Podcast Summary: The Rent Roll with Jay Parsons

Episode #50 | Jim Costello | Multifamily Capital Markets Update
Release Date: September 11, 2025

Overview

This milestone 50th episode of The Rent Roll dives into the current state and outlook for multifamily capital markets. Host Jay Parsons examines transaction data, trends in sales and debt, policy headlines, and talks with Jim Costello, Chief Economist at MSCI Real Assets (Real Capital Analytics), to unpack the driving forces behind today’s market dynamics. Key topics include transaction volumes, cap rates versus interest rates, value trends, distress in the market, investor sentiment, and the shifting policy landscape.

Key Discussion Points & Insights

1. Multifamily Transactions & Market Volume [(03:00–07:00)]

• Transaction Volume:

  • Through July 2025, national apartment sales totaled $77.4B, up 5% year-over-year—though last year was particularly soft.
  • Single asset deals are up 23% YTD (after removing outlier portfolio transactions like Blackstone’s acquisition of Air Communities), while portfolio deals dropped by 39%.
  • Total sales volume remains muted by historical standards, especially compared to pre-pandemic or peak years.
  • Multifamily still comprises about one-third of all CRE sales, above the 28% long-term average.

• Investor Sentiment:

  • Surveys consistently show enduring investor preference for multifamily and build-to-rent (BTR), with long-term fundamentals deemed solid.
  • Short-term uncertainties persist around pricing and expectations for rental or interest rate rebounds.

• Cap Rates vs. Interest Rates:

  • Apartment cap rates have only risen ~100bps from their 2022 lows (now averaging in the mid-5% range), while the 10-year Treasury yield is up 300bps and Fed Funds rate over 400bps.
  • The correlation between interest rates and cap rates proves weaker than commonly believed.
    • Quote: "The correlation between interest rates and cap rates is weak. Just...does not move like some of us want to think it should." —Jay Parsons (06:30)

2. Pricing Indices & Debt Trends [(07:10–10:00)]

• Values & Liquidity:

  • MSCI’s property price index shows apartment values improved 40bps YoY after declines in 2023–24, suggesting a potential bottom or early recovery.
  • The abundance of capital and liquidity stabilizes values.

• Debt Originations:

  • Multifamily debt originations are up 43% in 2025’s first half.
  • Totals now match or exceed 2017–19 levels (though far from 2021–22).
  • Debt is more expensive but widely available from a broadening pool: debt funds, banks, insurers, and GSEs.

3. Market Distress & "Wall of Maturities" [(09:30–13:00)]

• Predictions of broad-based distress haven’t materialized despite 2025’s “maturity wall.”
  • Lenders remain largely patient, often incentivized to work with borrowers unless recovery is clearly out of reach.
• Estimated distressed maturities total $81B (2025) and $62B (2026)—just 4% and 3% of the multifamily debt market, respectively.
• Distress Misalignment:
  • The majority of true distress is in older, high-leverage, mislocated properties—assets outside the buy box for most opportunistic investors.

4. Noteworthy Headlines & Policy Trends [(13:00–27:00)]

Headline Recap Segments:

• Emergence of Millionaire Renters (NYT) [(14:50)]:

  • The number of millionaire renters tripled from 2019 to 2023, underscoring increased demand for flexibility and liquidity, especially in expensive/coastal markets.
    • Quote: "They're choosing flexibility and liquidity over ownership. They don't want to be bothered with the inconvenience of homeownership." —Florida Broker quoted by Jay (14:50)

• Massachusetts Rent Control Ballot Initiative [(17:37)]:

  • Proposed ballot measure would cap annual rent increases at the lower of CPI or 5%.
  • Exempts public housing/nonprofits, applies retroactively, and contains a 10-year construction carve-out.
    • Quote: "That's not nearly enough to make the construction market liquid... It's much more about going after landlords than about helping renters in need." —Jay Parsons (19:39)
  • Historical perspective: after Massachusetts removed rent control in the ‘90s, property values, maintenance, and crime rates improved (Freakonomics cited).

• Minnesota Public Housing Discrimination Lawsuit (Star Tribune) [(21:28)]:

  • Legal challenge alleges public housing tenants have fewer protections and endure substandard conditions, highlighting regulatory inconsistencies.

• NYC Airbnb Ban Results (WSJ) [(22:10)]:

  • Two years after a stringent crackdown on short-term rentals, rent prices remain high and supply hasn't eased.
    • Quote: "Banning short term rentals is a good example of an emotionally satisfying vote... and it ends up being a false promise." —Jay Parsons (23:37)

• Denver’s ‘Ghost Tax’ on Vacant Rentals Proposal (CBS News) [(23:35)]:

  • Proposal targets supposed "vacancy truthers" with a tax on landlords for six-month vacancies, despite Berkeley’s similar tax raising virtually no revenue.

Data-Driven Trivia & Market Standouts

Rental Housing Trivia:

• Question: Which MSA showed the largest increase in trailing 12-month apartment sales (major metros)?
  • Answer: Las Vegas—up more than 4x, surpassing $2B in sales, far outpacing other cities. [(27:00)]

In-Depth Interview: Jim Costello, MSCI Real Assets

(Starts ~29:30)

Cap Rates, Liquidity, and the Interest Rate Debate

• Jay Parsons: Would you have believed cap rates would rise only 100bps despite a 400bps move in Treasuries and Fed Funds?

