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Current Season: First Draft Live
Between economic whiplash, shifting policies and market volatility that changes by the hour, you need industry insights that cut through the noise. That's exactly why we're launching First Draft Live, a new weekly series that breaks down what's happening, why it matters and what you need to know to do better business.
Join us live on Bisnow.com every Friday at 12:30 PM ET / 9:30AM PT for conversations with the industry's sharpest minds discussing the week's most critical stories, or catch the replay right afterwards — here on your podcast app of choice.
Alright. Welcome to First Draft Live. It's Friday, April 10. I'm Mark Bonner, Bisnow's editor in chief coming to you live from New York. Before we get going, this episode of First Draft Live is presented by Key Bank.
Mark Bonner:As a leading commercial and multifamily real estate finance provider, Key Bank sees opportunities where others see obstacles. Visit key.com/rec to learn more. That's key.com/rec. So wasn't multifamily supposed to be the safe bet? Coming out of the pandemic, rents surged, occupancy tightened, and capital flooded in.
Mark Bonner:And then as it tends to be at the top of a cycle, the industry leaned in. More than 400,000 units were delivered in 2024 alone, one of the largest supply waves on record, heavily concentrated in Sunbelt markets like Austin, Phoenix, Nashville, and Atlanta. Now that supply is hitting all at once, and the shift is showing up in the data. Vacancy is rising in many of those same markets, and rent growth has flattened or turned negative in some of the biggest pandemic winters. Meanwhile, coastal markets like New York have held up much better.
Mark Bonner:At the same time, the cost side hasn't eased. Insurance, taxes, and operating expenses are all up, and financing is still anchored to a ten year treasury hovering around 4% at this hour. That's keeping debt far more expensive than when many of these deals were underwritten. So even as fundamentals soften, the math hasn't gotten easier. Zoom out and capital is starting to come back.
Mark Bonner:Transactions are picking up, but zoom in and it's far less uniform. Oversupplied Sunbelt markets aren't are still working through deliveries and the capital stack still doesn't quite pencil. Now let's layer in a new kind of pressure. Policymakers like Elizabeth Warren are targeting institutional ownership, while the Federal Trade Commission is increasing its scrutiny on fees and tenant costs. So at the exact moment the industry is trying to stabilize, it's being pulled into a broader national debate on affordability, which raises some concerning questions.
Mark Bonner:And I keep coming back to this. How is multifamily supposed to fix housing if the economics don't pencil? To help us think through that, I'm joined by Bob Hart, CEO of TruAmerica Multifamily. They are one of the more active value add apartment investors in America with more than $10,000,000,000 in assets. Bob, welcome to First Draft Live.
Bob Hart:Thank you, Mark. Thanks for having me. You did a very good job of summarizing the whole problem. So nice job.
Mark Bonner:So look. Let's start here. There's there's a lot of talk or there has been that twenty twenty six is the turnaround year. But as we just discussed, Bob, vacancy is up. Rent growth is flat to negative in key markets, and costs are still ever are still elevated.
Mark Bonner:So what does recovery actually mean right now?
Bob Hart:Well, let's start with a little bit of history. When we look at this reset that started in '22, we actually didn't know we were resetting because turning around real estate is like turning around a giant battleship. You think you're still floating in one direction when you really should be floating back the other way. So we were ratcheting up the business in 'twenty one and 'twenty two and it started well before then, but the trends were heading in a different direction because of the movement of interest rates. But a lot of acquisitions were committed, a lot of development was committed.
Bob Hart:As we entered '23, we started to feel it because of the financing. And we started to see investors who had short term paper going through what the banks who have been under the scrutiny of extension tests with the regulators. And so people were having trouble rebalancing their debt, finding new debt. And so all that was normal for about twelve consecutive years suddenly was no longer normal. And so this reset is longer than the reset of the GFC, which we went in kind of away.
Bob Hart:We came out in 2010 and we're off and running. We're going on our fourth year here. I thought myself that 2026 was gonna be the first year of the reset, but my what I've said to people is there's more to fix in '26. So I think we're gonna still see some bumps here in the system before we start to get to a normalized market.
Mark Bonner:So when does the industry begin to turn the corner, Bob? Or, I mean, how much of the supply wave does it still need to work through at this point?
