The Rent Roll with Jay Parsons – EP#69

Guest: Michael Comparato (President, Benefit Street Partners)
Episode Title: “Where’s All the Distress?”
Date: January 29, 2026

Overview

This episode explores a highly anticipated topic in the multifamily and rental housing investment world: market “distress.” Host Jay Parsons delves into why, despite widespread predictions and heaps of “dry powder” raised for distressed opportunities, the wave of property sales at bargain prices hasn’t materialized. Featuring insights from Michael Comparato, President of Benefit Street Partners, the conversation centers on what’s really happening below the surface, where distress is cropping up, how pricing is evolving—and who the real buyers might be in this more complicated cycle.

Key Discussion Points & Insights

1. Setting the Stage: The Distress Theme

• Market participants have raised significant capital, betting they could buy high-quality assets at deep discounts due to distress (02:25).
• This scenario isn’t playing out broadly; the real distress remains “pockets” within older properties and weaker submarkets, not highly-coveted new vintage rentals.
• “There’s this mismatch of distressed capital versus distressed opportunity.” (03:20)

2. Current State of Multifamily Transactions (05:00 – 14:00)

• Sales ticked up moderately in 2025 but volume remains low (“around 2017/2018 dollar volumes, 2014 transaction counts”).
• Cap rate expansion has been limited. Newer, well-located properties (Class A/B+) are still trading at relatively low yields.
• Most trading deals are “better quality, newer vintage”—the exact spots capital wants; there’s a confidence that market pricing has recalibrated for these assets.
• The older/vintage deals, especially in less desirable submarkets, have seen activity “largely evaporate,” with unclear price discovery as sellers and lenders “wait this out.”
• "The real question to me is what about all those class C deals?" (05:10)

Notable Quote

“That cap rate number is skewed downward by what’s trading – it’s predominantly better quality, newer vintage deals. That’s what capital is chasing.” – Jay Parsons (05:18)

3. Where is Distress Concentrated? (08:00 – 14:00)

• Most distress concentrated in:
  • Older, value-add properties bought at peak prices with short-term floating-rate debt.
  • “Sub-institutional” groups and syndicators, not major institutions.
  • Top 10 “watch list” markets (by troubled loans): Austin, Jacksonville, Houston, Atlanta, Dallas, Memphis, Tampa, San Antonio, Seattle, Denver (08:14).
• Common issues: heavier capex needs, rent roll struggles, aging stock, and “filtering” effects eroding occupancy/rent even in class C.
• Cap rate spreads between A/C assets in those markets remain slim (100–150 bps, occasionally 200), limiting “meat on the bone” for distressed buyers.

Notable Quote

“100, 150 basis points—that’s just not a big spread to price in the risk.” – Jay Parsons (09:44)

4. Big Questions for the Market (15:00 – 18:00)

• Will 2026/27 bring more foreclosures and forced sales, especially for C assets in weak submarkets?
• Where will pricing settle for those deals—7 caps, higher?
• Who’s buying at scale? Small local groups or institutions? Most major buyers (Blackstone, Starwood) might avoid true distress in lower tiers this cycle.
• Many syndicator/sellers are fatigued, reducing their buying ability; larger institutions likely to shun high-ops, high-risk C product except in exceptional locations.

5. Bifurcation and Capital Mismatch

• The market has become bifurcated: capital chasing distress in stable, newer assets vs. actual distress in less desirable, older properties.
• “It’s not obvious who the buyers are or when that’s going to happen.” (17:40)

6. Rental Housing Headlines (21:00 – 27:55)

• Survey on Rent Control: 76% of respondents say impending/possible rent controls are deterring them from investing or developing in those markets.
  • “Even serious consideration of rent control has a freezing effect on capital.” (24:40)
• Policy Headlines: Build-to-rent (BTR) sector stands to benefit as SFR “crackdown” shifts institutional and regulatory interest.
• Debunking Narratives on SFR Investment: Institutional ownership is <1% of U.S. single-family rentals—a scapegoat for housing pricing, according to Vox and Jay's own research.
  • "Corporate investment in single-family homes is not a major driver of Americans' high housing prices." – Vox article quoted (25:46)

Interview with Michael Comparato (27:56 – 63:38)

A. Mike’s Background Story (28:24 – 30:31)

• Family: Deep roots in real estate development and banking; grandfather founded a bank to create an anchor tenant for a development.
• Early exposure: At 13, Mike was flipping through binders of loans heading to investment committee meetings.

“[At 13] I’d sit at the kitchen table and be a nerd and flip through this book of loans going to bank investment committee. I just got fascinated by the finance side.” – Michael Comparato (29:22)

B. About Benefit Street Partners (30:59 – 32:21)

• Benefit Street is a boutique credit manager under Franklin Templeton, nearing $100B in AUM (“the dream I always wanted to have”).
• Focused on credit, though with flexibility (equity, company investments, “nothing we can’t do in commercial real estate”).

