release edition [002]

read time [12 minutes]

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

Today at a Glance:

• Interest Rates: History is happening now
• Real Estate Sales: 15 ways to win in 2025
• Predictions: How I think 2025 will unfold
• Weekly Listen: Walker Webcast from 1-7-25

Discover your dream job in 2025 with The Career Compass.

Are you ready to find true clarity, discover the perfect opportunity, smash your interviews, and crush your dream job in Real Estate? Enter: The Career Compass, a self-paced, step-by-step digital course that will teach you how to Find, Secure, & Crush your dream job in Real Estate. Here's what one student had to say: "I feel like I have grown significantly personally and professionally through putting into practice some of Trey’s recommendations and techniques I learned in his course. 10/10 would recommend to anyone feeling like they need a little extra push to get themselves to the next level.” Learn More

​

Interest Rates

The last five years have been an economic rollercoaster with aggressive stimuli, rapid rate hikes, strong stock market gains, the rise-and-fall of Commercial Real Estate values, and numerous geopolitical events.

Despite what has occurred, I want to focus on what is presently occurring, because it is truly unprecedented.

In September of 2024, the Fed began to lower the Fed Funds Rate (FFR), which is the target rate at which banks lend to one another overnight. Essentially, it is one of the economic levers that the Fed uses to achieve it's dual mandate of healthy inflation and full employment.

Since the first 0.50% rate cut in September, the Fed has delivered two additional rate cuts, lowering the Fed Funds rate by a total of 100 basis points. Typically, rate cuts are conducted amid a struggling economy because lower rates give institutions and individuals access to a cheaper cost of capital, which allows them to begin borrowing and spending money that goes back into the economic machine to stimulate growth.

As you can see in the graph below, the 10-year Treasury rate typically also comes down once rate cuts begin.

But not this time. Since the first rate cut in September, the 10-year Treasury is up by 100+ basis points, from 3.70% to 4.77%.

This begs the question: Why is this happening?

There are many reasons, including:

• Inflation: Recent data shows that CPI is beginning to reaccelerate.
• Politics: Uncertainty on the inflationary impacts of the Trump 2.0 presidency
• Jobs: The non-farm December jobs print of 256K smashed expectations of 155K
• Unemployment: The December rate moved down to 4.1%, showing strength
• Future Rate Cuts: The market is now anticipating just one rate cut in 2025

To put it simply, there's a ton of uncertainty in the economy today, and that uncertainty has consequences.

It's worth noting that historical 10-2 spreads are typically positive, which had not been the case for 26 months until this past September. Said differently, the yield curve was inverted for it's longest period on record, from October 2022 until December 2024 when it finally uninverted.

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.

Now let's look at the Sahm Rule created by Claudia Sahm.

The Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months.

According to J.P. Morgan, the Sahm Rule has been historically accurate. Since 1970, the Sahm Rule has coincided with every recession without failure.

For context, the Sahm Rule indicator reached 0.57 in August of 2024.

It's easy to speculate on what may or may not happen and why, so I do my best to stick to the data.

Inflation is returning, bonds are selling off, equities are in bubble territory, and Real Estate is either illiquid, crumbling, or overpriced in many cases.

There are only a few scenarios in which the yield curve will drop precipitously on both the front and long end. One such scenario includes a complete economic shock or meltdown akin to the 2008 Great Financial Crisis.

While I'm not predicting that one will occur, I know that 'higher for longer' short term rates combined with the widespread uncertainty in the economy that's pushing long term rates up causes things to break eventually.

Real Estate Sales

The past few years for Multifamily (and other) Real Estate brokers have been tough. After spending nearly three years in Investment Sales myself, I know that it's a thankless grind.

So in an effort to share how I would approach 2025 if I were still in a traditional Real Estate sales role, I shared this post on LinkedIn on Monday, titled "15 actions to make 2025 your best year ever".

As promised, here is the 'what' and 'how' for each of those 15 points. What are your biggest takeaways?

1. Study excellent data & research.

The hallmark of every expert is excellent decision making. It's impossible to make excellent decisions without excellent data. If you want to improve your access to excellent data & research sources in 2025, check out my toolkit here.

2. Build systems for tomorrow, today.

You eventually become the bottleneck, and it's much easier to build infrastructure the right way the first time than to rebuild it from scratch later. Invest as much as you can (time and money) into systems that will give you more leverage to do the activities that matter most.

3. YOU are the business, so act like it.

A company that doesn't invest in its employees, market it's product, or deliver exceptional client results quickly goes out of business. Well, you are the company, so please invest in yourself, market yourself, and deliver exceptional client results.

4. Sell why you're different, not better.

Harsh truth: A real estate sales person is a commodity, meaning that a lot of people can do the same job as well or better than you. Because of this, you must sell why you are different in order to separate yourself from the competition. Your background, your life experiences, your approach, your data driven research -- all of these things make you uniquely you, so leverage them.

5. Master the language of Real Estate.

Learning the language of any environment you're in is a necessity for survival, right? Real Estate is the same way. Those that learn how to speak the language the fastest do the best the quickest. I would recommend that you start with this document. (It's one of the 200+ linked resources in the 2025 toolkit).

6. Model the best to become the best.

Success leaves clues. Who can you learn from, either directly in your office or indirectly online, that you can model your actions, beliefs, goals, and intentions after? Find two or three people and model them.