Bob Hart:Not as much, but you have, conflicting it's not just supply. Supply is being absorbed in some of the oversupplied markets like Nashville and Austin. Truth is supply is being absorbed. You just have too much supply all at once. So you're pushing down rents from the A level to the B level to the C level.
Bob Hart:And when you're discounting like in Austin twelve weeks free, that's a lot of discount, which then pushes an A rent down to a B rent. And then the B rent has to do the same thing and push it down to even the levels of affordable housing, subsidized housing. So the markets are in disequilibrium, and I think markets like Austin are gonna take another couple more years. Maybe Nashville will take a year or two. But the other oversupplied markets are absorbing and are moving to stabilization like Orlando and Atlanta and places like that.
Bob Hart:The coastal markets aren't as oversupplied like you were mentioning in your preamble. New York is pretty good with a lot of in migration. We've seen San Francisco turn around, but a much smaller market than LA or New York. And LA is doing okay. A lot of regulatory issues.
Bob Hart:So there's a lot of conflicting things going on. It's not just about supply. It's about supply. It's about interest rates. This will be the first year, as long as I remember, where The United States population will not grow.
Bob Hart:There will be negative household formation and there'll be more people, shall we say, exiting the population than entering it. Some of it's due to immigration policy, but some of it's due to delayed birth rates and other things. So fortunately, we don't have a lot of supply in the pipeline. So that won't inhibit multifamily growth once we get out of this sort of existing supply situation.
Mark Bonner:I mean, look, know it's dangerous to look at The United States as a monolithic Right? I mean, this is this is the number one economy in the world. This is a major country with a lot of population, a lot of major cities.
Bob Hart:Yes.
Mark Bonner:But when you step back and look across your portfolio at TruAmerica, how do you reconcile those differences between some of those coastal markets and what's cooking in the Sun Belt?
Bob Hart:You know, you have to, you know, we're in 16 states and 30 plus cities and everything has to be looked at independently. So one size just doesn't fit all. So what we do is we're constantly looking at rents day to day as if we were an airline looking at prices. So there is no one answer for that. Most markets in the Midwest have been very stable because there hasn't been as much supply.
Bob Hart:So and then you have to look at the out migration map. California has had a lot of out migration. It's had some in migration. So has New York, but it's also had in migration. Chicago's had out migration.
Bob Hart:So the Sunbelt markets have benefited from that, but that was more of a COVID phenomenon that has slowed down. So we just need to get back to equilibrium and you have to look at each market separately.
Mark Bonner:How do you get back to equilibrium? I mean, there's a lot of there's a lot of noise out there and a lot of different fronts. We're gonna get into some of that. But how do we get there, Bob?
Bob Hart:Well, think you're gonna get there, organically because, like I said, supply is going to be absorbed. People are paying more attention, I know we are, to property operations, keeping costs down, underwriting standards are tighter. And, you know, there's still ways to make money in this business. It's not like people aren't making money. People are also taking advantage of the fact that cap rate spreads have become wider.
Bob Hart:So what was a five and a half, or excuse me, a four, four and a half gap is now a five, five and a half gap. So you're buying the product at a lower price and, that will make your deal work provided you are can get enough financing at the at the right levels.
Mark Bonner:I mean, there's probably a lot of people listening to to our conversation right now going, well, wait a second. The industry just delivered more than 400,000 units in a single year. That is one of the biggest waves on record, and a lot of that is still in lease up. So how long does it actually take to absorb that kind of supply, and what do you think has to start showing up on the demand side for it to clear?
Bob Hart:Well, again, it's not all delivered in one place at once. So markets like San Diego and Orange County, there's no issue. Those markets are in equilibrium. Markets like Seattle are in equilibrium. There was a lot of new supply in Seattle in the prior ten years, but most of that's been absorbed.
Bob Hart:So it's really pocket by pocket. It's gonna take a return to some immigration, particularly for workforce housing, and it's going to take more household formation, as the economy continues to expand. I don't think every city has been a a net job producer either. So there's many factors, like I said, that will affect each market, but some of it will just start to occur because of absorption.
Mark Bonner:So, Bob, when you say we have to get back to immigration, are you saying that you need president Donald Trump to reverse his immigration policy in order to begin moving the needle for multifamily in America? Has that hurt has that hurt your bottom line, that policy alone?
