🎰 How multifamily keeps defying the odds

👋 Hello, Best Ever readers!

In this week’s newsletter, multifamily defies the odds, small markets surge, vacancies rise, and Trump’s deportation campaign rolls on.

Today’s edition is presented by Capital Gains Tax Solutions. Selling a property shouldn't mean losing 20-50% to taxes. Let Capital Gains Tax Solutions create your personalized exit plan and calculate your savings today.

👉 Also, join us and our special guest from Neutral at Noon EST on May 8 for a FREE live event — Multifamily's Next Frontier: Wellness-Oriented Sustainable Development. Register here to save your seat today.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

Small-Market Surge: Small U.S. markets led commercial property price growth in Q1 2025, with low-priced sales rising 2.6% QoQ after three quarters of decline. Meanwhile, big-city office prices continued falling, down 2.5% quarterly and 9.2% annually.

Foreign Investor Sentiment: Despite geopolitical concerns, global investors remain committed to U.S. multifamily. A recent survey of 180 global investment organizations shows 50% hold multifamily as their primary portfolio asset, and 44% still plan to increase U.S. real estate investments this year despite negative sentiment.

Campus Rebound: Student housing transactions rebounded to $8.5 billion in 2024, up 43% YoY, as developments shift from lavish amenities to functional, well-located properties. Enrollment growth and limited new supply are driving strong occupancy and rent growth, particularly in SEC and Big Ten markets.

Coliving Conversions: Coliving apartments are gaining momentum as a solution for empty offices in major cities. Micro-bedrooms and shared spaces cut conversion costs by 30% while addressing housing affordability in markets like Washington, D.C., and Chicago, where office vacancy rates exceed 17%.

Development Hotspots: Six of the top 10 multifamily permitting markets also ranked in the top 10 for single-family construction, according to March Census data. New York leads multifamily development, while Sun Belt markets dominate single-family permits, led by Houston, Dallas, Austin, and Phoenix.

🏆 TOP STORY
HOW ‘EXCEPTIONAL’ MULTIFAMILY KEEPS DEFYING THE ODDS

It feels like 2025 has somehow crammed a full year’s worth of turmoil and uncertainty into just a few months. Threats, tariffs, trade wars — it’s already been one for the books.

Still, multifamily came out of Q1 not only surviving, but thriving, especially in terms of demand. Absorption exceeded 145,000 units in Q1, significantly outpacing the 116,000 new units completed. John Chang, SVP of research at Marcus & Millichap and host of The Horizon on the Best Ever CRE Show, called this absorption rate “exceptional,” as it has pushed the national vacancy rate down to 5%, its lowest level since Q4 2022.

Chang highlights three key factors driving this apartment demand:

• Strong Economic Fundamentals: The broader economy remained healthy through Q1, Chang says, anchored by low unemployment rates and steady job creation that continues to support housing demand.

• Millennial Renters: The 73-million-strong millennial generation is staying in rental housing longer than previous generations, while Gen Z is simultaneously entering the market and forming new households, contributing to rental demand.

• Widening Affordability Gap: The disparity between renting and buying has grown substantially, with median home payments reaching approximately $3,163 monthly versus average apartment rents of $1,827. While apartment rents have increased 27% over five years, median home payments have nearly doubled, increasing by 91%.

The affordability advantage of renting has boosted national apartment lease renewal rates to 55%, slightly outpacing the 10-year average of 53%. This trend is likely to continue despite any potential mortgage rate decreases. While approximately 410,000 apartment units are expected to be completed in 2025, new multifamily starts have fallen to their lowest level since 2011, down 76% from the 2022 peak, with only select markets like Austin, Charlotte, and Phoenix maintaining significant pipelines.

WHAT IT ALL MEANS

These are indeed strange times. Yet despite short-term uncertainties, the multifamily housing market outlook remains favorable over the long term. Demand remains strong, and the construction slowdown will help maintain modest but positive rent growth nationally, indicating that multifamily may be well-positioned to weather whatever the coming storms may bring.

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💰 CRE BY THE NUMBERS
VACANCIES RISE, TRUMP’S DEPORTATION PLAN, AND MORE

1.7%

National office vacancy rates rose 1.7% YoY in March, with supply-demand imbalances persisting across U.S. markets. Tech and coastal regions were hit hardest, with Austin leading at a 6.5% increase, followed by Seattle (4.9%), the Bay Area (4.7%), and Boston (4.3%), highlighting ongoing challenges in Sun Belt and tech-heavy markets.

$30 billion

Apartment sales volume rose 7% YoY to $30 billion in Q1 2025, marking four consecutive quarterly increases despite prices falling 0.9% annually. Cap rates remained stable at 5.7% overall, with mid/high-rise properties at 5.6% vs. 5.8% for garden communities.

0.6%

U.S. commercial property prices grew 0.6% YoY in March, marking three consecutive quarterly increases with annualized growth reaching 1.8%. Retail led all sectors with 4.6% annual price growth, followed by industrial at 2.3%, while apartment and office losses continued to moderate — all before any potential impact from April's tariff announcements could affect deal closings.

32,809

President Trump's mass deportation campaign began with 32,809 arrests in the first 50 days, threatening construction labor where 25% of workers are foreign-born. Workers fear immigration officials regardless of status, with one construction firm owner saying that employees were afraid to do basic tasks for fear of drawing too much attention.

7.1%

Industrial vacancy reached 7.1% in Q1 2025, the highest since 2015, but the pace is slowing with just a 14 bp quarterly rise. With only 65 MSF delivered, vs. 162 MSF at the peak, supply now aligns more closely with demand. Regional variations show the Midwest is lowest at 5.4%, while coastal markets like Charleston (21%) experienced the sharpest increases.

🏘️ DEAL OF THE WEEK
A 67% NOI INCREASE WITH A 16.5% 5-YEAR IRR

Diana Lin raised the NOI on this 22-unit property by 67%.

Here's how she did it. 👇

🏢 Property Details: This 22-unit property was purchased in November 2021 in Glendale, AZ, at 95% occupancy. 

💸 Finances: Purchase price was $3.425 million with $1.4 million in equity raised.

💵 Debt Structure: $2.859 million loan, 10-year fixed, 75% LTV. 

💼 Business Plan: Exterior upgrades include paint and landscaping, while interior upgrades include in-unit washer/dryer installation. Amenity upgrades include a dog park, pergola, BBQ grill, and private patios, and she incorporated a ratio utility billing system (RUBS). The plan (as of 2024) is to hold and cash flow, or refinance.  

🍾 Results: The latest reported rents are at $1,334, compared to $1,205 pro forma rents and $700 at the time of purchase. In total, rents went up 90% and NOI increased by 67%. The projected five-year total return is 2.01x, the five-year IRR is 16.5%, and the five-year average cash flow is a projected 5.2%.

👉 If you have a deal you'd like us to feature, share it with us!

🎓 EXPERT RESOURCES
FREE DOCUMENT DOWNLOAD

7 WAYS TO ATTRACT HIGH-QUALITY RESIDENTS

High-quality apartment residents who pay on time, respect property, and are courteous significantly impact profitability. While low-quality tenants might temporarily boost occupancy, they increase turnover costs, eviction expenses, bad debt, and delinquencies. In this brief guide, we’ll share strategic screening procedures that attract better residents, who then refer similar quality prospects, creating a positive feedback cycle for long-term financial success.