$69B Vivmark, A Divided Fed, & RIP SaaS?

release edition [081]

read time [7 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:

Excel: The Future of SaaS
Vivmark: The $69B Merger
FOMC: A Divided Fed
Weekly Listen: Barclays

Excelling To The Future

Microsoft Excel was launched in 1985, and since then, Excel has become synonymous with quantitative analysis in finance, Real Estate, accounting, and many other data driven fields.

Today, technology continues to advance rapidly, and the current wave of advancement has begun to render legacy software obsolete.

Much has been written about the impending extinction of vertical SaaS companies in this post-AI era, and for good reason: Building software today is widely accessible to those that have the time, curiosity, patience, and domain expertise to build it.

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Useful software solves a unique set of user challenges without inviting confusion or unnecessary noise.

Dependable software produces the same set of outcomes every time. It is deterministic and avoids guesswork.

Purposeful software empowers the user to produce more outputs of better quality faster than ever before.

As I've shared over the past few weeks, I've been working to solve common underwriting challenges and codifying the solutions inside of a software platform that I am excited to share with you soon.

What began as a simple project aimed to answer my "How can I underwrite deals faster?" question, has evolved into an enterprise-grade multifamily acquisitions platform with automated underwriting capabilities, an MCP connector with 20+ tool calls, a full-suite deal pipeline with an intelligence layer, and more than a dozen deliverables that can be downloaded with a single click.

Building this platform has been challenging and fulfilling, and I look forward to sharing it with you.

The live beta test group concludes this week, and the platform will open up to everyone on the waitlist in a few weeks.

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p.s. I haven't found another self-serve platform that does what this product does at the price I'm going to offer it. If you underwrite Multifamily deals, you won't want to miss this. Join the early access list here.

The $69B Merger

Two of the largest apartment landlords in the country are becoming one. After news broke earlier this Spring about AvalonBay and Equity Residential combining in an all-stock merger of equals with roughly $69 billion in enterprise value, this week's Q2 earnings gave us the long awaited name of the new company, Vivmark Residential.

All told, Vivmark will own more than 180,000 apartments (including ~95% market overlap), will be run by AvalonBay's Ben Schall (Equity Residential's Mark Parrell is retiring), and former Simon Property CFO Steve Sterrett will be the board chairman. Management is guiding to $175 million in operating synergies within 18 months and a second-half of 2026 close.

AvalonBay and Equity Residential are still two separate public companies until the deal closes, so each reported its own standalone quarter, and both actually raised same-store guidance.

However, they did not hold their usual earnings calls or reaffirm full-year FFO guidance, because the merger has them in a quiet period. This was effectively the last standalone snapshot of each portfolio before they become one operating company.

In TMD 076, I wrote, "once we see a few consecutive quarters of broadening fundamentals improving, then I expect capital to begin pouring back into the Multifamily sector in a meaningful way."

A $69 billion merger between two of the most disciplined, lowest-cost-of-capital operators in the business is a clear signal that coastal, supply-constrained Multifamily is worthy of careful consideration in today's elevated supply environment, as are the operational benefits that come from improved economies of scale.

However, this deal is all-stock with no new cash being deployed as part of this merger, and the underlying assets have not yet been repriced in the open market.

This merger is one example of the "Missing Middle" story from TMD 067 playing out by top market participants. Two of the biggest players are consolidating, likely lowering their cost of capital, and improving their unique advantages in the exact markets where supply is already scarce. The resulting squeeze will be felt by middle-sized operators that are too big to be nimble and too small to compete against Vivmark and other large investment management platforms.

Summary

The largest apartment merger in years is a high-conviction bet on gateway, supply-constrained markets from two operators that have a proven track record of executing on this investment thesis. To me, this signals that institutional capital sees value in these tighter supply gateway markets. The true test, of course, will be how asset-level pricing unfolds as transaction volume increases in the face of loan maturities, broken capital stacks, and challenged operator balance sheets.

Actionable Takeaway

Keep an eye on this merger, and specifically how it gets financed along with where (or if) they trim the combined portfolio. Do any of Vivmark's assets sell in your market(s), and if so, at what pricing and metrics? Also, if you are feeling that "Missing Middle" squeeze, determine now where you can create an edge because its very likely that the bigger operators are going to expand their capabilities to acquire assets that were once considered inefficient.

The Divided Fed

In case you missed it, the Fed held the funds rate at 3.50% to 3.75% this week, but the vote tells the real story. It was 9 to 3, with three reserve bank presidents (Beth Hammack, Neel Kashkari, and Lorie Logan), dissenting in favor of a hike.

This was only the second meeting of Kevin Warsh's chairmanship, and he has already stripped forward guidance out of the post-meeting statement entirely. The committee still describes inflation as "above its 2% target", pinning part of it on energy and the conflict in the Middle East, and this is now the fifth straight hold after last year's three cuts.

A few weeks ago in TMD 079 I wrote that I do not foresee a September rate hike, and that if the labor data softened, the conversation would swing back toward cuts faster than most expected.

After holding rates steady this past week, it appears that a September hike would be even more far fetched than a month ago. The wild card is the upcoming labor data from the non-farm payroll release, which will come out this Friday, August 7th.

For Multifamily operators, the practical translation has not changed. Interest rates are proving stubborn with the 10-year Treasury above 4.7% as of the end of July. Unfortunately, every unresolved 2021 and 2022 bridge loan that's coming due is refinancing into this elevated rate environment, which keeps the underlying distress clock ticking.

The one new wrinkle worth flagging is Warsh removing forward guidance. Less hand-holding from the Fed means more repricing on every surprise print, which is exactly the yield-curve volatility I predicted in January and confirmed in TMD 076 in my mid-year prediction scorecard.

How are you underwriting interest rates, both today for acquisitions, and perhaps more importantly, for a future refinance event if market cap rates don't cooperate at the time of your planned exit?

Summary

A 9-to-3 hold with three hawkish dissents demonstrates a divided Fed that appears to be frozen in "wait and see" mode. Warsh's Fed is deliberately giving the market less guidance, which means that we should expect more volatility around every data release and Fed decision.

Actionable Takeaway

Stress test an intra-hold period refinance against higher rates, wider DSCRs, and at only at even-par leverage. This exercise is important for understanding the specific risks related to today's financing decisions, especially total leverage, and protecting downside if the capital markets aren't cooperating at the conclusion of an anticipated hold period.

Weekly Listen

This week's listen is Barclays' research podcast, "The Flip Side" Episode 85, titled "If the Fed Goes Quiet, Do Markets Make More Noise?"

Kevin Warsh just pulled forward guidance out of the FOMC statement, and this episode digs into what happens when a central bank decides to tell the market less. The takeaway is that when the Fed stops narrating its next move, every data print and every headline starts carrying more weight, and the price swings get wider.

If the rate section above left you wondering how to plan around a Fed that has gone quiet on purpose, this episode is worth the listen.

You can listen to the full episode here.