Bob Hart:I think the, we'll call it the enforcement policies of immigration without counterbalancing of trying to create more legalization has kind of seized up movement, particularly in areas that have high concentrations of folks that may be subject to apprehension. So that creates less movement, people are more frozen and and so forth. So eventually, we need to figure out how to how to legally get more people to come into the country and to do something about the good people that are already here working and paying taxes that may not have perfect immigration status.
Mark Bonner:I mean, president I mean, vice president Vance said, I think, at the beginning of this immigration policy that this was gonna be a net benefit for the housing industry as a whole because it was gonna create new supply. Have you seen that unfurl itself in any capacity?
Bob Hart:Absolutely not. I don't know what what he's talking about. Makes no sense.
Mark Bonner:Okay. If you're just tuning in, this episode of First Drive live is presented by Key Bank, and we're here with Bob Hart, CEO of TruAmerica Multifamily. If you have questions, send them in, we'll get to as many as we can. So let's talk some math, Bob. Yeah.
Mark Bonner:Even if fundamentals are stabilizing, the math still looks tough. The ten year is sitting around 4%, actually, 4.3% as of this morning, and operating costs have really haven't really come down at all. So how are deals getting done right now, and what's changed in how you're underwriting these days?
Bob Hart:Well, let me let me start with, again, you have to be a student of history. You have to go through enough cycles. We're so used to buying real estate, particularly apartments with positive leverage. Twenty years ago, there was no positive leverage. Rates were much, much higher when I first started buying in the, call it the late nineties, early two thousands, LIBOR was at 600, spreads were at 300, you were borrowing at 9.
Bob Hart:So even if you bought at a seven and a half cap, you started with negative leverage. Not saying that's an acceptable paradigm, but it was then because if you were buying on growth or buying on value add. So interest rates are fairly in parity with cap rates, but people are willing to bet on growth, which then allows more positive cash flow to leak out as they get growth. But we're not in the movie we were in during COVID when we're borrowing like in the threes and building out with crazy rent growth of like 15% in some cities. So now we're in a more normalized interest rate environment and it'll probably stay that way, at least on long rates.
Bob Hart:Short rates will come in likely when the Fed share change.
Mark Bonner:So how are deals getting done right now?
Bob Hart:The best deals are attracting capital. Deals that feel like they're a bargain, you see capital jumping in. So they're getting done. The deals that are not getting done are the eighties and older product in these sunbelt cities that aren't being priced right. Those deals are sitting, particularly if they're large or older.
Bob Hart:So there's a flight to quality. There's a flight to value. And, right now, there's just not enough deals out there in the market. So we're we're just we just have to get through this this this chop is really the bottom line.
Mark Bonner:I mean, there is a recovery narrative out there, but, you know, the capital just doesn't look fully convinced. So who actually is stepping up right now? And what risk are they willing to take?
Bob Hart:Well, there's a lot of opportunistic capital that is in the business. People that have raised commingled funds, family office money, and what I'll call the carnivores. They're out there biting around the edges and fishing. I don't think the pension funds are out en masse selectively. I think the REITs are there, but probably not buying.
Bob Hart:They'd rather buy back their own stock or put up preferred equity right now. But opportunistic or raise capital is out there. And there is foreign capital. I've seen more capital coming in from Asia and other parts of the world than I have in the past. So I think that money is looking for yield in a home.
Bob Hart:And I think people are more willing to accept a rational kind of mid teens return for for multifamily over, say, a five year average.
Mark Bonner:You know, if you look across the country right now, the market, as we've discussed, is increasingly uneven. Some of the Sunbelt markets are working through oversupply while more constrained coastal markets are holding up better on rents, but come with their own challenges. How are you thinking about geography right now, Bob? And where do you see the best opportunities? And where do you see the most risk?
Bob Hart:The most risk, I think, is in the turnaround markets. Places like Downtown Los Angeles have been hit very hard in this cycle where there was a lot of oversupply and there's been a lot of dislocation and office move outs. But the people that took a bet on San Francisco during its downturn are now very happy. People that bought deals here before it was obvious are very, very happy. That market turned around very, very quickly.
Bob Hart:I think New York's another good example where people that were dedicated to owning real estate in New York did so maybe at a time of uncertainty. Now they're also in very good shape. So I I think sometimes a contrarian attitude can do very well in a time of inflection in the market.