7. Find a way to get in the right rooms.

If you're the smartest person in the room then you're in the wrong room. Do your best to get around like-minded people, which I would guess means people that are ambitious, growth-oriented, disciplined, and focused.

8. Pay down any ignorance debt ASAP.

In business, what you don't know can hurt you. The irony is that you will never know everything, so you better start learning something. It's what you learn after you know everything that counts.

9. Learn Real Estate, not just brokerage.

Selling properties for clients is great, but that should not be the end-goal. Owning properties, or at least understanding how a client thinks about owning properties, is critically important to going from Real Estate sales beginner to master.

10. Rely on quantity to help create quality.

If practice makes perfect, then get as much practice as you can as fast as you can. To a certain degree, it just takes reps to become excellent at a skill. This is why I am an advocate for young sales professionals to get into a high-volume sales environment so they can learn the nuances of the sales process as soon as possible.

11. Call every single past client in January.

The New Year is a great reason to check-in with your past clients, so use it to your advantage. Ask them what their outlook or plans are for the coming year, and why, and then set a follow-up coffee so that you can get face time with them. There's no such thing as a bad existing client meeting.

12. Routinely evaluate your firm & leadership.

The Real Estate landscape is changing quickly. 2024 was the year of broker mobility, with many brokers shuffling around to new firms. As a result, leadership also changes, and it's important to ensure that you're under leaders that you admire and respect.

13. Do the math on your comp plan & upside.

Do you know how many phone calls it will take to earn the take-home commission that you desire? When I was in investment sales, I did the math and quickly realized that I would have to earn more gross commissions in a year than my senior broker (who had 20+ years in the business) simply to have a comfortable life. Ignorance doesn't change reality, so just do the math.

14. Don't combine practice with performance.

Professional athletes practice at practice and they perform in the games. Why would Real Estate sales be any different? Find a peer that you can cold call role play with on a consistent basis, and do it. You'll be amazed at how much smoother your client calls are as a result.

15. Find your ideal path using honest reflection.

It's impossible to know if you're on the right path without spending time evaluating what you truly want in life. My equation is the PSE Framework, or the overlap of your Passions, Skills, and Earning potential. Find where these intersect and you will unlock your overlap of greatness. The Career Compass is an incredible resource for reflecting and directing your career.

Predictions

I believe that 2025 will be a surprising year in Multifamily, but not for the reasons you might expect.

Here's the TL;DR:

• Transaction volume down YoY
• Rent growth below expectations
• Pricing discovery continues

Transaction Volume

Recently, Berkadia CEO Justin Wheeler (no relation) said that the number one thing he believes will be true in 2025 is that Mutlfamily sales volume will be higher than it was in 2024.

I disagree, and I believe it could be on par with, or even lower than, 2023.

Interest rates are an impediment to deal success, especially when the Treasuries are volatile.

It's difficult (impossible?) for institutional capital to get conviction when they don't know if the price they're paying today is above or below tomorrow's price.

This inherently leads to inaction, and because of self-preservation of the individuals inside of each company, it's always easier to justify killing a deal than doing one.

Supply & Demand

2022-2024 will go on record as the largest total supply of multifamily deliveries from a national perspective.

Even so, there are still 508K units still under construction and expected to deliver in 2025 (Yardi). Many of these deliveries are in high supply markets like Phoenix, Austin, Salt Lake City, and Charlotte.

This supply, combined with what I believe will be softer demand than we saw in 2024, will make for a generally sluggish rent growth environment, especially during the first half of the year.

That said, the supply & demand story is market-specific, and I believe that we will see a surprisingly wide spread (double-digits) between the top- and worst-performing markets from a year-over-year rent growth percentage standpoint.

Pricing

CBRE and Blackstone both claim that cap rates peaked in 2024, but I'm not buying it.

For the reasons mentioned above, and because of how slowly the Commercial Real Estate cycles play out, I am firmly planted in the camp that cap rates have not peaked, and therefore values have not bottomed out yet.

When looking back at the GFC, the Fed began to cut rates starting in August of 2007 and did so until December of 2008. However, Commercial Real Estate prices didn't bottom out until well into 2012 or 2013 depending upon the asset class and product type.

I believe that reaching market bottom pricing will follow a similar time horizon. The most recent cycle achieved peak pricing in late 2022, and I suspect that prices won't bottom until early- to mid-2026.

Until then, either cap rates will continue to expand or elevated transaction volumes will not occur.

Weekly Listen

Willy Walker, the CEO of Walker & Dunlop, publishes a weekly podcast where he hosts distinguished guests that offer fresh perspectives about leadership, business, the economy, commercial real estate, and more.
​
This past week's episode featured Mohamed El-Erian, a respected Economist and former PIMCO CEO & Co-CIO alongside founder Bill Gross. Under El-Erian's leadership, PIMCO grew from <$1tn to $2tn in AUM.

This conversation included Fed predictions, inflation, interest rates, the impacts of the new administration, tariffs, labor markets, the AI revolution, geopolitics, the dominance of the U.S. markets, challenges for business leaders today, and more.

If you have time, I would strongly encourage you to listen to this episode.

Wrap Up

That's it for this week. I hope you found this edition of The Multifamily Download insightful and enjoyable.

If so, would you consider sharing it with a friend or colleague? Simply send them this link.

I always welcome your feedback. Reply and let me know what you'd like to see in the future.

Thank you for reading. See you next week!

Forwarded this email? Sign up here.

Join me on LinkedIn | Twitter | Website​