A (2:57)

A great job too.

B (2:58)

But that's just one I really always look forward to looking into. So I'm grateful to bring in Mike and talk shop with him on deal flow, on distress, on investment opportunities, debt funds and some other things.

A (3:10)

So stay with us for that.

B (3:13)

Now let's give a quick shout out to our headline sponsors are very grateful to have two great headline sponsors of the Rent roll in addition to many wonderful partners sponsoring the individual segments of the show. So first, a big thank you to jpi, a leading apartment developer with a state of purpose to transform building, enhance communities and improve lives. Check them out@jpi.com and then of course, always grateful. In addition to JPI, always grateful to Madera Residential, a leading apartment owner and operator in Texas, as well as to funnel the AI and CRM platform. One of our longtime segment sponsors, grateful for them as well. All right, so as always, kick it off with here's a chart. And today instead of charts, we got for you, 10 predictions from 2024 going in 2025. And we're grading ourselves and how we did. So this takes us back to episode 15 of this show. That was 49 episodes ago when we gave our top 10 predictions for multi family and single family rentals for 2025. So we're now rolling back the tape to those top 10 predictions. I'm going to tell you what I said back then and we'll see how those predictions held up. And if you don't like the way I grade myself, feel free to grade me however you'd like. I won't be offended. All right, so you ready? Let's jump in. Number one, here's what I said. Apartment construction starts are bottoming out. And the full quote is I think we're likely nearing the bottom on apartment starts. Starts are already at 10 year lows. I think we'll stay within shutting distance of those numbers A lot of headwinds for developers right now, obviously. All right, so I'm giving myself a point for that one. Some people did think the starts would keep plummeting in 2025, and that did not happen. In fact, fact, in terms of market rate apartment starts, we had about 237,000 that started in 2024. According to RealPage Market analytics, the most recent data for 2025, the trailing twelve month numbers have us at 235,000 units. So they really have leveled off around that level and for all the reasons we talked about previously on the show. So I'm not going to go through all that. And I, and you know, we're not doing predictions here today. That'll be next episode. But I suspect those numbers will hold up pretty steadily in 2026 as well. But again, we'll dive more into 2026% predictions in the next episode. All right, number two, apartment demand will remain strong. So here's what I said last year. I said I think we'll continue to see strong demand for apartments. Maybe a bit lower than 2024, but still good. Okay, well remember, we're talking about demand in terms of net absorption or renter household formation, not leasing velocity.

A (5:57)

Okay.

B (5:57)

And those numbers for absorption did Indeed remain strong. 2025 is on track to be one of the best years on record for net absorption, according to both Costar and RealPage. Still a bit below 2024, which is what we said would happen. So I'm going to give myself a point for that one, too.

A (6:15)

You know, in fairness, I think a.

B (6:16)

Lot of people probably got this one right. I think that was a pretty mainstream view.

A (6:20)

But, you know, certainly there were voices.

B (6:22)

Out there that thought that demand would taper off significantly. That didn't happen. So 2025, still a very strong year for absorption. All right, number three, wage growth will outpace rent growth again. So here's what I said. I said I think affordability will be a demand tailwind. Wage growth has outpaced rent growth for two years. And I think that'll happen again in 2025. Though that spread will likely compress. That should keep rent income ratios stable or maybe even drop down a bit more, at least for market rate professionally managed apartments. All right, so I will tell you, of all the predictions from last year.

A (6:56)

This one I actually felt very good about.

B (6:58)

I thought it was pretty obvious, but.

A (6:59)

Sometimes I feel like I'm the only.

B (7:00)

Person talking about this one outside of apartment REIT execs on their earnings calls. But indeed, wage growth has far surpassed rent growth in 2025. The latest wage growth data from the Atlanta Fed's US Wage Tracker shows 4.1% wage growth, which by the way, is still above pretty pre pandemic norms. Now, that data is only through September, so we'll see as that data gets further updated. But that number's still been very good despite the slowdown in the job numbers. That's been a positive. But anyway, that compares that 4.1 wage growth compares to basically 0% apartment rent growth and SFR rent growth around 2%. So that is a win for affordability, it's a win for the widening demand funnel for apartments and sfr, and it's a win for my prediction. So there we go, three for three so far. But now we get to number four. This is where it's a little more a mixed bag. Okay, number four, operators will continue to prioritize occupancy over rent. And of course that part, I think I and everybody else got that one right. But. But you'll see as we get into this, a little more nuance. That's why I'm giving myself kind of a half point for this one.

A (8:04)

So I'm going to read you a.

B (8:05)

Statement I made last year and you'll see which part held up and which part didn't. So here we go. I think we'll continue to see property managers prioritize occupancy over rents. In most markets, that means a heavy focus on retention. I was wrong about retention in 2024. I thought it'd go down given the increased number of options renters had in 2024 with rising supply and vacancy. So here's where I get it wrong. So maybe I'm foolish for doubling down, but I think retention rates will have to tick down a bit in 2025, particularly as concessions burn off and some renters will choose to chase another concession or better deal or a better deal somewhere else.

A (8:42)

Okay, so I was joking last year.

B (8:44)

About how I was wrong about retention in 2024. I thought when 24 that retention would go down not because of affordability and we asked to purchase, but simply because it was the highest supplied year in a half century and renters had a huge number of options all of a sudden with vacancy higher and all this new supply. So I doubled down on that bad guess for 2025 by saying, hey, this has to be the year retention goes down a little bit. And I was wrong. It went up yet again somehow another 140bps or so nationally, according to the real page Data, even with renters paying a premium to do so.

A (9:20)

And partly because I think in many cases there.

B (9:23)

Was still some embedded loss to lease.

A (9:25)

So you can still get a little.

B (9:27)

Bit of renewal rent growth from the operator without really pushing somebody over the hump on finding a better deal to move out. But on the bigger topic here, you.

