Matt Frazier is the Founder and CEO of Jones Street Investment Partners and has over 25 years of experience in real estate.
Investors inundated with headlines underscoring rising vacancies, falling rents and lease concessions in the multifamily sector would be hard-pressed not to come away with a pessimistic view of this asset class, especially given the volatile financing environment we find ourselves in today. As captivating and informative as these stories are, I have found that these headlines are not indicative of the sector as a whole, and investors who accept them as a definitive declaration of apartment health risk are missing out on solid investment opportunities.
The roots of the current bearish narrative began a few years ago, when robust multifamily rent growth persuaded many investors to plow cash into new development. As often happens in real estate cycles, supply in many markets outpaced demand, leaving developers unable to fill and stabilize projects. Worse, the cost of capital spiked (subscription required), and refinancing construction loans with permanent debt became more difficult.
If you research the issue more deeply, however, you may find that much of the oversupply has been most present in select markets in and around the Sun Belt. Conversely, in regions like the Northeast and Mid-Atlantic, these challenges are less common, likely due to high barriers to new development and strong job markets that drive consistent residential demand. In turn, I’ve found that this supports high apartment occupancy levels and stable rent growth.
Understanding This Disparate Performance
Consider these trends:
• According to CBRE’s Q3 2022 report, apartment operators in the Northeast and Mid-Atlantic regions achieved rent growth of 7.5%—a performance second only to the Southeast by the slightest of margins.
• CBRE also reports that in Q4 2023 and Q2 2024, most regions saw rents decline or flatten. Meanwhile, rents in the Northeast and Mid-Atlantic grew 2.4% and 2.7% respectively, with the Midwest pulling ahead by only a fraction of a percentage.
The contrast in fundamentals and performance is most pronounced when looking at individual markets. Take Austin, a darling among investors seeking emerging tech markets. After seeing an average of 14,600 units under construction per quarter from 2014 through 2020, units under construction per quarter grew to more than 40,000 in each of the following three years, although they did decline somewhat to just over 30,000 in 2024.
That new supply outpaced demand and led to what may have been the worst vacancy rate and steepest rent contraction in the country. In fact, rents have been falling in Austin for two years. Meanwhile, the Northeast markets of Providence, Rhode Island, and Hartford, Connecticut, which garner far less publicity, achieved annual rent growth of 5.5% or better in the first quarter of 2025, placing them among the nation’s top performers, according to CBRE.
Distress resulting from negative leverage strategies in the multifamily sector has also fueled dire national headlines. I’ve observed a number of developers who embraced negative leverage and ended up overpaying for properties that didn’t have the income to support the amount of debt used to purchase the assets, and they typically targeted properties where renovations were expected to drive a quick escalation in rents. In turn, that was supposed to create an attractive acquisition opportunity for long-term investors in what was then a seller’s market.
But those strategies hinged on the continuation of robust rent growth and inexpensive bridge loans. I saw that rents were softening in many markets just as negative leverage bets were becoming fashionable and the cost of floating-rate financing was ballooning. Property values plummeted 20% to 25%, marking a definitive end to the seller’s market. This has contributed to an increase in underwater borrowers and rising foreclosures.
How Investors Can Strategize To Face These Challenges
If you consider the news stories of failed negative leverage strategies as another reason to avoid apartments, it’s important to realize that such deals account for only a sliver of investment activity. Moreover, you may still want to consider investing where those deals exist in otherwise strong markets, as strained balance sheets can force sales of otherwise attractive properties.
I recommend digging deeper into the asset class and looking for sponsors who are delivering more consistent performance by pursuing strategies that mitigate risk—an approach that could be considered contrarian when compared to more popular investment fads. Some sponsors will try to time the market, while others will focus on long-term investment and financing strategies. I’ve found that the latter can minimize exposure to fundamental and cyclical disruptions.
If renovations are needed, for example, you can use a longer-term buy-and-hold strategy to allow time to make the improvements as move-outs occur naturally, which can help you preserve occupancy and pursue continued income growth. What’s more, rather than risking a business plan collapse if a recession or other event interferes with the timing of a disposition, you’ll have the option to keep operating your assets and pursuing continued cash flow long-term.
However, this strategy may not be a good fit for investors who are seeking short-term returns or who lack the experience and resources required to manage assets over an extended period. If you don’t have a deep understanding of local demand-drivers and market fundamentals, as well as consistent access to capital, it may be difficult or even impossible to unlock the full value of the property. To address these challenges, conduct thorough due diligence on the property and its submarket. You can also consider partnering with a property management team that is familiar with the local real estate landscape and able to aid the efficient execution of your business plan.
Final Thoughts
It is true that certain fundamental and valuation dynamics are challenging some multifamily properties, and stories highlighting the difficulties are newsworthy. But rather than accepting the notion that negative stories reflect the entire sector, I believe investors would be well-served to perform more thorough investigations. Those who do may discover markets and sponsors that are delivering consistent growth and bucking the wisdom of headline writers.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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