• Jim Costello:

  • "Interest rates have an influence, but... other forces at play drive [cap rates]. Market liquidity is an important part... income growth is important as well." [(30:31)]
  • Institutional capital has shifted away from office/retail and rotated into multifamily, boosting competitive liquidity.

• On Peter Linneman’s Famous “Nicolas Cage”/Cap Rate Analogy [(33:10)]:

  • Jim: "They do kind of rhyme, but it doesn't always move one-to-one... Income growth, liquidity... if you're just thinking about values based on real estate alone, you're only getting part of the picture."

Have Multifamily Values Hit Bottom?

• Jim Costello:
  • "If we had an unsustainable surge in apartment prices from 2020 to 2022... it's come down to a more normal level... the vintage of when you got in matters tremendously." [(36:10)]
  • Some sectors/investors suffer who entered at the peak; those invested before still show considerable appreciation over time.

Rents, Supply, and Market Outlook

• Supply has peaked; new construction will slow due to higher costs.
• Investors price in future rent growth expectations, and prefer multifamily/industrial over office/retail due to less capital expenditure needs.
  • "Investors have shifted over to industrial and apartment because... it's just easier" [(39:07)]
• Stability (even at elevated rates) could encourage deal flow by reducing uncertainty, though volumes remain below peak.

The Nature of Today’s Trades and Cap Rate Data

• Most sales involve higher quality/newer assets due to institutional buy boxes; hairier deals (older, lower-quality) see much less activity.
• MSCI’s indexes adjust for these quality skews, providing a more accurate read:
  • "We look at every building when it sells and when it next sells... to control for the movements in the market on prices that were just about the market and not about asset quality." [(46:43)]

Distress Dynamics & Private Credit

• Current distress is limited and highly concentrated ("older, poorly located, bought at the peak with high leverage").
• Private credit (debt funds, pref equity) is cushioning the market, providing options that delay or prevent forced sales, unlike prior cycles.
  • "The growth of private credit... is preventing the rapid collapse that we saw after the GFC." [(53:00)]

What Will Kickstart Deal Flow Again?

• For institutional capital, lagging investment returns are the key trigger for increased deployment.
• As returns in multifamily rebound (with recovery in rents, values), allocations will likely follow—likely impacting the market around 2027–2029 due to the lagging nature of return reporting.
  • "Once investment returns start to pop up in a strong way, that will tend to drive institutional investors back into the sector." [(55:25)]

Timing the Next Cycle

• Being early in new construction as the recovery is identified (not after returns surge) will yield the highest returns, but it’s a risky play most large institutions make (“everyman’s market” is still dominated by small/local developers, which supply 75% of starts).

The Debt–Equity Shift & Dry Powder

• Institutions have shifted to private debt for now—more equity will follow as returns become attractive.
• Much-touted "dry powder" ($75B+ in closed-end funds, more in open-end) won’t automatically flood the market—it requires viable opportunities.
  • "If there is not a good investment opportunity for that capital, it’s not like they’re just going to put it to work simply because." [(64:50)]
  • Private credit’s prevalence results in more "loan-to-own" scenarios and a more orderly (if slower) price re-discovery than past downturns.

Notable Quotes & Memorable Moments

• On Cap Rate and Interest Rate Correlation:

  • "The simple fact is they do kind of rhyme. But…it doesn't always move one to one."
    — Jim Costello [33:25]

• On the Appeal of Multifamily:

  • "If you buy an apartment building, at least you know you've got a hard asset and some scheduled income."
    — Jim Costello [45:20]

• On Private Credit’s Cycle Impact:

  • "What [debt funds] have done…is get some high-cost debt...almost basically paying anything to roll the dice one more time."
    — Jim Costello [52:00]

• On Policy Distractions:

  • "Banning short term rentals is a good example of an emotionally satisfying vote…ends up being a false promise."
    — Jay Parsons [23:37]

Timestamps for Important Segments

• Multifamily Sales & Cap Rates Context: 03:00–07:00
• Values, Debt, and Market Stability: 07:10–10:00
• Distress Data & Maturity Wall: 09:30–13:00
• Headlines Recap (Millionaire Renters, Mass. Rent Control, etc.): 13:00–27:00
• Rental Market Trivia (Las Vegas): 27:00–28:05
• Interview with Jim Costello Begins: 29:30
• Interest Rate vs Cap Rate Dynamics: 30:15–35:22
• Market Pricing & Value Trends: 36:10–38:53
• Current Deal Composition & Distress: 45:59–54:46
• Deal Flow Outlook & Institutional Dynamics: 54:46–57:32
• Supply/Demand & Timing Recovery: 57:07–59:14
• Shift to Private Credit and "Dry Powder": 59:34–68:36

Episode Tone

Jay Parsons brings a data-driven, candid, and occasionally wry tone—challenging policy orthodoxies, expressing skepticism at political quick fixes, and repeatedly steering listeners back to evidence and fundamentals. Jim Costello matches this with clear-eyed, cycle-wise insight, occasionally humorous and always grounded in deep market experience.

Perfect for listeners who want a nuanced, timely, and practical lens on multifamily capital markets—and what to watch for in the coming cycle.