A (9:37)

Know that, that part we got right.

B (9:39)

That operators continue to prioritize occupancy over rent. You know, I think that was obviously one of the big themes for 2025. That's no secret whether large operators, smaller operators, everybody was prioritizing occupancy over rents in 2025. And that'll likely remain a theme going into the first part of next year as well, until we see improved occupancy rates. So anyway, we're giving ourselves a half point for that one. Number five, apartment rents will grow by the low single digits. All right, so here's what I said. I can see a pretty broad range of possibilities anywhere from flat to maybe even mid single digits. In a bull case scenario, my guess is we'll end up in the low single digits on rent growth for 2025. But I really do think the range of possible outcomes is bigger than usual in 2025. And that's just because this is an inflection point, a transition year, given the shifting trends in supply right now.

A (10:32)

Okay, so this one, I'm, this one was a mess. I'm giving myself a mess.

B (10:35)

I mean, I did give you that. I said, hey, there could be a broad range of outcomes. And I did give you a scenario.

A (10:39)

Where it could be zero or it.

B (10:40)

Could be flat, but I'm not giving myself points for that. Okay, I'm going to be a tough grader here. I, I, I saying 0 to 5%. No one should get any credit for that whatsoever. And I'm not going to pat myself on the back for saying that. I think I, I do.

A (10:54)

Looking back on this, I think the key point was really like there was.

B (10:57)

A broad range of outcomes.

A (10:59)

And I think the while the fact.

B (11:01)

There was a lot of demand but even more supply and the prolonged nature of trying to work through that supply, that meant continuing to prioritize again, occupancy over rent. And so that's, that's what played out. And so I thought we would my again, I kind of gave you, hey.

A (11:15)

I think low single digits, say 1 or 2% know depending on your data.

B (11:18)

Source right now we're closer to zero percent. Right now. Some have it positive under one, under one percent. But either way went around that to zero. So I'm giving myself an X on that prediction. All right, number six, Midwest and coast will beat the Sun Belt again on rents. I said of course rent growth will will vary a lot by market. I think we'll see another year of.

A (11:40)

Of, of a tip of typical coastal.

B (11:43)

And Midwest of the typical coastal and Midwest markets outperforming over the Sun Belt. All right, so that one wasn't hard. I'm pretty sure everybody said that given the supply wave was still continuing on into the Sunbelt and mountain region in 2025, that may start to change 2026. But again, we'll talk about that one another time. So we'll give ourselves a point for that one. But I'm sure everybody who's making a guess in 2025 should have got that one right. All right, number seven, apartment sales volumes will pick up moderately. I wrote or I said on this podcast, the numbers and second half of 2024 appear to be on track to top 2023's second half. So we could be turning a corner leading to a moderate pickup in deal flow versus 2024. Okay, so year to date sales volumes are actually up 9% compared to the same time last year. I think that qualifies as a moderate pickup. Right, so I'm giving myself a point for that one. And again, that's probably pretty mainstream view. I don't think that was going too far out an allege. We'll talk more with Mike Wolfson today about where sales volumes are, where they might be heading. Number eight, apartment distress will remain limited. Obviously a lot of headline noise around this. When we talk about this a lot in this podcast.

A (12:55)

Let me read what I what I said last year.

B (12:56)

I said we'll likely see more distress emerge in 2025 and it'll make a lot of noise, but it's going to represent only a small share of the market. The vast majority of the US multifamily will be just fine. And furthermore, I think much of that distress won't match the buy box for investors looking to buy distress. And everyone wants newer, vintage, well located apartments with minimal capex needs. But strong appetite for that product will limit distress and put downward pressure on cap rates for that segment of the market I'm talking about.

A (13:25)

All right, so obviously, I mean we.

B (13:27)

Could say distress is a little bit subjective, but I think thematically we got that one right. Distress sales have certainly picked up a little bit, but it's not a needle moving number. It's not, it's not a widespread issue Right now, foreclosures remain pretty limited. They didn't really move the market either. And apartment pricing did improve a bit in 2025. Didn't get pulled down by distress sales. Of course, there's still some stuff to work through in 2026, so we're not out of the woods on that. But we're going to talk to Mike later today about.

A (14:00)

He's got some really good estimates on.

B (14:02)

Distress and what impact that may have. So stay with us if you're interested in that topic because that is an interesting one.

A (14:06)

We're not.

B (14:06)

Again, there's still some stuff to work through there. All right, number nine, SFR acquisitions will remain muted. I wrote or I said any pickup in SFR investor acquisitions I think would be rather modest. And for the bigger players, I think they'll continue to focus on build to rent construction and portfolio acquisitions over buying individual homes off the mls.

A (14:28)

All right, so I, I mean this.

B (14:29)

Is one where I think anybody paying attention probably got this one right.

A (14:32)

If you're just, you know, a loudmouth.

B (14:34)

On social media who doesn't really follow the market, you may have said otherwise, but this is just a matter of being, you know, even somewhat in tune with reality. John Burns Research and consulting data shows large SFR investors purchased about 3,000 homes last year that amounted to just 0.5% of all home sales. The current trailing twelve month data shows us right at the same numbers, right around 3,000 homes, right around 0.5% of home sales. So just not a lot of buying activity. Investors are sidelined too, just like a lot of individual home buyers. And of course we continue to see a bigger share of SFR capital going into new BTR construction and purchases from home builders. So not a big shocker there. And that takes us to our 10th and final prediction for 2025. We said SFR rent growth will slow from high threes to around 3%. That's why I say we said as if I'm giving you any of the blame for this one being wrong. I should individually take the blame here. I said this, I was wrong. Here's what I said. I said a slow for sale housing market is absolutely not a strong demand tailwind for SFR demand and therefore rents. Usually the two are more correlated. John Burns research and consulted is. John Burns Research and consulting is forecasting 3.1% which will be down from the current number of 3.7% and will be the lowest since 2013, which is when SFR rents grew two and a half percent. And I think that's a reasonable outlook. Okay, so I did get that rent growth in SFR would slow down, but I'm not going to give myself a point here. It did slow down more than I expected. I said 3% and I think we're on track to end the year round. 2%.

