As we move through 2024 and reflect on the dramatic shifts in the commercial real estate landscape, I want to share with you why our strategic decision to pivot away from multifamily acquisitions in 2022 has proven to be one of the most prescient moves we’ve made for our portfolios. The multifamily sector, once the darling of commercial real estate investment, has faced
1. Record Supply Surge Crushes Rent Growth
According to data from Yardi Matrix, the U.S. multifamily market experienced a historic supply surge with a forecasted record 540,000 units delivered in 2024, followed by
another 460,000 units in 2025. This massive influx of new inventory has fundamentally altered supply-demand dynamics across most major markets. Costar’s research shows that rent growth has decelerated dramatically, with many markets experiencing flat or negative rent growth throughout 2023 and 2024. The biggest wave of new apartment supply in decades has tempered rent growth and improved affordability for renters, but at the expense of property owners cash flows.
2. Interest Rate Shock and Financing Constraints
The Federal Reserve aggressive interest rate increases beginning in 2022 created a debt crisis for multifamily properties. According to Federal Reserve Bank of Kansas City analysis, multifamily property prices have retreated significantly in the face of higher interest rates, slower rent growth, elevated operating expenses, and increased delivery of new units. Yardi Matrix data indicates that not only are interest rates currently high, but loan terms are also more restrictive than in the recent past. This has caused a fundamental shift in financing sources, with private equity lenders replacing traditional banks as suppliers of construction loans—often at significantly higher costs.
3. Operating Expense Inflation
While rent growth stagnated, property operating expenses continued to climb. Insurance costs, labor expenses, and maintenance costs have all increased substantially, creating a compression effect on net operating income that many investors failed to anticipate.
4. Transaction Volume Collapse
Deal flow has dropped dramatically since the peak year of 2021. The combination of pricing disagreements between buyers and sellers, financing constraints, and uncertain market fundamentals has created a virtual standstill in many multifamily investment markets.
Why We Saw It Coming
In 2022, several warning signs convinced us to halt our multifamily acquisition strategy:
1.Construction pipeline data showing an unprecedented volume of units under construction.
2.Interest rate trajectory indicating the Fed’s commitment to fighting inflation.
3.Rent growth sustainability concerns in markets already showing signs of oversupply.
4.Valuation metrics that had become disconnected from fundamental cash flow support.
While many investors were still riding the momentum of 2020-2021 gains, we
recognized that the underlying fundamentals were shifting rapidly.
Our foresight wasn’t just theoretical—it delivered exceptional results for our investors through decisive action. In November 2019, we acquired a 418-unit multifamily portfolio with a conservative projection of 70% returns to our investors over a 5-year hold period.
However, as market conditions began showing the warning signs we identified, we made the strategic decision to accelerate our exit timeline. Rather than holding for the full 5 years as originally planned, we sold the entire portfolio in just 2.5 years, delivering an outstanding 88.2% return to our investors exceeding the expectations.
This case study perfectly illustrates the value of active portfolio management and the courage to act on market intelligence. By recognizing that market fundamentals were shifting and having the discipline to exit at optimal timing, we not only exceeded our original return projections but also protected our investors from the subsequent multifamily market downturn.
Had we followed the original 5-year hold strategy, our investors would likely have experienced significantly lower returns as the market correction took hold. Instead, they benefited from superior returns while avoiding the headwinds that have plagued multifamily investors who remained in the market.
Instead of continuing to chase multifamily deals in an increasingly challenging environment, we redirected our and our clients focus to:
1.Industrial properties in markets with strong logistics demand
2.Retail properties in necessity-based sectors showing resilience
3.Medical Office assets with strong credit tenants and below-replacement cost basis
4.Alternative property types with more favorable supply-demand dynamics.
This strategic diversification has protected your capital from the multifamily downturnwhile positioning us to capitalize on opportunities in sectors with better risk-adjusted returns.
The Current Market Reality
Data from multiple sources confirms the severity of the multifamily challenges:
1.Yardi Matrix reports that rent growth remained weak throughout 2024, primaril due to robust supply.
2.CoStar Group data shows continued pressure on fundamentals with elevated vacancy rates.
3.Federal Reserve analysis indicates that property price declines have been more severe than fundamental deterioration alone would suggest.
4.The Institute for Real Estate Research (IRR) has documented similar trends across their multifamily market analysis, showing consistent patterns of weakening performance metrics.
Looking Ahead: Patient Capital and Strategic Opportunities
While we avoided the multifamily storm, were not permanently abandoning the sector. Were monitoring several key indicators that will signal when conditions may become favorable again:
1.Supply pipeline moderation – Construction starts peaked in 2022 and are finally
decelerating.
2.Interest rate stabilization – Fed policy shifts may create financing opportunities.
3.Valuation resets – Price corrections may create attractive entry points for patient capital.
The Competitive Advantage of Foresight
Your success as our investors stems not just from our ability to identify good opportunities, but equally from our discipline in avoiding poor ones. The multifamily sectors struggles since 2022 validate our approach of:
1.Data-driven decision making using multiple industry sources.
2.Contrarian thinking when market sentiment becomes overly optimistic.
3.Risk management through diversification and timing.
4.Long-term perspective over short-term momentum.
Our 418-unit portfolio case study exemplifies this approach in action—turning a good investment into an exceptional one through strategic timing and market awareness.
Conclusion: Steady Navigation Through Market Cycles
The multifamily markets challenges since 2022 serve as a powerful reminder that real estate investment success requires both opportunistic aggression and defensive caution. By recognizing the warning signs early and pivoting our strategy, we’ve protected your capital during a period when many multifamily investors have experienced significant losses.
Our 418-unit portfolio success story demonstrates that superior returns come not just from buying right, but also from selling at the optimal time. This strategic exit, delivering 88.2% returns in half the expected timeframe, represents the tangible value of experienced market navigation.
Our commitment remains unchanged: to deploy your capital in opportunities that offer attractive risk-adjusted returns while maintaining the flexibility to adapt to changing market conditions. The multifamily sectors difficulties reinforce the value of working with experienced professionals who can navigate these complex market cycles.
As we continue monitoring market conditions, we remain grateful for your trust and partnership. Your success is our success, and our strategic foresight in 2022 has positioned us all as winners in this challenging environment.
This analysis incorporates data and insights from CoStar Group, Yardi Matrix, Institute for Real Estate Research (IRR), Federal Reserve Bank of Kansas City, and other leading industry sources. Market conditions continue to evolve, and past performance does not guarantee future results. Please consult with your financial advisor regarding your specific investment situation.
