Why Timing Matters in Multifamily

release edition [092]

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:

Timing: The Harsh Reality
Outlook: My Bullish POV
Weekly Listen: The Rent Roll

Market Timing

The context for today's newsletter is simple. It's this:

Whether we like it or not, timing matters when investing in Real Estate.

Unlike buying stocks, which are now infiltrated with auto-buy mechanisms like 401Ks, Real Estate is cyclical by nature because of many variables, the strongest of which are fear-greed and Capital Markets.

When combined, these forces are unstoppable, and when at odds, these forces are, well, unstoppable.

As I think about my career to date, and my experience in the Multifamily sector specifically, I have realized how much there is to learn about market timing and the powerful forces that shape market cycles.

Today, I'm hyper-focused on studying where we are today, where we're going, and formulating an opinion as to why I believe what I believe.

I'm not one to dunk on any of my peers publicly, so I won't name names, but there have been Multifamily sponsors with tremendous struggles that have been widely publicized in 2026.

One sponsor in particular printed a track record of nearly 50 full cycle deals during the post-GFC ZIRP era that included an average project level IRR of 49% and a project level MOIC of 2.7x. However, it was made known earlier this year that this same sponsor lost all of a multi-nine figure equity investment vehicle.

How can the same sponsor have wildly different outcomes?

The first few that come to mind are poor risk management, a rigid strategy, and ultimately the lack of awareness surrounding what created the superb outcomes in the first place.

The cautionary tale that I take away from observing the "rise and fall" of sponsors like this is simply that we must not become victims of our own successes.

I made this case a year ago in TMD 039, that buyers and developers who rushed in during the proverbial 6th through 9th innings of the prior cycle peak would wish they hadn’t done so.

The most dangerous way of thinking in a cyclical business is "Well, this is they way we've always done it".

To take it a step further, it can be argued that Multifamily assets acquired in the second half of 2021 or during 2022 with floating rate debt was more of a gamble than an investment.

Why?

The CPI print in June of 2021 was +5.4% YoY. The COVID supply chain mess was only beginning to unravel, and it was doing so slowly.

Hindsight is 20-20, but in retrospect it should have been easy to predict that inflation would remain stubbornly high, and that the Fed would elect to hike rates to combat said inflation, since that's how the Fed operates.

Raising the fed funds rate would then put upward pressure on the cost of capital for floating rate loans, thereby increasing the cost of rate caps for hedging as well as impairing proceeds on a DSCR or LTV basis.

What was the solution that many opted for instead?

More leverage, of course.

As cap rates compressed and values rose amid inflationary rent growth that exceeded double digits in many markets, the only way to make a new acquisition pencil was with more leverage and more aggressive assumptions.

The most viable option was to be comfortable doing nothing.

But then again, I suppose it's hard to earn new fees by doing nothing.

In TMD 045 I made the case that it's wise at the top of a cycle to underwrite with fixed-rate debt, and if a deal doesn’t pencil, then the property is likely too expensive, because it’s almost always better to sit on your hands than acquire an overpriced deal.

My point is simply that recognizing cycles, trends, and forming an opinion about the future are seemingly the only ways to survive in a cyclical business like Real Estate.

As another Multifamily sponsor friend of mine put it, "The goal is to be default-alive".

Today's Outlook

Market sentiment and the herd mentality have always been funny to me.

Why should a market have sentiment, especially if that sentiment is contradictory to the readily available objective data?

And how can the average investor expect to generate alpha (that is, outperformance) by doing what everyone else is doing?

Regardless of where you sit on these two topics, I want to share how I'm thinking about the Multifamily market going forward.

I'm sharing this for two reasons:

To be helpful. There's a lot of data and noise out there. My hope is to equip you with one perspective and frame of reference from which you can build your own conviction.
To be memorialized. I have big aspirations in the Multifamily sector, and I can't think of a better way to be taken seriously by future partners or investors than by etching my POV into the digital ledger.

Let's dive in.

When I rebranded my weekly newsletter to The Multifamily Download in TMD 001, I shared my outlook including five primary forces: supply, demand, maturities, distress, and demographics.

Now, nearly two years later, the same variables are still front and center in the Multifamily conversation.

In early 2025, the story was a record wave of supply with the maturity wall posing a problem for later, while the Fed was expected to continue it's rate cutting cycle.

Today, supply is receding, the maturity wall is arriving, and the cost of capital went from an assumed tailwind (i.e. rates falling) to the toughest variable to circumvent. Demand and demographics are the two that variables that remain intact entirely.

I'm of the opinion that these five forces, when analyzed in their current converging manner, produce a powerfully positive setup for Multifamily.

First, the loan maturity wall. Before you roll your eyes, please consider the data at face value. As the Wall Street Journal recently reported, more than $1.8 trillion in debt is set to mature in the multifamily sector over the next 10 years, citing data from the Mortgage Bankers Association. Over a three-year period from 2026 to 2028, there’s $757 billion in debt coming due in the sector, including almost $300 billion this year.

Do I think there will be systemic distress? Not necessarily.

But I will be carefully watching the ripple effects of how wider cap rates impact hold-sell decisions for nearby properties, along with the resulting impact on cap rates in various markets at large.

Second, demand remains robust as it has become structural. Would-be homebuyers are renting for longer, and this reality buoys demand all else equal.

Third, new supply is receding. While it's not falling off a cliff in every market yet, I would anticipate permits to remain elevated while starts continue to fall until rents rise, the cost of capital falls, and fundamentals tighten in the easier to develop markets.

Fourth, incomes and demographics. Renting is relatively affordable in most markets from a rent-to-income ratio perspective, and it's materially less expensive than homeownership. The prime renter cohort of 20 to 34 year olds will rise through 2030 and then level off.

Fifth, the capital markets, and specifically the cost of both debt and equity. Compared to 2021, the cost of debt capital is materially higher despite it being readily available, where as equity costs slightly more but needs far more conviction to invest today. When coupled together, this combination creates an environment in which it's hard to make the math work in a model.

It's rare to have all five of these forces being unleashed simultaneously like they are today.

The kicker is that the longer rates remain elevated, the more challenging the loan maturity wave becomes to refinance. This challenge will create ripple effects across assets and markets in ways that are currently unknown or unknowable, but they will occur.

Next week, I'll dive into how to capitalize on this unique moment in time, and how I'm thinking about forming an investment thesis against the backdrop of these converging forces.

Until then, let me know what you think.

How does the convergence of these forces play out over the next three to five years?

Did I miss anything that you'd add to this list?

Weekly Listen

This week's listen is Epsiode 105 of The Rent Roll with Jay Parsons, titled “Q4'26 Multifamily Update: Improving Fundamentals, Cooling Capital,” featuring Grant Montgomery, CoStar’s head of Multifamily research.

Jay and Grant walk through the turn in the data, demand outpacing supply, vacancy and rent growth recovering after three to four years of decline, and why CoStar raised its rent outlook, all against a capital market that got more expensive and more cautious after the Fed’s hike.

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.

Consider sharing this link to The Multifamily Download with a friend or colleague.

Your feedback is appreciated, so feel free to reply anytime.

Thanks for reading. See you next week!

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