A (16:16)

I think we're at 2.1% or something.

B (16:18)

Like that right now. So to miss by a full percentage point, that's a miss. All right, so what happened? But you know, it's kind of ironic.

A (16:25)

Because honestly, I should not have missed.

B (16:27)

This because this time a year ago, if anything, I felt like the naysayer for SFR rent growth. A lot of people were saying the SFR demand and rents were going to boom because no one was buying houses. I was saying the opposite. I said the lack of home sales is a headwind for SFR rents because SFR sees more rent growth and homes are appreciating and selling. So I was directionally right, but I, but what I got wrong is I didn't have enough conviction and in my own conviction, I didn't go far enough, ironically. So there's a lesson learned. But SFR rent growth did indeed slow from around 3.7% last year. It's going to end up around 2% this year. So basically cut in half. Of course, that's for new leases according to the John Burns data set. And by the way, speaking of John Burns, we will have the one and only John Burns of John Burns Real Research and Consulting. He will be our first podcast guest of 2026. We'll be off next week for the Christmas week. We're back on January 1st with John Burns. And we'll get John's take on predictions for both the for sale and for rent markets, as well as mine for 2026. All right, so there's a wrap. That's what we got. We got right what we got wrong. Tally them all up. We given given ourselves seven and a half points out of ten. So not bad, but we'll see how we do next year. All right, next up, rental housing trivia. All right, today's trivia is presented by Foxen, which provides a suite of value add solutions designed to improve operations compliance and property performance, rethink renters insurance compliance, rent reporting and pet management with Foxen. Check them out@foxen.com that's f o x e n.com so today's trivia. This one's going to be a good reminder that it's hard for any individual market of staying power at top a leaderboard. Okay, so just like I went back like my predictions, now we're going to go back into the rent growth leaderboard charts of 2024. It's a good reminder for why investors don't place bets based on point in time rent growth. So I'm going to give you five markets and ask you what of the which of these five markets led the nation in apartment rent growth in 2024, according to both CoStar and RealPage? And those five markets, I'm going to give you five choices. Detroit, Kansas City, Pittsburgh, Richmond, or Sacramento. Now, all of these markets rarely crack the top five list for rent growth in any given year, but again, one of them led the nation in rent growth for 2024 and it since dropped out of the top 10. So which one is it? Detroit, Kansas City, Pittsburgh, Richmond, or Sacramento? We'll give you the answer here in a bit. But next in the news. In the news this week is sponsored by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline, your leasing funnel and comps and tell you exactly where things are breaking down, plus strategies on how to fix it. So listeners of the pod get 50% off. So head to authentic ff.com and click on the banner to learn more and claim the offer. Okay, so two headlines this week. The first one comes from PR Newswire. It's a press release. It says, AIMCO enters agreement to sell Chicago apartment portfolio for $455 million. Closing scheduled for Q1 2026. Okay, so this one, you know, I don't like to see apartment REITs that are working their way to the exits, but that's what this one's about. Aimco continues to wind down its business. Here's another sale along its way out. 1,495 units across Chicago selling for $455 million. The buyer is Latera Capital Management, along with its partner Res Park Res Residential, again expected to close in Q1. And here's the kind of sad footnote in the press release. It says this quote, if closing occurs as planned, AMCO intends to distribute the majority of net proceeds to shareholders pursuant to AMCO's Plan of Sale and liquidation, which we expect to put before shareholders for approval in early 2026. So that part is not news as previously announced. But I just hate seeing another publicly traded REIT take a step closer to the exit, and particularly aimco. I mean Those of you who've been around a few years, you know that aimco was at one point the largest apartment owner in the world. Back in, I believe it was 2001, they had around 265,000 units. So, you know, just for some context, that's double what Gracetar owns today. And Graystar is atop the NMHC top 50 ownership list. So that's a lot of units. AIMCO was huge, but they started sizing down after 20 2001. They started slowly kind of selling off some, some assets, you know, then eventually, obviously spun off most of its apartment portfolio when it spun off Air Communities as a separate reit. And then of course, Blackstone acquired Air, and now AMCO is working to wind down what little remains of the portfolio. All right, next headline comes in the Wall Street Journal, what the Twin Cities tells us about fixing the housing crisis. St. Paul enacted rent controls and housing construction plummeted next door. Minneapolis generated a downtown boom without regulating rent. So I got to tell you, I saw this news article in my feed and I, I did a double take. I thought, wow, like, I can't believe this is in the Wall Street Journal. It's in the, the news section of the Wall Street Journal. I typically expect to see this in the op ed section. This was in the news section where it belonged to be, by the way. So we've talked about this before. Many of you know that St. Paul enacted rent control in 2022. So this article compares the outcome in St. Paul versus its next door neighbor in Minneapolis. And it's like a tale of two cities that hammers home what the science told us was going to happen, which is that rent control backfired on St. Paul. So I'll show you. Share with you three quick highlights from the article. Number one, rent control sideline, St. Paul from the nation's biggest building boom in a half century. Here's what the article said. It said, quote, real estate investment activity nearly froze. Developers halted new projects as lenders pulled back. And then they compared that to Minneapolis. They said, quote, developers kept building in Minneapolis. Housing permits surged nearly fourfold in early 2022 from the year before. Second thing it said, it told us that rents actually increased more in St. Paul than in Minneapolis between 2022 and 2024, because obviously the latter built a lot of apartments while St. Paul did not. And so St. Paul operators were really incentivized, try to just push rents the maximum allowable, which is 3%. So that's what happened. We saw a lot of that. So third thing the article told us is that St. Paul renters and homeowners, perhaps surprisingly, are paying the price for going against the science and passing rent control. So here's what the Journal said. It said, quote, property values in St. Paul fell at least 6% because of rent control. And that was just in 2022 alone, by the way. Landlords often stopped upgrading their properties and with lower values, they pay less in taxes, shifting the burden onto homeowners. So again, homeowners end up being impacted by this as well. So bottom line, if you want to boost affordability, trust the science, not the politics, and build, build, build. And a reminder, by the way, before we move on, that just like in St. Paul in 2122, there's a proposal in Massachusetts right now for a 2026 ballot measure that is equally, well, I should say, almost as equally draconian. I know some people think it's a stretch that'll get enough signatures to get on the ballot for a vote next November. But, you know, I, I just think with this kind of stuff is you don't want to take this, you don't want to not take this seriously enough. I sure hope I'm wrong on that.

