Multifamily Year in Review: 2024

The multifamily sector in 2024 set the stage for a crucial turning point. At the start of the year, expectations were high for increased transaction volumes, a decline in Treasury yields, and distress forcing assets into the market. Instead, the reality diverged significantly. The year was marked by subdued deal flow, creative tax-abatement strategies, quiet distress resolutions, and the emergence of early market shifts.

Market Dynamics: A Year of Adjustments

Transaction volumes in 2024 showed a modest increase over 2023, but the growth was underwhelming compared to industry forecasts. This lackluster activity stemmed from persistent borrowing rate volatility and operational challenges, which collectively stifled market confidence. Early in the year, uncertainty loomed as stakeholders grappled with questions about the trajectory of interest rates—would they rise to 8% or revert to 4%? This ambiguity, combined with softening fundamentals, led to a wait-and-see approach among buyers and sellers.

By late Q1, glimpses of stability began to emerge. First-generation value-add and core-plus assets in Sunbelt markets gained traction, typically trading at tax- and insurance-adjusted cap rates between 4.5% and 5.25%. These properties saw intense competition as well-capitalized groups aggressively pursued opportunities. However, older value-add properties with operational challenges and tenant turnover struggled to attract interest, often pricing at higher cap rates of 5-6% with narrower bidding pools.

The disparity between asset classes underscored the bifurcation in the market. While institutional capital concentrated on higher-quality assets, smaller players targeted distressed and value-add opportunities with mixed success. Despite the gradual return of marketed deals, transaction volumes failed to meet the pent-up demand for acquisitions, highlighting the complex dynamics at play.

Capital Challenges: A Bottleneck in Deal Flow

Equity emerged as a significant bottleneck in 2024. Large institutional investors maintained a cautious stance, adhering to conservative underwriting standards. Meanwhile, high-net-worth individuals, burdened by prior commitments and broader market headwinds, contributed less to the equity pool. This capital scarcity, coupled with volatile debt markets, resulted in a high deal fallout rate—anecdotally, up to 25% of signed contracts failed to close.

A notable trend was the increasing prevalence of tax-abated affordable structures in states like Texas, Florida, and North Carolina. These agreements allowed property owners to secure tax relief by designating a portion of units as affordable housing. While these strategies offered temporary relief in a challenging environment, they are unlikely to remain favorable as jurisdictions refine their long-term affordability goals. With rents softening and supply surging, these agreements provided sponsors with a short-term solution to pressing cash flow issues, though many challenges remain unresolved.

Deferred Distress: Kicking the Can Down the Road

The industry anticipated 2024 to be the "year of reckoning" for over-leveraged deals originated in 2021-2022. However, widespread distress failed to materialize. Instead, lenders—particularly debt funds—adopted a strategy of extending loans and deferring decisions. Many opted to work with replacement buyers who met minimum loan balances and committed to capital improvements. In return, these buyers secured high-leverage loans at attractive rates of 3-5% for short terms with minimal extension requirements.

While this approach averted significant write-downs, it left billions of dollars in unresolved debt, essentially delaying the market’s true reckoning. As we enter 2025, these unresolved situations could finally surface, creating opportunities for opportunistic buyers and revealing the extent of market distress.

Operational Insights: Lessons from the Supply Wave

The impact of new supply was most pronounced in Sunbelt markets like Austin and Charlotte, where rents declined month over month amid continued deliveries. Austin, for instance, experienced robust absolute absorption but struggled to keep pace with the wave of new inventory. Conversely, Midwest and coastal markets exhibited resilience, with modest rent growth supported by limited supply pipelines and strengthening demand fundamentals.

Encouragingly, blue-collar and middle-income earners continued to see real wage growth, which supported affordability metrics and underpinned demand. REIT earnings reports corroborated this, showing affordability levels in the mid-teens to 20% across many U.S. markets. As supply absorption stabilizes in late 2025, the operational environment is expected to improve, setting the stage for a more balanced market.

2025 Outlook: A Year of Transition

Looking ahead, 2025 is poised to be a transitional year. Early deal flow may increase—particularly around key industry events like NMHC—but investors remain cautious, carefully calibrating their entry points. The consensus is clear: mid-term rent growth potential is strong, but most owners are reluctant to sell at current pricing levels, opting instead to hold assets and capture anticipated upside.

One critical consideration is the evolving role of institutional capital. For many allocators, investments in multifamily assets have shifted from achieving absolute returns to solving allocation challenges. Thin yields and compressed exit assumptions have heightened the sector’s sensitivity to broader economic and financial market shifts. This dynamic underscores the importance of strategic positioning as the market navigates its next phase.