Mark Bonner:I mean, Bob, I mean, just talk about New York, which is where I sit. I mean, it it people love to write New York off from time to time as it's dead and dying and it's over. But this is one of the most resilient, most important economies on planet Earth. It's arguably the most important city in America. When you see things like that happen absolutely.
Mark Bonner:I mean, why did you write off New York at any point? Were you skeptical? And why why would anybody do that?
Bob Hart:Well, we've not been a net buyer in New York, so I'm probably not as qualified as other people are to comment on that, but I've never written off New York. It is really at the center of, I know all the equity raising and financial, you know, where everybody is a hub of all of that. So, and it's an attractive place for younger people now who wanna come there and, you know, you have Google there, you have all kinds of companies there, you have Wall Street there. It's just a Mecca hub for young talent. So no, I've never written it off.
Bob Hart:Think the noise in the system comes from the local politics. Right. The lack the affordability issue. All these major cities are grappling with affordability. So you have a lot of conflicting factors.
Mark Bonner:I mean, look, the political issue here is something that the commercial real estate community is up in arms about. You know, we're we we've just crossed threshold of the first hundred days of mayor Zoran Mandami.
Bob Hart:Yeah.
Mark Bonner:What do you make of him? What do you make of that movement? Is it isolated to New York? Is this one of those situations where it can only happen in New York because it's New York, or are you afraid more existentially for what that kind of policy could mean for other cities who who are looking at New York for for leadership?
Bob Hart:Well, I think Mondami's ascendancy is a reflection of the cry that you hear on affordability and the challenges that working Americans are having. And he rode a progressive wave. My feeling is that that wave continued off out to other parts of the country. It certainly has continued into Los Angeles where you have a highly progressive city council. And then you have the administration which recently took a page out of his book when it declared the twenty first century Road to Housing Act.
Bob Hart:That's a very populous, ideally progressive potential piece of legislation to limit the aggregation of single family homes and limit its exit to individuals even though the aggregation of that is only about 2% of the whole market. So both progressivism and populism on on both sides of the aisle right now because of the cry of affordability.
Mark Bonner:And I've
Bob Hart:always said to people when you if you like to watch the Sunday morning shows, you'll always see something on there about affordability.
Mark Bonner:Right. And we'll talk about the Sunday morning shows because of Elizabeth Warren has been raising concerns about institutional ownership. And now you've got the Federal Trade Commission taking a closer look at rental fees. So it's not just at the local level like in New York. It's also at the federal level.
Mark Bonner:So from your perspective, how much of that is noise? And how much has the potential to materially impact how your business operates?
Bob Hart:If it if this law goes through, this twenty first century Road to Housing Act, it's going to disrupt a lot of the aggregation, particularly of single family homes. It could have a major disruption on the building of built for rent homes. It's not gonna affect traditional apartment ownership, but it'll definitely be an arrow that lands on a bullseye for the progressive movement. And Trump, he basically stole a page out of Mundamy and Elizabeth Warren's book. That's what he did with this.
Bob Hart:And I don't think the legislation has been very well thought through and certainly it's being worked and they never pass, one doesn't know, but it just sends another message to the industry that we need you to fix the affordability problem even though a lot of it lies in, you know, in urban and suburban city councils who don't want density.
Mark Bonner:Right. I mean and look. I got a question from our audience here because this is directly on affordability. Right? And Yeah.
Mark Bonner:You know, my question is, so what does the industry actually control here? Right? And the question from our audience is, what needs to change structurally for Multifamily to be able to respond to the affordability problem, which is the number one issue for most Americans right now?
Bob Hart:Well, if you look at a market like Austin, K, that's a renter's market now. Even though it's an expensive city, you can get a really good deal there as a renter. Okay? And so supply is the key for the consumer, but it needs to be orderly. Really, again, it's not a one size fits all answer, but the way the consumer is gonna benefit is with rational supply coming into the market and providing more housing choices for renters.
Mark Bonner:Right. But when you look at land, when you look at construction and 4% plus cost of capital, the math is tough. The math industry actually control, and where are the expectations out of sync with reality?
Bob Hart:Well, to build tall buildings, you can do that in cities like New York and San Francisco and Seattle, but you can't build buildings like that in core of America because you can't get the rents. So costs would have to come down materially or density would have to increase materially to make those kinds of deals work. There needs to be more incentives from local government to encourage development. California is trying to do that with some of the laws that came through the Newsom administration, with relaxing CEQA, with buy rights and so forth. So there are attempts at different levels, really the local level that needs the most work.