A (24:38)

But I, I, I just worry that.

B (24:39)

We'Re not that I, I'm cons. I wonder if folks aren't taking this seriously enough, so we'll see how that plays out. But if it does somehow get approved on the ballot and event, if it does get voted for, it's going to chase out a lot of development capital from Massachusetts, including those Boston suburbs that everybody likes right now.

A (24:57)

All right, let's get back to today's.

B (24:59)

Rental housing trivia question. The question was, what market led the nation in apartment rent growth in 2024? According to both CoStar and RealPage. Was it Detroit, Kansas City, Pittsburgh, Richmond, or Sacramento? The answer is Detroit. The Motor City led the nation in rent grow in 2024 with 3.2% or 3.9% rent growth, depending on who you ask. Detroit still a solid, steady market, like much of the Midwest, but it has trailed off in recent months to around the 1% rent growth. And so right now here in 2025, San Francisco tops that leaderboard for rent growth. Will it have staying power for 2026? We shall see. But I would guess that more people are probably betting on that San Francisco holding onto its top spot than people did bet on Detroit to hold its top spot here in 2025. Next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more lead like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelleleasing.com so our guest today is a managing director and head of Cap multifamily capital markets research at Newmark, one of the nation's largest apartment brokerage shops. And he's based in New York City. He leads a team putting out some of the best apartment capital markets research in the industry. So check those out on Newmark's website if you don't already get them. So let's welcome in Mike Wolfson.

A (26:46)

All right, welcome to the interview portion of today's podcast. And I am honored to welcome in.

B (26:50)

Mike Wolfson from Newmark.

A (26:52)

So, Mike, thank you so much for being here.

C (26:54)

Thank you for having me.

A (26:55)

All right, so before we get into, you know, kind of the topics of the day, give us some of your story. How did you get into the industry? And more importantly, how would you get into multifamily research?

C (27:05)

Yeah, like a lot of your guests, I cast a wide net post college. I originally thought, you know, like a lot of kids, I was going to be a professional baseball player. Those dreams ended very early and I kind of stuck with the sports theme. I went to college for sports management, did a series of internships, and after I decided it just wasn't for me, I cast a wide net after college, got a job eventually at predecessor of Moody's that was later acquired by them and kind of introduced me to commercial real estate research. A few years later, Newmark was in the process of acquiring ara, and one of their big requests was when they were acquired that they'd have a dedicated multifamily capital markets research person. And I happened to get really lucky. I sat in our New York City headquarter almost equidistant from the CEO of our company and the president of our company. The head of Multifamily Capital Markets who lived in Charlotte, would come up every other week or so. He befriended me. I learned so much from him, learned about the business and really took, you know, a non traditional research route. I learned about, you know, what clients were looking for and it's really informed how I think about the multifamily business now.

A (28:22)

Fantastic. I love, I love, I always like to give people stories because, you know, nobody ever sets out thinking I'm man, I want to be in rental housing research. And all right, so I ask you a question that I guess all the time and I'VE just went through this exercise myself and I know, you know, every researcher wants to keep ourselves accountable to what we get right and wrong. So if we went back, rolled back the tape on your expectation for 20, 25 versus what actually played out, what do you think's played out as expected and what hasn't?

C (28:51)

I mean we were, we were pretty optimistic about absorption. Not as strong as it was, but we were pretty optimistic. Look at the end of the year we were kind of looking at where the 30 year mortgage rate was and comparing it to the effective mortgage rate of, you know, homeowners across the board. There was 70% spread at the time. We anticipated this would continue to keep the single family market very much in check, benefiting rental housing. So we anticipated that. We anticipated being as strong on the absorption side or as weak on the single family sales activity side. So we pretty much got that directionally right. One area we did not get directionally right was we also anticipated that would equate to rent birth. Right?

A (29:39)

Yeah.

C (29:40)

Supply falling off, you know, less activity, particularly about competition coming in from the, you know, construction lending aspect. We just saw all the metrics, forward looking metrics particularly really going in our favor. But it never equated to that rent growth. But Jay, as you know, like it was very nuanced this past year. The difference between regions and specific markets really took hold. It's, and it's almost like a continuation story. So we, we were rung there. I think, you know, also, you know, I know a lot of the people that are listening attend nmhc. I, you know, I was pretty positive following NMHC last year. It felt like the sales market, you know, buyers and sellers kind of meet and then we got the hiccup with you know, rates and the equity markets really reacting very quickly to liberation day. So I think that kind of blended growth in the first half. We saw some acceleration in the second half, but I think it did some short term damage at the time.

A (30:47)

Yeah, I agree on the rate side. I was impactful. It's funny, I think all of us probably take too literally the Federal Reserve.

B (30:53)

Board's own predictions for future rate cuts.

