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Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
David Moghavem (00:17)
All right. Welcome to another episode of Deal Flow Friday. I'm your host, David Mulgavum. Today we have another multifamily market monologue. Just me this Friday. Hope everyone's having a wonderful Friday. I know it's a tough day today for our nation. September 11th, I can't believe it's been 25 years. I remember it vividly in elementary school, finding the news, debating whether to go to school or not.
It was so tragic. And today just re-watching some of that film has been really, really tough. but the show must go on. I also, on a more upbeat note, want to wish everyone who observes a Shana Tova a happy Jewish New Year. may this year be better than the last and continue to move forward. Health, happiness, and sweet new year. Amen. So we have a lot in store for you on Deal Full Friday.
A lot of great guests that we've set up. We had great feedback on the last pod with my friend Shervin. It's it's funny how a non-real estate guest gets so much attention. I think it shows the cycle we're in in the market that no one wants to hear about real estate anymore. It's a tough market with rates where they're at today, with the headwinds. Who wants to buy real estate? But I know the deal junkies out there, the people want to continue listening and hearing about.
the market we are going on, but it's always good to have a guest to give a fresh perspective outside of our bubble. So more to come, more guests to come, some great operators, capital allocators.
So, yeah, looking forward to continuing the momentum and appreciate everyone's support. So, here's another monologue, just kind of wrapping up. We're almost three quarters into the cycle. I mean, time flies, and boy, has it been a roller coaster. So, start from the macro. Let's start with the Ten-year as we were talking about on the last pod. Ten-Year is the source, it's where it really dictates macro markets for our little sector of multifamily. And
We're at 5% territory on the ten-year This is crazy. It hasn't been this high since October of 2023. so let's talk about it. Why is that? Well, first, I mean, with the new Fed chair, he gave a more hawkish keynote speech at Jackson Hole. He said that underlying inflation has not meaningfully improved.
The Fed has work to do, said how prices are still too high. so you know he feels inflation's not under control. And you combine that also with the jobs report, how jobs are outperforming estimates. August jobs came back at 162,000 and the estimate was fifty-six thousand, so nearly tripled. It's always funny to me how when the job reports come back and it beats expectations, it actually makes rates higher.
And treasury yields higher. So I think people think of it as counterintuitive, but it's really an idea of pumping the brakes almost with our economy and avoiding runaway inflation. And so also with the Fed, I think it's interesting Warch's Warsh's approach. he's been shrinking policy statements, he's been eliminating the DOW plot and forward forward guidance, he's had more restraint.
Press briefings. He doesn't want to manipulate the market because he wants to read the market in order to make sound policy decisions. So I I agree with that. But putting that all aside, I mean, this past couple of weeks, even, the treasuries have really been tough and there's been a massive bond sell-off. Oil has been a big part of that, over 100 a barrel, which really s shocked the system. Bessent, his
Bond buyback plan was, I guess, say more of a bluff than maybe he was hoping to manipulate the market a little, but he didn't. And we're at a time right now where just putting all this aside, forget about trying to predict where treasuries will be or should be. But I really feel like we're in a new reality right now with where yields are at. And maybe it's not going to be at five or up forever, but we are.
Really, the sentiment is that we are going to be in this high interest rate environment for quite some time. So listen, what does that new reality look like? Well, first of all, in multifamily, it's taking shape in a few different forms. And the first, I gotta say, is foreclosures. And I touched on this in our last multifamily market monologue: how sellers and lenders were open to
Sitting in all parts of the stack and almost blur the lines between debt and equity to make the deal work. And there was genuine optimism that everything will get better, that we'll be in a better environment. And the point I made last monologue was right now, tomorrow looks better than today, and therefore lenders are willing to go long, lenders are willing to play ball. I think that's changed, honestly. I think.
Anecdotally and multifamily, that optimism has completely vanished. The 10-year run-up has really been the dagger to the heart of optimism. Lenders are actively taking properties back, especially in markets that have operationally been struggling from this whole supply wave. But you're seeing it become this widespread foreclosure environment. and it's been four years or so.
