Welcome to The Real Estate Venturist. Every other week, this newsletter will give you a behind-the-scenes look at what it’s like to be a real estate entrepreneur. As always, this is not investment advice and merely my opinion. Here’s what’s in today’s newsletter:

• Investor disconnect

• What’s available?

• Authentic Mentor

Investor disconnect

It feels like there’s a disconnect between what’s available in the market and what investors want. All investors crave deals. Deals with a story. Ideally ones that include distress, a great basis, and a value-add plan. They should also deliver a high cash yield and a gross 20% IRR. Is that all investors want? Let’s also make it new-ish construction (i.e., built in the last 10 years) and in a high-growth market that everybody’s chasing. These deals don’t exist unless you’re willing to accept a lower underwritten return.

Investors want deals. What’s available are themes. Let’s break down today’s investor wish list:

Distress

I—and much of the multifamily industry—have been waiting for distressed sales to emerge. They haven’t materialized. Why? Lenders aren’t forcing the issue. Colliers recently noted that there are $350 billion in maturing multifamily loans in 2025. Of that, roughly one-third, or $97 billion, are extensions from prior years. There’s little reason to believe that this $97 billion, plus a portion of the of remaining $253 billion, won’t get kicked into 2026. Distress may never come—or at least not in the form we expect.

Great Basis

This one’s achievable. Compared to replacement cost or peak 2022 values, anything you buy today looks like a steal. Unfortunately, a great basis doesn’t generate cash flow or guarantee any investment return. It’s a data point. Real estate values fluctuate up and down, and this “great” basis can sour if fundamentals change.

Value-Add Plan

Investors want to know you’re going to be proactive in generating a return. Buying and holding isn’t a great “story” for an investment committee. Today, though, value-add improvements are narrow. There’s opportunity for technology upgrades that generate an additional $30/unit/month on a cost of $1,500/unit. A 24% ROI is great and worth the spend. However, on 200 units, at a 5.5% cap rate, that’s a value improvement of $1.3M or $6,545/unit. Good, but not great.

Other options include converting to “little-a” affordable housing to eliminate or reduce property taxes. This can significantly improve cash flow during the hold period, though marginally improves sales proceeds. Traditional unit renovations? They aren’t viable today in many markets flooded with new supply. Once occupancy stabilizes and the spread between unrenovated and renovated units widen, this will be a key strategy once again.

New(ish) Construction

Spending money on deferred maintenance—increasing your investment basis without increasing revenue or value—isn’t high on anyone’s list. To avoid the big projects, new(ish) properties are hot. These properties are fully amenitized, have good floorpans and high ceilings, are modern, and attract a more affluent renter. That said, even 10-year old properties can feel dated, making some ripe for value-added renovations.

High-Growth Markets

If values are down considerably, why not invest in “hot” markets at a discount? Austin multifamily properties, once trading for 3% cap rates, now hover around a 5%. Growth prospects there still outpace most markets. If you’ve been in tertiary markets, moving up to secondary or primary markets feels smart.

What’s available? 

I want this deal, too—and they exist. I think there’s a real opportunity to buy properties built in the 2000s, at a great basis, with value-add upside, in high-growth markets, and with some minor distress. These deals don’t underwrite anywhere near a 20% return. However, I believe they will generate in excess of 20% once the market turns. And, they’ll do this without a big value-add program. The macro engine is starting to rev up and it will produce out-sized returns without additional risk. This is where a theme or thesis matters.

To me, the real estate return (IRR) matrix looks like this:

• Opportunistic (ground-up development): ~20%

• Value-add: ~15-18%

• Core-plus: ~9.0% unleveraged, and

• Core: ~7% unleveraged

Outside of the past 5-7 years, apartments rarely fit nicely in these buckets for institutional investors. Office and hotel investments were historically better choices. They offered higher returns and larger deal sizes to place equity capital more efficiently. The market got spoiled with apartment investments generating 20%+ returns.

My ideal property in this market underwrites to a 10-12% net return. I think there’s upside beyond that, but it’s difficult to underwrite. And thus, selling the story is tricky. The story is less about the specific deal (let’s assume the deal checks all of your boxes except IRR), and more about the macro market. But the macro isn’t sexy. We all know the coming equation: significantly less supply + solid demand = rent growth. Why isn’t this more interesting?

It is interesting to a lot of investors, but few have capital to deploy. Those who do would rather provide rescue capital (e.g., preferred equity) where they can earn a mid-teens return without equity risk. Or, they want a deal where the story (minus the macro) can get them to that mystical 15-18% IRR. So, deals sit. Those that do sell get scooped up by the biggest buyers (Blackstone, KKR) and longest-term owners (family offices, private owners) who are adding to already large portfolios.

The macro theme should count, but until investors see it, they’re not giving it credit. That’s too bad. Out-sized returns without the added risk are on the horizon.