A (30:57)

And their dot plot surveys have not been particularly helpful. Let's talk more about fundamentals. I want to talk a lot more about get back into the capital flow, debt, equity. But I want to start with fundamentals. What's your take on the current state of the market? And then related question, when does rent.

B (31:17)

Growth return in your view?

A (31:18)

Like you said, I, I did too. I thought we'd see more rent code 25. So nationally and particularly in these higher supplied markets, when does it come back.

B (31:24)

In your, in your view?

C (31:26)

I, I think broadly speaking, rent growth is going to gradually tick up throughout the year. I think the second half is when it will materialize more. I still think we will be below long term averages though in 2026. And I think a lot of that has to do with the high growth markets that you're referring to. There is still immense pressure in those markets. As you know, the competition for renters. We are those high absorption numbers, maybe even the 15% rent growth we had two years ago. It feels like we're still paying for some of these things. Right. I was talking to a pretty big operator recently and they were kind of joking around about how, you know, there's a property that they own that was built two, three years ago, there's a property across the street that's offering effectively on an effective basis less than what they're charging. So that competition is very real, particularly in high growth markets. Right. So I think, you know, we're going to see a slowdown in absorption. But you know, we just also have to remember Last, sorry, the second quarter we had 4% demand compared to the overall inventory. That is a record level. We have never seen that most property types would, you know, die for that. It's just something that, you know, we have to look at and say, hey, this is, you know, abnormal in some sense. So I think, you know, the market's going to cool a little bit. I think what we're also going to see, fundamentals have been way ahead of the capital markets. I think we're going to get a year in 2026 where the capital markets are stronger than fundamentals. So there's going to be a catch up. I know something you and I have talked about offline is the variance in those top markets versus the bottom markets. I agree with your sentiment that it's not going to cause a structural shift, but I would not be surprised if you see greater allocation towards less correlated multifamily markets, particularly Midwest markets that those steady kind of markets. Columbus, Ohio is a great example. Right. It's, it's kind of just a market that's taken, you know, it's off the institutional list for a lot of folks, but it's slowly being added onto it. It's been very, you know, reliable. But I think, you know, if you're starting to look at these markets, that's one reason why you'll see strategic allocations maybe change over time. It seemed like in the previous cycle, everyone was all in on one economic region and that might change. And then as it relates to rank growth in particular, we've seen a wide divergence. I know you've covered this pretty substantially between class A and class C. Class A has really diverged and I think it speaks to the people that are largely in class A. Right. They're, they're doing much better in this economy. But you know, that relative strength is really there. And just going back to it, I feel like we might still be paying for these high absorption numbers. So I think second half we'll get some rent growth. I think we'll see some positive movement. It's just going to be lower than people want. I think once again it's nuanced now. Right. If you're in Chicago or San Francisco, that was beaten down quite a bit a year ago. These markets are going to continue to do pretty well.

B (34:49)

Yeah.

A (34:50)

And by the way, I agree with your point on. I think I'm interesting to see what markets become quote, quote institutional. You know, I think Columbus may be getting there. Indianapolis, Kansas City. You know, to your point though, Steady Eddies certainly seem to be more liquid.

B (35:04)

And institutional than they had been in the past.

A (35:06)

I'm with you there.

C (35:07)

Yeah. Just one other point. There is not a lot of lack of liquidity in multifamily, pretty much in any market. It's, it's about what becomes available. Right. So I just want to add that kind of point on. But you're, you're 100, right? Those, those three markets in particular have been relative afterthoughts to most institutions. I don't think that's the case going forward.

A (35:28)

Yeah, agreed. So a quick follow up question is we talked a lot about rent growth and you talked about maybe a better capital environment next year. It feels like some capital is just, particularly in the equity side is really just waiting to see some rent growth, some return of rent growth that could be a trigger for better valuations, more equity coming back into the space. Is that, is that a fair assumption?

C (35:50)

Yeah, and I think there's a couple things and you know, I know you and I have also discussed, you know, where, you know, rates are and things of that nature and what's causing that. It seems like to me that buyers are willing to take on, be able to, you know, buy at a higher rate if they believe they can grow out of rent, you know, grow out of that based on rent growth. What they are not willing to do is lose money. So it's a totally different story. So I think there's, there's, you know, appetite for, you know, being able to grow out and something they see on their horizon verse have alternative.

A (36:31)

I agree. So Mike, I, I've, I've told people this before. I think that your team puts out some of the best reports on multifamily capital markets out there. And so really I always like going through and see what charts you have and, and I always like to steal a few of them with, with full.

B (36:48)

Credit given, of course.

A (36:50)

But one of the charts I really like is you. Your research has highlighted the increased dividend debt coming into the multifamily market this year. You have this really good chart and we'll put it on the screen that shows debt originations year to date are pretty much in line with 2019. And 2025 may actually be the third or maybe the fourth best year ever for debt originations behind 21 and 22. And, and I view that as a positive trend. It's helping stabilize the sales and refi.

B (37:16)

Market, at least for certain parts of.

A (37:18)

The market and therefore some the values as well. And much of that seems to be coming from increased activity from the debt funds that seems to be driving it. And I remember a few years ago there's concern that maybe the debt funds are overexposed to multifamily and syndicators, but you know, they're very much still in the space.

B (37:35)

And so a question I want to.

A (37:35)

Ask you, Mike, is is there a permanent shift in now debt funds playing a bigger role in the market or is this just a cyclical trend in your view?

C (37:45)

Yeah, I mean, first and foremost, yes, we do have a great team at Newmark for research and really happy to work with all them. I, I think what, what we've seen is, and you're, you're right, we're on pace for our third best year in terms of originations. The market as of the third quarter was up 48%. That was led by the momentum, particularly in debt funds. Debt funds outpace the overall market at 85% year over year in the third quarter. And just Jay, to put this in perspective, get funds as a, you know, as a percentage of the share of lending have gone from about 11% to about 20% in 24 months.