Since we've gotten to this point, I think when rates ran up, it was a lot more time, a lot more extended to pretend. Now, with this recent run-up, we're starting to really see lenders take action. and the timeline makes sense. Again, four years removed from the rate hike, four to six years from all those loans that were originated during the ZERP era. So a few anecdotal points from how that's kind of showing up today.
Saw a special service or foreclose on two assets this summer with offers even above the loan balance on the table. So despite the fact that there were buyers in loan clearing prices, they still took the properties back and they just wanted to move on. even seeing now underlying sales of notes that used to trade at par and nothing below it.
Then maybe a year ago starting to take a little bit of a discount, maybe 90 to 80 cents on the dollar. Now we're seeing those underlying paper trading significantly below par at 50 to 70 cents on the dollar. And so that's leading to a lot more movement and action because the optimism, again, doesn't look better in the near future than how it looks today. I think everyone's kind of actually accepting that this is the new.
reality. And so you're starting to see that with foreclosures. So multifamily foreclosures peak this summer. And there's a few data points. It's not a perfect way of assessing foreclosures. Foreclosures have always been pretty tricky of tracking the nation because there's a lot of different
Ways to look at it, and there's not a lot of public information on it. But here's a few data points. So CMBS apartment delinquency, which is not the best metric for multi, because not all multis with CMBS but it's a good tell. Went from 3.3% in August of 2024, 6.2%, July of 2025, July of 2026, 7.7%. So that's ticked up. Then CRE CLO bridge loan distress, which I think is a great barometer too.
Jumped from 19% to 28% in August alone. Then Texas foreclosures, which 70% of that was apartments. And Texas is a pretty good barometer for kind of a representation of the of the nation. Not every state has its own information available for foreclosures, but that climbed from 600 million a month run rate in 2025 to a record 1 billion in August in 2026. So
We're seeing some of those data points actually come about. And again, with the anecdotal information that we're seeing boots on the ground, you're starting to see this take shape and form. Now, here's a question: Does this actually mean sales? Does this actually mean capitulation? Just because lenders are taking properties back, does it mean it's gonna result in transactions? And the answer is no, not really. I mean, in fact, this could probably mean.
More assets in purgatory, more assets with false starts, because lenders probably have more holding power than owners do. Even with line lenders and A note holders driving the credit space and steering the ship, it's a lot more stable despite what we're seeing right now with owners that they don't have necessarily have the capital to funnel these deals and and keep keep a hold of them. So
We've been feeling that all year. And the 10 year being this high probably made the chance of seller and lender capitulation much worse. Cause it takes two to tango. You need a buyer to come up on price and meet the market. And when lenders now have control of these assets, you really see how it can really sit in their books, sit in purgatory before really capitulating.
And so for a buyer, when agency coupons are flirting at, I don't know, five and a half, even six percent before a buy down, and you're gonna be negative leverage maybe on a newer vintage assets or an older vintage asset, you can justify maybe being neutral or slightly positive leverage, depending on how you're looking at deferred maintenance. A commodity down the fairway multi-deal with operations not really showing show showing signs of growth can be really challenging.
So, how are buyers going to really meet and reach out to that side of values that can lead to transactions? I think you're really just seeing it through growth. And so we're back to an environment where you're not thinking about value through cap rate compression or appreciation, but really through NOI growth.
And so speaking of growth, I pulled net effective rents, net of concessions, not asking, which is very important. And I pulled it using apartment IQ. And by the way, apartment IQ, I love apartment IQ. They really have the best rent data down to the T. They're not just scraping apartment rent data, but they're factoring them in the trends of asking rents, concessions, occupancy data, exposure percentage, everything you look for.
when assessing rent comparables. And it's right at your fingertips. It's not only accurate, it's extremely convenient. The dashboard's very user-friendly and they have great visuals, great charts. And this is a game changer. They have their own MCP. So you can connect it to Cloud, ChatGPT, or any other LLM to use. So definitely check out Apartment IQ. They're awesome. We're actually Deal Full Friday is collaborating with them on a few episodes as well.
