios side by side this week: a traditional sale (after capital gains and depreciation recapture), a 1031 exchange (factoring in transaction costs and the replacement property search), and a 721 exchange (using Flock's calculator as a starting point).

The gap between those three outcomes may surprise you.

To learn more about Flock or 721 Exchanges, connect with their team here.

The Data Trifecta

Three data points landed this week that, taken together, paint a picture worth evaluating carefully.

1. Consumer Sentiment = Record Low

The University of Michigan's preliminary consumer sentiment reading for April came in at 47.6, an all-time record low. That is below the previous trough of 50 set during peak Biden-era inflation in mid-2022.

The index dropped 11% from March's already-weak 53.3, every demographic group posted declines across age, income, and political affiliation, and year-ahead inflation expectations surged from 3.8% to 4.8%, the largest one-month increase since April 2025.

As I wrote in TMD 004 when I introduced the K-Economy framework, when sentiment collapses across every income cohort simultaneously, it is not just a confidence problem, but it can become a spending problem, and spending drives leasing demand.

The survey director noted that 98% of interviews were completed before the April 7th ceasefire announcement, so there is a chance the final reading improves, but the damage to near-term consumer psychology is real.

While I recognize all surveys have biases, this relative reading (all-time low) is worth monitoring carefully.

2. Multifamily CMBS DQ = All-Time High

Trepp reported that the multifamily CMBS delinquency rate rose 30 basis points in March to 7.15%, surpassing the previous peak set in October 2025, and year-over-year, the rate is up 171 basis points from 5.44%.

What caught my attention is that Stephen Buschbom at Trepp noted most of the new March defaults were term defaults, not maturity defaults, a reversal of the pattern we have been tracking for two years.

These are not borrowers struggling to refinance, but rather these are borrowers with three-plus years of remaining term who are struggling to operate.

As my friend Les Shiver reported recently in Multifamily Dive, “The weighted average remaining term on newly delinquent multifamily loans this month was just over three years, meaning these borrowers aren’t struggling because their loans are coming due or because they’re staring down a near-term refinancing event,” Buschbom said.

Instead, the borrowers are defaulting mid-term, “which points to property-level fundamentals, such as occupancy pressure, operating cost inflation, market-specific demand softening, or idiosyncratic property-specific issues such as the expiration of a tax break, rather than the capital markets friction that drives most maturity defaults,” according to Buschbom.

Nearly 80% of the new distress was concentrated in New York/New Jersey and Houston, (showing that distress may be localized, at least for now), and it is hitting markets where operating expenses are compressing margins faster than revenue can keep up.

3. March Rent Growth = Weakest on Record

Yardi Matrix recently reported that national multifamily rent growth in March was 0.1% year-over-year, the weakest March on record going back to 2012.

For context, average March rent growth between 2012 and 2019 was 3.6%. Markets leading are familiar (New York, San Francisco, Chicago, the Twin Cities), supply-constrained with strong job bases, and the laggards are equally familiar (Austin, Denver, Tampa, Phoenix), still working through elevated deliveries.

This is the Blue vs. Red market thesis from TMD 039 playing out in real-time. The forthcoming Multifamily recovery will not be linear, and it will not be evenly distributed.

Summary

Consumer confidence is at its lowest point ever recorded, Multifamily CMBS delinquency just set a new record, and rent growth entering the spring leasing season is the weakest in at least 14 years. The 1H 2026 headwinds I outlined in TMD 052 (Prediction #1: weak 1H 2026, recovery to begin in 2H 2026) are materializing faster than many expected.

Actionable Takeaway

Review Q2 2026 budget assumptions and stress-test them against a more dim economic outlook (lower rent growth, higher concessions, and/or higher bad debt). Economic occupancy, and therefore NOI, are likely to remain challenged for the foreseeable future in many markets across the country. Taking proactive steps to get out ahead of upcoming seasonal softness could make or break asset-level performance in 2026.

NMHC Top 50

The National Multifamily Housing Council released its 2026 NMHC 50 lists this month, and one number stood out: The top 50 apartment managers now oversee 24% of the nation's apartments, up from 21% just one year ago.

The top 50 owners still represent about 11% of total stock, a figure that has held relatively steady, but on the management side, consolidation is accelerating in a way that should have mid-market operators paying attention.

Greystar continues to dominate as the proverbial giant gorilla, but there are now at least four companies exceeding 200K units under management.

Interestingly, average ownership portfolio sizes have been shrinking over the past decade even as management portfolios grow. Translation: More of America's apartments are being managed by large third-party operators on behalf of smaller, disaggregated ownership groups, and the operator and owner appear to be separating.

The biggest platforms can centralize leasing, deploy AI-driven pricing tools, and negotiate vendor contracts at a scale that is difficult for smaller operators to match on a per-unit basis.

Smaller operators will have to create an edge from somewhere specific: local market knowledge, hands-on asset management, faster decision-making, or a specialization that large platforms are not built to deploy at scale.

In TMD 052, I predicted that operators would scale down to the middle market in 2026 (Prediction #9). The NMHC 50 data supports the other side of that coin in that the largest operators are scaling up at a pace that makes the middle increasingly competitive.

We'll see how this plays out, but I standby my prediction, as I believe technology will continue to make pursuing middle market opportunities more efficient (and therefore cost effective) for larger operators.

Summary

The 2026 NMHC 50 confirms what many operators already feel. The industry is consolidating on the management side, the largest platforms are capturing market share faster than at any point in the last decade, and the strategic question for mid-market operators is not whether to compete with Greystar, but how to build a defensible niche that large-scale platforms cannot easily replicate.

Actionable Takeaway

Review your property management cost per unit against your competitive set. If you are managing fewer than 2,000 units, evaluate which functions (leasing, maintenance, accounting, etc.) could be centralized or outsourced to close the efficiency gap with the platforms scaling above you. Scale advantages are real, and I expect them to continue improving as technology adoption accelerates.

Weekly Listen

This week's listen is The Weekly Take from CBRE, specifically the March 17th episode featuring Henry Chin, CBRE's Global Head of Research, recorded at CBRE's Capital Markets Symposium.

Henry covers global capital flows, why 2026 may be a compelling vintage for real estate investment, and a noteworthy point that income growth, not cap rates, will drive future real estate returns.

If you are thinking about where to allocate capital in the next 12 to 18 months, this is worth the listen.

You can listen to the full episode here.