Mark Bonner:So just going back to the legislation that we were just discussing via with Warren, I got another question from our audience here.
Bob Hart:Yeah.
Mark Bonner:What do you think the impact will be to the BTR housing business if the requirement to sell within seven years is not removed from the final bill?
Bob Hart:I think it could have a devastating effect, particularly because people that crafted the legislation didn't understand that a BTR community that's built as one unified parcel of land can't be sold off individually. So it makes no sense. And it would really throw a major wrench into the orderliness of being able to transact and exit. So if it's a BTR community that's deeded as separate parcels, I guess you could, I mean, Washington DC has that with the TOPA law, which gives renters the right of first option. And in some occasions they've exercised that, but this is not it's incongruous with BTR.
Bob Hart:It doesn't work.
Mark Bonner:You know, Bob, you're a major player in multifamily space in The United States. You've been around the block. Are you directly trying to lobby on behalf of the multifamily industry to federal lawmakers right now about these things?
Bob Hart:I I do, but I I participate with the industry voice with NMHC, and, I'm very active locally, listening to mayoral candidates and supporting those that I think are worthwhile and juvenatorial candidates. Later today, I'm gonna go listen to the mayor of San Jose who's running for governor here, and see what he has to say. But sure. Like like everybody else, we care. We we wanna see the right people at the wheels of government.
Mark Bonner:What's your message to federal lawmakers on this front? What do they need to hear from people like you that they may not be aware of?
Bob Hart:Keep Fannie and Freddie alive. Don't screw around with that. Put more money into affordable housing incentives and develop a positive message about housing. The American landlord is not the pariah of society. American landlord is someone who is someone's mother or father that may own a few small apartment buildings.
Bob Hart:So we gotta get out of this whole thing with laying everything on the doorstep with the American landlord.
Mark Bonner:So taken as a whole, Bob, is this just a cycle that the industry can work through, or do you think the rules of Multifamily are starting to change?
Bob Hart:I think the industry is already working through it. I think once the debt book gets sorted out, then that starts to get normalized. You're not gonna see, yields trading for 50¢ on a dollar once that happens. So some of it is debt driven, but the most the supply and demand is mostly in equilibrium except in a few exceptions. We need more housing.
Bob Hart:You have functional obsolescence of housing. You still have more household formation coming. I mean, people might argue that, oh, AI is gonna take jobs away, but I think The United States economy is in in pretty good shape. So I'm I'm very confident and very positive. But we do value add, so we're always picking around the edges of opportunity.
Mark Bonner:Okay. Well, let's end here, Bob. So put on your future goggles for me. A year from now, are rents clearly higher or are we still stuck in a market by market grind? And how much of that depends on what what happens at a 1600 Pennsylvania Avenue?
Bob Hart:Well, I think rents will be select higher. They won't be higher in Austin. They won't be higher in Nashville, but those markets will continue to absorb. But in some of the undersupplied markets like San Francisco right now, markets like that, I think Denver's coming back nicely. I think we will see growth, but it's not gonna be the kind of growth you saw during COVID.
Bob Hart:It's gonna be a more rational growth of three or 4%. And we need the federal government and local governments to just slow down this train of regulation. Let the markets do its natural thing.
Mark Bonner:Look. We're in an election year. How consequential are the midterms gonna be for your business? And how consequential will be the behavior of the White House be in the next year?
Bob Hart:Really, I don't think it'll be that consequential, to be honest with you, unless, like I said, there was some major change with the delivery of financing with Fannie and Freddie Mac. I think you're you're you're seeing what's out there already. I think, you know, if this twenty first Century Housing Act goes through, that doesn't really affect my business as much, but it certainly affects people that are in the in the SFR, DTR business. Thank you.
Mark Bonner:Okay. That's all the time we have today. Bob, thanks so much for joining us.
Bob Hart:Thank you for having me, Mark. It was a pleasure, and, remain optimistic. That's that's the message.
Mark Bonner:We'll be back soon with another episode of First Draft Live. You can also find today's episode and all of our past conversations on your favorite podcast app. I'm Mark Bonner, and this is First Draft Live. Have a great weekend, y'all.