So shout out to apartment IQ. Go give give them a look.
So here's a chart generated from apartment IQ data. And again, this is net effective rent. So we're factoring in concession burnoff here, not just face value asking rents. 69 of 83 metros are up over the last 90 days. Year over year, most of them are still flat or negative, but 90 days are positive. So to me, that's what the bottom looks like in real time. And before anyone says that's just summer, that's just seasonality, I agree with that.
But I also checked the same window last year and the metro aggregate last year rose a quarter of a percent. This year, 1.9%. So nearly eight times last summer. So again, to me, that's more than just seasonality. So who's winning right now? And again, this goes back to what I was saying earlier that we got to look at these met these markets with rent growth, not just cap rate compression. So the clear winners, obviously, that we've been talking about all year.
San Francisco, 8.7% rent growth in 90 days, 17% year over year rent growth. San Jose, 5.8% in the past 90 days, 13% year over year. Occupancy, 96%, lowest concessions in the country. The Bay Area is ripping. Then there's the next year. You have this wall of supply-constrained markets,
Grand Rapids, Michigan, Milwaukee, Buffalo, Toledo, Greensboro, Hartford, Providence, St. Louis, all plus three to plus four and a half percent in 90 days, positive on the year two. Concessions are minimal, occupancy in the mid-90s. Nobody's built there. Nobody chased them in 2021. So they're performing now, they're reaping the benefits.
Now, what's interesting here is what you're seeing in the middle, and these are the big markets. These are the ones that are probably flat to negative rent growth year over year, but you're starting to see green sheets. You're starting to actually see 90-day positive growth. And again, some of this can be seasonal, but to me, it also feels like some of this is actually turning the corner and being past the bottom. So Tampa Tampa is plus two.
2.8 in 90 days, still minus three on the year. Atlanta plus two four and basically flat on the year. Orlando, plus three percent rent growth in 90 days, minus one four throughout the year. Austin, this is very interesting, actually had 2.9% 90-day rent growth, still minus 7.8 through during the year.
But you're starting to see those green shoots. Denver, even you're starting to see positive tradeouts. Worst market in our own portfolio right now, but we actually are seeing tradeouts. So a lot of positive signs. We're seeing some of this supply getting absorbed. You're still seeing some markets struggling right now. I would say Sarasota, that's down there, Vegas is down there, still negative on the 90 days, still negative on.
The year over year. San Antonio, I mean, San Antonio is getting decimated right now. Charlotte's up there as well. One of the worst performing markets right now with that supply. So holistically, with the exception of a few markets, it really does feel like we're getting past the bottom. And, you know, everyone has been talking about: hey, this is gonna be the transitional year. Is this the bottom? I think when you speak
strictly on supply demand for most markets, we are past the bottom. But does this mean we've bottomed out on values? I can't quite say because there's many factors that we've discussed affect values. It's not just supply demand. It's not just rent growth. We're seeing how the 10 years reacting. We're seeing how values affect that. So TBD of whether we're actually past the bottom in terms of values,
But if you're strictly looking at supply demand for most of these markets, we are feeling like we're past the bottom. Some markets recovering a little bit better than others.
So I want to leave you with a few thoughts in our sector in multifamily as a multifamily operator. Wanted to just leave with a couple of ideas, a couple of thoughts. First is the idea that down the fairway is dead. Vanilla is dead. Negative leverage day one to basically just buy for basis is dead. Unless you're AUM gobbling like some of the big guys, it's really, really tough.
To make a deal make sense.
Strictly base on basis and buying something negative level.
But what's interesting about multi is long term, if you're really looking at a long high horizon, the fundamentals really haven't changed. Like you maybe you saw in office how the fundamentals genuinely change with how people approach work, life, environment. But people still need a place to live. America's still undersupplied nationally, despite the national supply boom that was built, particularly in the Sunbelt market, but even nationally beyond that.
Multifamily still is the most reliant. It still has the cheapest financing, backed by the agencies, backed by the government. So long term, we're still good. So, what does this all mean? To me, it's about getting creative in our industry and in multifamily. It's about finding targeted strategies. It's about accepting this new reality and adapting to this new environment.