B (38:22)

Wow.

C (38:23)

Meanwhile, every other, you know, lender group, as you can imagine, is either sideways or down, particularly banks. Right. So yeah, I, I, I, it's hard, it's too hard to say that this is permanent. Right. We've seen in the past debt funds and other sources of capital be cyclical, but at the same time, they are clearly benefiting from the flexibility that they have. Less pressure. And, you know, I would not be surprised to see debt funds overtake banks in the near future as the second, you know, biggest lender group behind gse.

A (38:54)

All right, so let's double down that because one thing I find interesting, and frankly, I don't understand the dynamics enough to really understand what's driving this, which is, you know, the banks are less involved today in direct multifamily lending, but they're also the ones funding many of these debt funds. And so from your perspective, what's driving their shift from direct lending and multifamily to this, you know, warehouse lending or whatever category you want to call it?

C (39:21)

Yeah. The biggest reason debt funds are succeeding while banks are not is the regulatory environment. Right. Banks are suffering from the consequences of, you know, they're in the penalty box in some shape or form. Right. And to be perfectly honest, most of it's from outside of multifamily. Their exposure to a lot of office really put them in a tough place. They're being pressured, they are still being pressured to de risk. So that limits their ability to lend. Debt funds, on the other hand, are not bound by that regulatory environment. They can be very nimble. They can, you know, offer bespoke solutions. So I think it really kind of says that, you know, they're trying different things, but, you know, right now it's allowing them to capture a significant share while banks peel off.

A (40:10)

Yeah, I mean, it's interesting just because again, like, the banks are still involved in the multi family just to do a different vehicle. And so I'm just, I'm curious how that ends up evolving and if that becomes, okay, just whether it's less regulatory spotlight or maybe, maybe there's, maybe the structure of these debt funds are more protected. I don't know. But I'm curious how that plays out.

C (40:30)

Yeah, And I think we're seeing that in a lot of different, you know, markets. Right. Private credit is one area where, you know, people are looking at the regulatory environment saying, hey, they've stepped up quite a bit. Right. So, um, it's not surprising that debt funds have, you know, really taken off. Um, it is surprising. It will be interesting to see how, you know, banks eventually, potentially, you know, get deregulated over time and see how that entry changes too.

B (40:55)

Yeah, absolutely.

A (40:56)

Because again, I mean, to me, I look at, maybe it's overly simple is like they're just kind of shifting from one account to another in some ways. So it's, it's completely inverse.

C (41:03)

If you look at our charts, it's, it's unbelievable.

A (41:05)

Yeah, it's, it's kind of wild. All right, so let's talk more about. Well, let's talk about distress. Obviously this has been a big story or maybe the lack of distress transactions for multifamily so far. And again, this is another one where you've put, your team has put together some really good data on potential distress. Somebody read some stats from your latest report. You're showing about $171 billion in potentially troubled loans scheduled to mature between 25 and 26. And just for some context, because I always like to do this like it's a big number. I don't want to downplay that distress is certainly real, but you know, we're still talking about a single digit share of a, you know, I think it's 2.2 or $2.3 trillion multifamily debt market. And so just high level question I want to ask you is, you know, what's the profile of the stress right now? Is it my perception these are older vintages, busted value adds, bought at the peak, less attractive locations, floating rate debt? Is that fair or am I off base?

C (42:03)

You're completely accurate. If we look at the profile based on the data, we see it's highly concentrated, smaller deals, so non institutional for the most part. And that's probably why we haven't seen a robust sales market for these deals or recaps or things like that. We also see this highly concentrated within CLO, which we know was really a vintage story, right? 2021, 2022. And then we see it concentrated once again in what we would consider cyclical markets, particularly in the Southwest. So I think all of the above what you mentioned is accurate, you know, and to your earlier point, it's not only a fraction of the market, but you know, it's also a market that we don't look at very often because it's not institutional.

A (42:54)

Well, there's not a lot of great data on it either, honestly, particularly from a, even a fundamental side. I mean, most of what gets tracked is going to be typically larger multifamily buildings. So it's harder to have a good pulse on this. So, you know, Mike, I'm curious, you know, just what's your take on how this plays out? Because I look at it as, okay, capital wants to be in more, you know, institutional quality, you know, new. Another thing you got great data on is this, you know, the capital's really Shifted toward newer vintage. I think you show two thirds of all sales or properties built since 2000, which we know are generally larger, more institutional, multifamily buildings. And so like what happens with these older sub institutional deals, like who's the buyer for these and or what, how does this play out?

C (43:33)

It's a great question. I mean we, you know, Newmark represents a lot of different buyer sellers and this is just one area where I personally thought recaps were going to be more conducive. But to the earlier point, right, these are smaller deals, these are just harder deals to kind of, you know, get through the system. And a lot of the operators in this are, you know, smaller to say the least. So I think it plays out over time that phrase that let's get through 2025 kind of thing. It seems like this is going to take longer for those smaller deals.

A (44:06)

I think what we've seen survive till 25 is out the window. No one likes it.

C (44:10)

Yeah, I'm hearing this for like two years now. But like, you know, for smaller operators and smaller deals, it's just a totally different set of data as you mentioned. So you know, as it relates to the sales though, you're, you know, we have highlighted some of the things that we brought up. Right. Momentum in the third quarter was great for multif family in terms of showing some positive momentum year over year. In the third quarter, sales volume was up 13%. If you look at the trailing 12 months, it was up about 23%. So as I mentioned before, I thought we would have had better numbers if not for our liberation day. It seems like we're starting to get those come in. We're also pretty encouraged. Right. You know, the numbers that were coming in, you know, shows a clear investor appetite shift towards these newer properties. Something we highlighted in our most recent report was about 52% of all trades are happening in properties that were built in 2010 or later. So there's been, you know, I think right around the time that rate started, the Fed said, hey, we're going to raise rates. 2022, you started hearing the sentiment really shift. That value add may not make sense for a lot of investors. And as you and I know, Jay, value add was so it was a popular trade for 2015-2021. It seems like it's very much out of favor now given sensitivity to it. So I think operators don't want the same kind of capex or having to sink a ton of money into a property to improve it to boost rents slightly. I think Class A 2010 and greater. It's really where invest, you know, most of the bigger investors are looking.

