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.

Seasons

My kids went back to school this week, which marks the end of summer in our house. Living in Minnesota, I covet the summer and fall seasons because what comes after can get bleak (and long). They’re also the seasons when we spend the most time outdoors—tennis and pool time in the summer, football games, apple orchards, and hikes in the fall. We make the most of it, and life is good.

In multifamily real estate, it has felt like we’ve been stuck in a long winter. One of those Minnesota winters where it’s below zero for two straight weeks. And just when you think the ground might thaw, you get twelve inches of heavy, wet snow. I believe we’re past that stage in multifamily’s recovery.

There are signs of progress. Sellers are finally capitulating. Lenders that took back assets are repositioning them and selling at market prices. Syndicators are having success raising $5 to $10 million for new acquisitions, particularly if there’s a story about distress. And certain markets, like the San Francisco Bay Area, are seeing real rent growth again.

Lower rates won’t get us (all the way) there

But everyone wants to know, how long until we get back to those carefree summer months?

I wish I had the answer. The industry is fixated on interest rates and their relationship to cap rates. Clearly President Trump wants lower interest rates, but that primarily impacts short-term rates. For real estate investors, falling interest rates can put downward pressure on cap rates. Especially if rents are growing and expenses are held in check. Many recent entrants into the multifamily industry believe that lower rates alone will solve their problems. That may be true if the long end of the yield curve falls. But if inflation runs closer to 3% than 2%, expect the longer end of the yield curve to stay near their current levels.

The more important metric to watch is transaction volume. Follow the money. In the absence of competition, cap rates will sit somewhere above the cost of debt and within a reasonable range for similar risk assets. Some competition narrows that spread and lowers cap rates. Intense competition drives cap rates lower until they make no sense to the rational buyer (i.e., 2021-22 vintage deals).

This chart shows transaction volume in both total dollars and units. This doesn’t capture valuations directly, but peaks in transaction activity line up closely with peak values. The same can be said for when transactions (and values) bottom out. Data from the first two quarters of 2025 suggests the beginning of an improving cycle for multifamily. Still, it’s fair to question whether this is a true national trend. Over the past 12-18 months, large portfolio trades from groups like Blackstone and KKR lifted the numbers, but broad-based buying hasn’t returned. And national economic uncertainty warrants caution.

The Markets are Healing

I am encouraged by recent listings in our markets. San Francisco, which is roaring back, has both lender sales of distressed debt and standard market listings. Both feed off of one another. A strong market with growing prices is good for lenders holding REO (real estate owned) and distressed debt. Instead of kicking the can longer, they believe they will get a fair price for their asset. Sales volume brings clarity. Elsewhere in the Bay Area, there are numerous institutional-sized deals trading again, drawing multiple bids. Sellers understand today’s market, and prospective buyers believe in the Bay Area’s recovery.

Sunbelt markets with considerable new apartment supply aren’t there yet. However, there is strong buyer demand for new and recently constructed properties. Buyers have talked themselves into “basis plays,” and will pay a lower cap rate to acquire those. At the same time, I’m just now starting to see buyers capitulate. Those with debt fund (bridge) loans have run out of time and are selling for what they can get. Lenders are starting to sell, too. Some of the properties acquired at the peak by GVA, a syndicator that defaulted on multiple Sunbelt assets, are now on the market as lender-owned real estate. It’s a positive sign that lenders are ready to move these assets off their books.

There’s a herd mentality to all of this. Lenders want to know conditions are favorable before they sell, and many wait for others to go first. Buyers are similar. Nobody wants to be first, unless you have an iron stomach—and disposable capital. Once activity picks up, cap rates will move quickly.

Multifamily’s spring may be here, but we’re already dreaming about summer once again.