That may be here to stay for a while.
So here are a few ways that I'm seeing where the market's going.
The first is the idea of finding government as your partner. And we've heard this with affordable. And affordable is a crazy buzzword. But the fact of the matter is that affordable bucket is getting larger. And it's getting larger as we're entering this K-shaped economy, the haves and have nots. We're seeing more and more have-nots that need housing. They need affordable. It's the idea of
Now that missing middle entering that pool of affordable. And when you identify tailwinds in the multifamily industry, what is unanimously agreed upon on both sides of the aisle, whether you're a Republican, Democrat, liberal, conservative, it's the need for affordable housing. The way to do it is always the debate, but that's unanimous. There's a housing crisis, we need affordability. Meanwhile, the headwinds in our industry today.
Is the need for pushing rents to generate higher returns. That is a tough strategy to do right now. And it's a strategy that has been done for over a decade since I joined the industry. And that's almost impossible to raise equity on unless you're in one of these high growth markets that it's really less about value add and more about just the market in general with supply and demand.
So we've been busy exploring the market rate to affordable tax abatement plays throughout the nation. There seems to be some type of play like this in every state, whether it's at its infancy, whether it's a fully robust ecosystem of affordable, or even if you look at Texas, how it got abused and rolled back from some of that affordable partnerships just turning into loopholes, quite frankly. So all I could say here.
Is that this is a major tailwind in multifamily. Where we are as owners, we can start doing well by doing good. That's actually something that Alan LAZ fan of the pod, called this conscious capitalism. And it seems like we're entering this phase in multifamily where strategies involving government participation just can't be ignored. Now, how are you going to value this? I think is the question. Some groups
not under not underwriting that tax abatement benefit because of maybe the regulatory pushback. Some are leaning more into it and capitalizing that benefit, thinking it's going to last forever. I think there's a case by case way of looking at all this and understanding and underwriting that risk. But I think it is fair to say that this is a major tailwind in the multifamily industry and it can't be ignored.
Another way to adapt is finding an edge through operations. You know, Try on Properties, we've really leaned in on this with Trion Living, our third party management platform. It's been a great we've been onboarding dozens of deals for third party management throughout our markets. Couldn't be more proud of our team. Special shout out to Johnny Del Espriella for leading that charge, our head of property management.
It's funny, though, story the brokers used to say of you can generate upside through effective management. It sounded like a broken record. It sounded like an empty broker pitch to sell you on the upside. But now that is as real as ever. It's actually very hard to manage. And I think we're starting to see that through the cracks in the economy. But we've found a way to make it work in our markets.
And despite turbulent times and operations, our portfolio is actually performing very strong relative to our comps. And other owners and operators are beginning to notice and entrusting us with their property. So I think that's an incredible edge as we enter this next phase of the cycle, rewarding operators for management and unfortunately punishing those who can't operate.
I also think this aggregation of management grants access to information that other people otherwise wouldn't have. So noticing trends in real time before being published on reports, seeing real-time data that can be now synthesized into real-time takeaways thanks to the power of AI. So if you're managing your own portfolio, thousands of units.
And you're seeing in real time what the trends are, and you're leveraging, let's say, AI to synthesize that data, you'll have an edge just strictly from having more units you're managing in a particular market than the third party data that you're paying for that's telling you what rent growth is. Like you have those boots on the ground. And so not only is it an edge to operate better, but it's also an edge to have that data to make better data driven decision making.
So that's my monologue for this Friday and for this quarter. Just to wrap up, still a lot of pain on the macro side as the 10-year is touching 5%. There's glimmers of hope in most markets as 69 out of the 83 major metros are up in the past 90 days, and we're maybe seeing being past the bottom. We're seeing foreclosures. Will we see transactions? Soon to tell. But down the fairway is dead. It's time to get creative.
Identify the tailwinds, predict where the puck is going, and adapt to the new reality we're in, So thanks again for tuning in. Again, Shana Tova, have a happy new year to those who celebrate and see you next Friday.