release edition [023]

read time [15 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career.

Today at a Glance:

• Buying: Selecting Great Deals
• Dilemma: Your Move, Fed
• Weekly Listen: TreppWire 332

Buying in 2025

No matter the market cycle or timing, equity investors are always seeking alpha.

Alpha, in simple terms, is a superior risk-adjusted return, or an outperformance relative to another investment with a comparable risk profile.

Multifamily investing can be volatile, meaning that investment returns can span a wide range (from 100% loss of capital to 100%+ IRR).

The challenge, then, is delivering alpha, or superior risk-adjusted returns, to investors while also protecting their capital.

How does one owner/operator outperform another when they're investing in the same asset class, same geography, same market environment, and with the same investment strategy?

Additionally, what attracts sophisticated or institutional Equity capital to actually invest in Multifamily in 2025?

This section will explore the answers to these fundamental questions.

Here are 12 characteristics to think about and apply:

1. Basis

In simple terms, the basis is the amount of capital that it takes to achieve your ProForma rents and projected returns. Relatively speaking, the lower the basis, the lower the risk, all else equal. (No, this does not mean that cheap Real Estate is less risky. Yes, this means that buying a property for a cheaper price than one just like it is less risky).

2. Cash Flow

The holy grail of investing in cash flow, because like basis, it's a risk mitigant. If a property cash flows into perpetuity, and isn't over leveraged, then an owner will never be required to sell at an inopportune time in the market. Cash flow is how you endure hard times to ensure that you can sell during great times to maximize profits.

3. Leverage

Debt is a double edged sword because it magnifies returns while limiting equity outlay. This is why it's so tempting to over-leverage in an up-market. My advice: Don't do it, especially if you're investing using other people's money. Equity investors in 2025 are focused on downside protection as much or more as upside potential. Operating Multifamily is a "risk management" business disguised as a "return maximization" business. You can't control the market upside, but you can protect the downside risk.

4. Economies of Scale

Pricing power, relationships, and efficiency based on company or portfolio size, verticals, geography, or other factors can create meaningful value creation for investors. While this is a longer-term goal, it's important to begin with the end in mind. I'm going to take a Warren Buffett quote ("If you wouldn't own a stock for 10 years then you shouldn't own it for 10 minutes") and translate it to Multifamily: If you wouldn't own 10 properties in a market then you shouldn't own 1. Satellite deals are difficult to own and operate, especially when portfolio growth begins to occur elsewhere.

5. Cost of Capital

Like economies of scale, the cost of capital is a material benefit to Real Estate owners. Let's say you must underwrite to an 18% gross IRR while your competition can underwrite to a 15% gross IRR. Who do you think will buy more assets, all else equal? The ability to place capital with a lower required return offers the benefit that comes from being invested in the market, which becomes a double-benefit when the market is in your favor (i.e. cap rate compression, strong rent growth, cheaper debt, etc.)

6. Insider Information

Real Estate is probably the only industry in which acting on insider information is legal. For example, if you have a friend about to develop a shopping center then you can use that information to go buy the property nearby before the news is announced, and enjoy the upside benefits of that information and decision. Information asymmetry is a competitive advantage.

7. Superior Research

The ability to skate where the puck is going is everything in Real Estate investing. Sure, it's possible to get lucky or apply the 'rising tides lift all ships' approach, but there's a better way: do superior research. Supply/demand imbalances, migration, household formation, wage growth, job growth, rent-to-income ratios -- all of these can be synthesized to create an informed and compelling investment thesis to present to investors.

8. Excellent Execution

There are lots of investors that can acquire property, but the ability to execute the business plan in a timely manner is another place where outsized returns can be unlocked. Excellent execution involves speed, efficiency, cost management, communication, and personnel, which is why it's difficult. But in the difficulty lies the opportunity.

9. Patience

Charlie Munger, the late business partner of Warren Buffett, famously said "The big money is not in the buying and the selling, but in the waiting." The longer I'm in the Real Estate business, the more I realize the truth in this statement. Excellent investors don't make lots of decisions that accumulate to produce superior returns. Instead, they make very few highly calculated decisions that lead to superior returns.

Being patient, especially in a sideways or highly uncertain market like 2025, is a key variable in the long term success equation. In the same way that activity does not equal productivity, buying does not equal investing. Some of the best Multifamily owners (like Fairfield and FPA) were essentially dormant in 2021 and 2022.