A (45:55)

Yeah, to that point. When y' all put out that, that chart on that, I went, I went and looked at it and I compared it to the size of the stock. And so to take, I took your data. You showed, I think you said it was 52% of sales where properties boasted 2010, that's only 22% of the supply. And then if you look at Even further since 2000, which is funny, like I talked to some institutional investors, like yeah, we're, we're, we're, we're still in value add. Okay, well, you know, but it's, it's got to be built 25, 30 years ago. So that's, that's not like it's 70s.

B (46:22)

Right.

A (46:22)

But you look at that since 2000, that's 29% of the stock. And according to your analysis, it's 67% of the sales. And so it really has shifted. And so Mike, you know, one thing that I, I know it's always trying to play out, but I want to run this by you. It's like one of the things I think we'll see more of next year is I think we'll see further widening spreads between, you know, class A, newer vintage and class like true. I don't, I don't like B C. I know a lot of your broker buddies say B C. I hate that. It's like true class C. You know, that was so much cap rate compression last cycle. I think that's going to widen out further a little bit. Is that, I mean. But tell me if you disagree. I'm certainly open to that.

C (47:02)

I think we've seen that happen for probably the better part of 12, 18 months already. I think it will continue. I think appetite from investors are clearly towards that. And I know you mentioned that you've talked to a lot of value add investors. I would bet most of their recent purchases are not in the value add space. So people are moving up that quality scale. The flight to quality is something that you see across commercial real estate. So it's not just multifamily, but it seems like something that's definitely trending up, you know, right now.

A (47:44)

Yeah, I think it's just a redefinition of what value add means. Like it's not. There's less appetite for the heavy value add of the 45 year old property. It's more of a light value add, redoing cosmetic upgrades and, and maybe a few other things. But it's not, you're not gutting the property or coming close to that. It's. So speaking of, everybody asked one other question about that. What about the buyer pool? How do you see that evolving? You talk to your brokers and looking at, you know, what's coming in your clients, like do you think the buyer pool will expand at all next year? Will it continue to be dominated by kind of well capitalized longer term holders?

C (48:20)

I mean if you look at the buyer pool this year, it's, it's household names, well capitalized fundraisers. I think you'll continue to see the bigger groups very much involved in the larger, you know, the 25 plus million dollar segment in the market. Look, one thing that's interesting about multifamily though, there's always emerging groups coming out of, you know, maybe you know, a principal left, another firm, etc. So there's, there's, you know, opportunity for that. And also multifamily is just different. Right? You and I know this pretty well. The amount of single asset trades makes it much more appetizing for a lot of groups, right? You can, you can buy, you know, you know, a 25 million dollar deal, you can buy a 50 million dollar deal if you want like good industrial. You're having to buy in a big portfolio that's going to cost you a lot more. Obviously data centers are very much in favor right now, but it's extremely hard to get into those. Right. Those have to be built. So multifamily benefits from a lot of, you know, capital formation, particularly with the well capitalized groups, as you mentioned before.

A (49:27)

Yeah, yeah, that makes sense. And it seems like if anything there's probably more of those groups coming into multifamily increasing their exposure to it. But we might be a ways from getting, you know, the, the smaller syndicators back in the market until there's, you.

B (49:41)

Know, more, more rent growth or lower debt costs.

A (49:45)

You mentioned we talked earlier about rates. Obviously that's a hot topic as well. And you know, I don't know about you Mike, but I hate people ask me predictions for interest rates because I don't know, you know, we could pretend like we have ideas but we're just, we're just, you know, I always tell people like, you know, in our jobs, like there's some things I feel a high degree of confidence on. Other things I'm like, I don't know, like this is a very small degree of confidence if I give you my take. But anyway, I'm getting off rail here. Let me ask you, so what do you make of the, the, the, the low spreads right now between apartment cap rates and interest rates obviously have come down quite a bit. And we talked to buyers and you alluded this earlier. They see those numbers widening once Rencorth returns and that makes the going in cap rate less relevant than in the past. Is it as simple as that? Is this just about, hey, going in versus what you are really buying for, which is the, the, the exit cap rate?

C (50:39)

Well, I, I, I think a couple things are true, right. In the last cycle we saw, you know, a deep, a change of the guard almost. Right. I, I'm, I'm here in New York City, you know, people were used to paying very low cap rates for limited income growth to say the least. And then people would buy lower cap rates in the Sunbelt and see massive appreciation and income growth. Right. I think they're looking at it more holistically in terms of total returns. So I think that's part of the story. But I mentioned earlier, it seems like the one thing that people are willing to take on in terms of risk is hey, if I can grow this out with rent growth, I feel a lot more comfortable than I would with, yeah. Losing money on a, on an investment.

A (51:29)

And there in my perception is that buyers today are banking more on rent growth going from, you know, zero or negative something to even a normalized number than they are on rate cuts. Is that for, for getting that value?

C (51:46)

Yeah, look, I think there's a really strong basis playing a lot of these growth markets. Right. Rank growth is negative in pretty much all of the top 50 markets that are in the Sunbelt area. Sunbelt region. I think people are saying, hey, look, long term we continue to believe in the story that these markets are going to outperform and for that reason we're willing to take that risk.

A (52:10)

Yeah. And that's why whenever I read these sort of more theoretical pieces on how buyers say, are crazy, it's like, well, to your point, like there is, there is a, if you think these, if you're only looking at it as a very short term hold and you don't.

