Hey Team,
Welcome to multifamily investing in 2026. Buyers aren't buying, sellers aren't selling, and some apartment owners are giving away chances to win a Ford Bronco just to attract renters! So what's going on? Let's dig in.
Capital Markets Update:
Commercial real estate sales are picking up nationally, but multifamily continues to lag behind.
According to Avison Young, total U.S. commercial real estate sales increased nearly 18% through Q3 2026, with industrial, office, and retail leading the recovery.
Meanwhile, apartment sales remain well below their 2022 peak, with transaction volume increasing just 3% year-over-year. So why is multifamily struggling while other property types are gaining momentum?
This picture is a pretty accurate representation of how Ryan and I feel chasing new investment opportunities in 2026.
I'll talk more about the deals we've pursued later, but first, let's talk about why so few apartment deals are getting done. In short, there's still a significant pricing gap between buyers and sellers.
Mind the gap!
Why the gap?
To make money in multifamily, one of two things generally needs to happen: cap rates must decrease (compress), or net operating income (NOI) must increase. Ideally, we get a combination of both.
When interest rates spiked in 2022, cap rates followed, putting significant downward pressure on apartment values. Sellers were still anchored to peak valuations, while buyers could no longer justify those prices with higher borrowing costs. In my opinion, interest rates were the primary driver of the pricing disconnect from 2022 through early 2025. By then, the market had largely adjusted to higher rates. But I believe 2025 and 2026 have presented an entirely different challenge.
While interest rates remain elevated compared to the 2020–2021 "fever dream" of cheap debt, I believe the bigger issue today is NOI growth – or the lack thereof. Rent growth has been muted, while operating expenses have continued climbing. The result? Stagnant or even declining NOI, making it increasingly difficult for buyers to justify sellers' pricing expectations.
An now, let’s talk about how the sausage gets made!
Our investment strategy has historically centered around value-add opportunities: acquiring properties, investing in renovations and improvements, and increasing rents to grow NOI. That strategy becomes much more challenging when market rents aren't growing and expenses continue to rise.
If we can't confidently grow NOI, and cap rates remain relatively unchanged, there's simply not much room to create value. In fact, for the first time, we recently underwrote a North Carolina property assuming 12 months of negative rent growth.
Warren Buffet says to be greedy when others are fearful and be fearful when others are greedy. I believe we see more fear today than we have in the last 5 years. That said, we believe this is an attractive time to be looking for multifamily investments. Transaction activity remains sluggish, competition is limited, and we believe stronger rent growth will return in the near future.
We're optimistic about where multifamily is headed, but we're going to remain disciplined about what we pay and how we plan to make money.
Let’s talk development. Rents must rise before developers build.
Over the past two years, sluggish rent growth and rising construction costs have made new apartment developments increasingly difficult to justify. According to Marcus & Millichap, apartment construction has fallen nearly 50% from its 2023 peak.
While the slowdown reflects today's challenging environment, it's also why we're optimistic about tomorrow. As new supply slows and existing apartments are absorbed, we believe the basic economics of supply and demand will drive stronger rent growth, higher NOI, and ultimately higher property values.
You (yes you!) can win a Ford Bronco!!
Our last newsletter spoke about elevated concessions, take a look at this! A property in Asheville is offering the chance to win a 2-year lease on a new Ford Bronco if you rent an apartment. Talk about getting creative to fill apartments!
Concessions still remain at 15 year highs.
Fortunately, there are signs of improvement. According to RealPage, 14.5% of stabilized apartments offered concessions in September, down from 17% in May. However, the average concession remains nearly six weeks of free rent, the highest level in over 15 years. While we're encouraged by the trend, apartment owners are clearly still competing hard for renters.
How are our properties performing in this environment? Ryan and I have remained nimble and creative to address leasing/concessions/occupancy challenges. Read to the bottom for our current portfolio performance.
Access to capital is becoming increasingly difficult, with borrowing conditions approaching levels last seen during the 2008 financial crisis and the sharp interest rate increases of 2022–2023. According to NMHC's October survey, 81% of respondents reported worsening borrowing conditions. Fortunately, we've built strong relationships with local banks that continue to lend on our deals, even as financing becomes harder to find.
510 Capital Update:
Potential Acquisitions: Ryan and I have been busy looking at new opportunities, and Q3 brought some of the most attractive deals we've seen all year. We've submitted approximately 5–8 offers over the past couple of months, but so far, none have come together. We're seeing two types of sellers in today's market:
Long-term owners who would like to cash out but aren't getting the prices they hoped for. Many are choosing to refinance rather than sell, pay capital gains taxes, and try to find another investment offering comparable returns.
Owners facing pressure from lenders who are hoping to extend their loans and wait for better market conditions. We believe some of these owners will eventually need to sell as lenders become less willing to extend.
While we haven't closed on a new acquisition yet, we're staying in touch with several owners and lenders, and a few opportunities are still on the table. We're hopeful we'll have something exciting to share with you soon!
510 Capital Portfolio Performance: Despite the challenging market, how is our portfolio performing?
Ryan and I feel incredibly blessed to be in this business, and we believe these results reflect our disciplined approach to underwriting and business planning.
Notable Reads:
Ryan’s Pick:
Mixing it up this quarter…here is my good "listen". I have been reading some fiction for a change, but I highly recommend following Dr. Peter Linneman and his Linneman Letter. He is a guest every quarter on the Walker & Dunlop podcast. He has a unique ability to interpret the various market indicators and summarize where he believes our economy is heading in a way that is simple to understand.
Luke’s Pick:
Necessary Endings by Dr. Henry Cloud: A practical book about recognizing when it's time to move on from relationships, commitments, or opportunities that are no longer productive.
While it wasn't an all-time favorite, I appreciated the perspective on making difficult decisions and understanding that sometimes ending something is necessary to make room for something better.
As always, we appreciate your partnership.
Till next time,
Luke