C. Why the Focus on Private Credit (32:36 – 36:34)

• Prefers credit for risk/return profile and timeline (“can get close to equity returns at less risk”).
• Current strategy: Heavy focus on newer, high-quality multifamily in major liquid markets needing time to stabilize (“fill up,” burn off concessions) rather than complex turnarounds.
• “For every 10 loans...probably 6 or 7...have been that newer vintage, higher quality asset that just...it’s just time.” (35:31)

D. Lessons from 2021–22: What Did the Market Miss? (37:05 – 40:10)

• Multifamily got a “three punch Tyson combo” of: excess supply, surprise rate spikes, and an industry-wide mispricing/commoditization of risk.
  • “A 2020 vintage Class A in Ft. Lauderdale and a 1972 deal in Chattanooga had the same debt yield... That’s just wrong on so many levels.” (38:05)
• Correction has “already played out” in best markets/newest assets, but older assets in less desirable areas are lagging and pain is more severe than many realize.
• “That new vintage acquisition is kind of the easy button for institutional investors... But if you really go out on a limb and buy the 1972 asset in Chattanooga... What were you thinking there?” (39:36)

E. The Distress Buyer Mismatch (40:47 – 43:29)

• A handful of groups (e.g. Morgan Properties) “phenomenal at this stuff” (workforce housing), but cap rates must be much wider than for new assets; sellers mostly won’t accept current levels (“sellers are mostly forced sellers, if not lenders”).
• Billions in loans have quietly traded—distress is often happening off-market, not via traditional sales.

F. When Does the Dam Break for Forced Sales? (43:48 – 45:52)

• “We’ve all been sitting around kind of waiting for the second half of the storm…”
• Rate drops (sofr, fed funds) are “a blessing and a curse”—they keep hope alive, postponing forced liquidations.
• “Maybe they wait a little longer. It’s anybody’s guess... Some of this stuff HAS to come out at some point... I don’t think the market can have a healthy rebound without the full kind of flushing of that...inventory.”

G. Inside Lender Decision-Making (46:00 – 47:43)

• Different for banks, evergreen and closed-end debt funds; banks have unique regulatory overlays. Investors will eventually force “hit the loss button and move on.”
• Reference: New York Fed’s study arguing that “extend and pretend” in banking is self-defeating.

H. The Role and Future of Banks: Less Direct, More Back-Leverage (48:04 – 53:07)

• Banks run huge leverage (“9x leverage... no fund could raise that!”). Community/regional banks less able to “just sell” loans without distress, hence the system’s inertia.
• Ongoing shift: regulators want banks away from “last dollar risk” and sticking to back-leveraging private credit—but most community/regional banks can’t pivot to that model.

Notable Quote

“If I go out to the market and try to raise a fund and I said we were going to run at 9x leverage, I would literally get laughed out of every room... But that’s where the banks run.” – Michael Comparato (48:19)

I. Implications for Debt Funds and Investors (53:22 – 56:44)

• Permanent structural shift: more commercial RE lending in debt funds, less in banks.
• The effect: “last 10–20% of the cap stack now priced higher” than bank rates; overall debt cost rises unless leverage is reduced.
• Negative leverage is a sustained reality; “you just can’t have...a healthy equity market if credit is more expensive than equity.”

J. Affordability and Class C Challenge (56:44 – 59:14)

• Rent growth at lower tiers is stymied by affordability limits; class A/B not as affected.
• “That older vintage, lower demo renter... they can’t afford an additional $50 a month in rent right now.” (58:20)
• Push for rent has run out of room (massive hikes in 2021 not matched by incomes).

K. Social Media Sales & Market Liquidity (60:06 – 63:29)

• Mike directly markets REO and loan sales on LinkedIn; unexpected success, quick connections.
• “With one post on LinkedIn, those guys can find me.” (60:54)
• Preparing to market $500M in loans through posts—social media as democratizing tool for finding niche buyers.

Memorable Quotes

• “The worst of it is behind us on the credit side and the market can start feeling a little bit better.” – Michael Comparato (36:35)
• “I just feel like the multifamily market got a three-punch Tyson combo that was unrecoverable: supply, higher rates, and commoditization.” – Michael Comparato (37:49)
• “We’re in a negative leverage environment for literally three years. We’re getting closer to neutral, but we’re not in a positive in any way, shape or form.” – Michael Comparato (56:36)
• “I think this is a real industry shift... an investable change in the industry [toward private credit].” – Michael Comparato (54:01)
• “That’s also how it’s supposed to work. You pay for growth, quality, location... If you don’t have those things, the cap rate is supposed to be wider.” – Michael Comparato (59:35)
• “With one post on LinkedIn, those guys can find me... I think it’s just an interesting medium to get to the broad market.” – Michael Comparato (61:00)

Timestamps for Key Segments

• 05:00 – Cap rate/transaction volume trends, bifurcation in market
• 08:14 – Top 10 “distressed” markets & submarket discussion
• 15:00 – Big questions: forced sales, clearing price, buyer identity
• 21:00 – Industry survey: rent control and investment decisions
• 25:46 – Debunking the “Wall Street buying houses” narrative
• 27:56 – Introduction to Michael Comparato interview
• 29:22 – Mike’s early banking/real estate influences
• 32:36 – Why focus on credit, not equity
• 37:05 – Lessons from last cycle’s mistakes
• 40:47 – Who will buy the distress? Price mismatches explained
• 43:48 – When does distress truly hit the market?
• 46:00 – Inside lender decision-making process
• 48:04 – Why banks can’t just dump bad loans easily
• 53:22 – Shift from bank lending to debt funds
• 56:44 – Why older, lower-rent housing is hit hardest
• 60:06 – Using social media to market distressed assets

Tone & Takeaways

The tone is candid and analytical, with both host and guest demystifying headlines and digging into granular realities. While the much-hyped “distress wave” is real in certain submarkets and assets, the bifurcation and complexity make narratives of a coming discount bonanza for trophy assets highly suspect. Look for a slow, uneven workout—one where capital chases safety, and real distress sits elsewhere, waiting for its clear-eyed buyers.

Who should listen?
Anyone navigating the multifamily investment, debt, and operations landscape, or hoping for clarity on the future of “workforce” housing, capital flows, and lending.

Full transcript and show notes available at: [jparsons.com]

Next week: On-the-ground intel from NMHC’s annual meeting.