B (52:23)

Think there'll be any rent growth for.

A (52:25)

The next five years, five to eight, 10 years, whatever the hold period is, then sure, but that would be an unprecedented phenomenon if that actually happened, especially with little supply hitting over the next few years. So it doesn't seem like the craziest bet to me. But maybe, you know.

C (52:41)

Yeah. And frankly, Jay, like you, you know, multifamily, we've gone through this evolution. Right. I mentioned the value add cycle of the 2015 through 2021. We saw a lot of value add vehicles go in and out of fundraising, out their vehicle in five years as opposed to seven or ten. So you can move quicker in certain markets. Obviously we're not in that market right now, but if someone were going to say, hey, we're not going to get any rent growth for the first three to five years, I think most investors would probably hold off on that deal right now.

A (53:15)

Yeah, yeah, if, if that was somehow true. But I think it would take a, a much more macro slowdown to, to, to. I mean, you have to be very bearish on the broader economy to expect that for sure. All right, so, and by the way, in that case, you're probably not buying anything.

C (53:31)

So no, forget apartments.

A (53:33)

There's nothing. You're investing. You're just investing in, you know, Treasuries.

B (53:36)

And gold or something.

A (53:37)

All right, so, Mike, I want to put you on the hot seat. You shared earlier. You think that rent growth will be a below average next year, but, but, but incrementally get better throughout the year, which I think is a reasonable take. Let's talk about the, the capital markets a little bit. Give us your predictions for 2026 for apartment values and sales volumes, your big picture as well as any thoughts on, you know, the composition of how deals and buyers and locations evolve in the next year as well.

C (54:05)

Yeah, I mean, I have to say this part, barring any black swan event, I feel pretty confident. And you have to say that these days, right? I feel pretty confident of the market. The investment sales market and values are going to rise. I would bet the investment sales market increases about 15 to 20%, which seems pretty achievable to me. Recently, Fannie and Freddie are FH FA came out and raised their caps 20.5%. You know, we feel like the liquidity will be there on the debt side. It does seem like every, you know, lender is basically saying, hey, we're circling multifamily as, you know, 1A or 1B right now. So the liquidity is there. Multifamily is actually really interesting. Right. Overall, the US market for lending was much higher than multifamily. So 65% of all deals last in the last 12 months have been reflies in multifamily compared to the broader markets, which is higher. So that sales activity is just not there compared to what we're seeing on the acquisition side. For multi, I think it's reasonable. 15 to 20% seems like a healthy number. I think that will go up. I think also once again investors are pick newer assets in growth markets. I know it's not, you know, particularly bold call, but I, I think, you know, for a list of different reasons, right. Demographic trends, corporate relocations, quality of life, cost of living, continue to benefit, you know, a lot of the Southeast and Southwest markets. So I wouldn't be surprised if you see that there. I'll, I, I think one, if I were going to make one bold call, we are going to get clarity in 2026 on private real estate entering 401ks, which I, I know sounds a little downhill and you know, further out in a sense, but I think the significance of this for multifamily is really important. And you know, multifamily is a third of all commercial real estate sales in the United States right now. If that liquidity were to come into multifamily, there would be a big boom in terms of the property type. So I think if we get that in 2026, which might be, like I said, a Boulder call, it's something that really helps multifamily from a liquidity standpoint.

A (56:29)

Mike, I'm glad you brought that up. That reminds me, I find it so funny that part of the world thinks that private equity makes too much money and yet we shouldn't be investing our retirement money in it, which obviously pension funds already are. So if it makes too much money, then shouldn't every American have some more exposure to private equity?

C (56:47)

Obviously there's a lot that has to.

A (56:48)

Happen in terms, I know I'm oversimplifying.

C (56:51)

But you know, it seems like a good segment for, you know, 401ks and such, you know, core, core plus vehicles would make sense.

A (57:01)

Yeah. And by the way, and one more thing before we close, Mike, you mentioned, I think, you know, the Sunbelt story being growth markets or supply comes down. I'll just quickly throw out too, I think, you know, get your take on this is that I think you'll continue to see solid appetite for those, for those Midwest markets talked about as well as the, I think the coastal suburb story. If you know, kind of the Avalon based strategy. We want to be in these, you know, high bar entry markets. We don't want to deal with a crazy center core city, but we do want to draft off its tailwinds in more politically stable suburban areas.

C (57:34)

Yeah, I think that last point, Jay, is very accurate. You know, once again, I live in the New York area and it seems like there's this core adjacent strategy going on right where northern New Jersey and some of the suburbs outside New York City are really benefiting from some of the trends we're seeing. But you know, this also applies in other areas. Seattle, right. Bellevue is doing great. It, you know, Seattle is a great comeback story in terms of sales volume. A lot of that's concentrated in Bellevue. So, you know, we are seeing that. So I agree. Midwest is going to do well. We've seen those allocations tick up and I think it's a lot because of the stronger performance in terms of rent growth and stability. But yeah, look, investors are very much circling Sunbelt markets still. But I would not be surprised if they spend more time thinking about Midwest markets or kind of core adjacent markets.

B (58:31)

I agree.

A (58:32)

Well, Mike, this is a lot of fun. Thanks for the time and best of luck going to 2026.

C (58:38)

Thank you for having me, Jay.

B (58:59)

And that's wrapping episode 64. Reminder, we're going to be off next week for Christmas. We're back on January 1st with our predictions for 2026 alongside John Burns himself. So join us for that. Until then, big thanks to Mike for being our guest today. Thank you to jpi, Madera, Funnel, Foxen and Authentic for your sponsorship. And thank you to all of you for spending part of your day with us. Merry Christmas. Happy Holidays, Happy New Year. We'll see you in 2020.