10. Diligence

Due diligence is a period for turning over proverbial stones, and I'm of the belief that this period should be maximized to the fullest extent. For example, ordering 3rd party site inspections and reports is critically important to informing future business plan decisions and budgets. Buyers that conduct comprehensive due diligence are better prepared to (a) renegotiate, if needed, and (b) execute their business plan from day-1.

11. Negotiation

The ability to negotiate in Real Estate can unlock alpha without any added effort. Why? Because negotiation is the path the leads to basis. Better negotiation leads to a better basis, and a better basis leads to better returns, all else equal. (If you're looking for negotiation education, check out two of my favorites: Chris Voss, author of "Never Split The Difference", or Oran Klaff, author of "Pitch Anything").

12. Strategy

This is the darkhorse of the list, because it is only proven effective in hindsight. That is, only after a deal has been acquired, executed, and exited will the strategy be deemed a successful one, or not.

The main point here is that strategy must evolve. Operators that are getting crushed today are the ones that have become victims of their own success. As the market changes, so too must the investment strategy, thesis, approach, and thought process.

As the old saying goes in business, evolve or die.

The Fed's Dilemma

The May jobs report was released yesterday, and it was was met with mixed reactions.

On a positive note, nonfarm payrolls rose 139,000 for the month, above the Dow Jones estimate for 125,000 and a bit below the downwardly revised 147,000 in April. The unemployment rate held at 4.2%.

On a less positive note, the April job count was revised lower by 30,000, while March’s total came down by 65,000 to 120,000, and full-time workers declined by 623,000, while part-timers rose by 33,000.

From CNBC: "The report comes against a teetering economic background, complicated by Trump’s tariffs and an ever-changing variable of how far he will go to try to level the global playing field for American goods."

The implication of the relatively strong May jobs data?

Well, for better or worse, the current consensus is that the Federal Reserve will hold rates steady later this month.

(Before diving in.. I've written it before, and I'll continue to write it: I am not an economist; I'm just interested in following the data, interpreting it, and deciding how it can help inform my decision making going forward. Hopefully what I share helps you do the same).

With that in mind, here are a few things that I'm thinking about as we enter the Summer months.

1. What does the Fed need to see in order to cut rates?

In simple terms, what is the Fed waiting for?

This is largely rhetorical, of course, as the real answer to the question is exactly why the Fed is known for both being late to hike and late to cut.

In what inevitably becomes a series of unfortunate events, the Fed's desire to balance their dual mandate (full employment and price stability) requires a backward-looking trend before they take decisive action.

The consequence of this approach?

It's incredibly hard to reverse a negative trend (aka - rising inflation or a rapidly cooling job market) without negative economic impacts, so there's almost always collateral damage once the Fed decides it's time to change course, because the damage has already been done even if it hasn't risen to the surface of the economy just yet.

I think this tipping point of irreversible underling damage, if it hasn't arrived already, is rapidly approaching the U.S. economy.

Prepare accordingly.

2. The ECB is cutting rates while the U.S. is not.

Yes, I understand the economies are not comparable in size or status, but that notwithstanding, it's surprising to see the vast difference in monetary policy between the two economies. I suppose this differing approach highlights the economic strength of the U.S. economy relative to the European Union.

In spite of the Fed's continued hawkish stance, the U.S. Economy continues to show signs of strength and resilience, though that strength and resilience has been tempered as of late.

Consumer sentiment is sour, consumer spending is quickly slowing, consumer debt is at all-time-highs, net-new jobs are negative, part-time and second jobs are climbing, the housing market is relatively frozen, housing inventory is rapidly climbing -- the list goes on.

The point is this: The United States economy is blinking, and if not for the top 10% propping up nearly 50% of consumer spending, the economy at large would be in a massive recession.

How do I know this? Because I've been focused on the data.

If you've been reading The Multifamily Download since the beginning of 2025, then you probably remember TMD 002, in which I wrote about why interest rates were rising despite the Fed cutting, along with my 2025 predictions.

In TMD 002, I also noted that the Sahm Rule triggered nearly one year ago in August of 2024. For context, the Sahm Rule has predicted 100% of recessions on a historical basis.

As I wrote in TMD 002: "As you can see below, inverted yield curves often lead to recessions. It takes a lot of conviction to think that this time will be any different."

My conclusion? By the time the Fed finally starts to cut rates, it will be too late.

3. Why does inflation get so much attention?

If there have been periods of low rates with low inflation, which there have, then why is the consensus cure to curb higher inflation simply higher rates?

Said differently, interest rates and inflation are not causal. That is, low rates don't lead to inflation, and high rates don't lead to deflation.

There are many periods in history where America has had various combinations of inflation and interest rates.

Let's look at a few such periods:

A. High inflation + Low rates

This scenario occurs when monetary policy is loose, or external shocks drive prices up while rates remain low, often to stimulate growth or due to policy lags. The COVID era is a great example of this combination of inflation and rates.

The world's supply chains shutdown, and while rates were low, it was fiscal policy (not monetary) that created inflation, because trillions of dollars were printed and handed out to stimulate an economy that didn't need stimulus -- it just needed time. So, if COVID was the match then money printing was the gasoline, and interest rates were used as the water.

But, if fiscal policy (emergency stimulus) created the COIVD era inflation, why wasn't fiscal policy used to subdue it?

In simple terms, fiscal tools such as raising taxes and lowering Government spending is short-term bad for political candidates.

B. High inflation + High rates

This is the classic scenario where the Fed raises rates to combat persistent inflation, often associated with demand-pull or cost-push factors. In 1979-1982, under Fed Chair Paul Volcker, the Fed aggressively raised rates to curb runaway inflation caused by oil shocks, high government spending, and entrenched inflation expectations.

Again, the problem wasn't inherently consumers or prices, but fiscal policy of running deficits and blackswan events like oil shocks that perpetuate a future inflation fear that causes market participants to front-run these hypothetical inflation expectations by proactively raising prices, whereby inflation fears become a self-fulfilling prophecy.

This is why Milton Friedman once said, "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output"

C. Low Inflation + Low rates

This scenario reflects a stable economy or post-crisis recovery, where the Fed keeps rates low to support growth without triggering inflation.

The post-GFC era is a great example of this, when CPI inflation averaged just 1.8% from 2010 to 2019 and the Fed Funds rate was nearly 0% from 2008 to 2015.

Low demand, high unemployment, and global factors (low oil prices) kept inflation in check, while low rates encouraged borrowing and investment without overheating the economy.

When the market can grow on it's own (without excessive stimulus or government intervention) then it is possible for inflation to remain tame alongside low interest rates.

D. Low inflation + High rates

This less common scenario can occur when the Fed tightens policy preemptively or in response to non-inflationary pressures, such as asset bubbles or currency concerns.

This was the case in the late 1990s, as CPI inflation was stable at 2–3% from 1997 to 2000, but the tech bubble was overheating.

In an effort to cool the hot stock market, the federal funds rate rose to 6.5% by May 2000, the highest of the decade, while Core PCE inflation remained around 1.5–2%.

The Fed’s rate hikes targeted asset price inflation (tech stocks) rather than consumer price inflation, showing that high rates can coexist with low CPI/PCE inflation when policy addresses specific economic risks.

Inflation has been the focus in this recent post-COVID era, but I'm not convinced that 'higher for longer' is the right approach based on the structural forces at play in today's U.S. economy.

The Fed, whether they'll admit it or not, kept rates too low for too long in the post-GFC recovery era (point C above), and allowed the economy to become too reliant (addicted?) to cheap money and 'risk-free risk' thanks to ever-inflating asset values (stocks, homes, CRE, etc).

I recognize that the Fed is in a tough spot today, but so is the U.S. economy.

All else equal, a free market, capitalist economy should have the ability to control it's own destiny (via lower rates), versus being constricted and constrained by outside forces (Fed policy) that artificially suppresses future growth (via higher rates).

Last point: Have you considered why President Trump continues to publicly demand lower rates from Jerome Powell?

Here are my top-three reasons:

(1) Trump knows that growing the denominator (GDP) is the only way out of America's impending sovereign debt crisis.

(2) Companies grow and operate more efficiently, and more aggressively, when monetary policy is loose, all else equal.

(3) The power of the multiplier effect, in which every $1 added to the economy equates to ~$5 in GDP.

TL;DR - Keep your eyes on the Fed in 2025.

Link to Articles:

• ​Berkadia Article​
• ​CNBC Article​

Weekly Listen

This week's listen is The TreppWire Podcast Episode 332, in which the Trepp team discusses a number of relevant topics, including the weak ADP jobs report, bond market cracks, Jamie Dimon's warning, and green shoots across sectors.

I found this episode to be both timely and informative, especially given the current economic uncertainty and volatility amid things like the Big Beautiful Bill debate, Russia/Ukraine escalations, and the Elon/Trump feud.

You can listen to the full episode here.

Wrap Up

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