release edition [029]

read time [5 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:

• Demand: Where to Buy?
• America: Fiscal Fears?
• Weekly Listen: Modern Wisdom

Demand

I saw the graph below from Realpage this week and thought it was interesting.

As you can see, there *could be* significant supply / demand imbalances forming in major markets across the country.

Like Wayne Gretzky said, "Skate to where the puck is going".

This graph may help you do just that.

One giant caveat to this graph is that it doesn't show existing supply that is currently pre-stabilized, which includes both under construction and lease-up properties.

Even so, it's interesting to observe where demand is exceeding new starts by a meaningful amount (left side).

Another version of this graph that would be interesting would be to show the demand (green bars) and starts (grey bars) as percentages with the resulting ratio, as supply that exceeds 5% of existing stock often leads to little or no short-term rent growth.

Generally speaking, markets with healthy demand (net positive absorption) that have 3% or less of the existing stock under construction will have little risk of becoming oversupplied, and therefore can expect above average rent growth.

Showing the graph above in nominal or percentage terms, but including current new supply under construction, would be far more powerful than looking only at the new starts data shown above.

My investment thesis heading into the back half of 2025 is largely unchanged from the first half of the year.

I want to acquire properties that have an interesting (and ideally, compelling) story, a relatively low basis, defensible stabilized rents, limited or low supply risk, healthy cash flow even while using moderate leverage, and proven exit pricing.

Reach out if you'd like to discuss what I'm seeing in the market, the types of deals we're identifying and buying in 2025, or if you'd like to find ways to work together.

What's your investment thesis for 2H 2025?

America

As you've read in the past, I'm not an economist, so I don't call myself one. (Someday I might, but that day is not today).

Despite my disdain for economics in college, I've more recently gained tremendous interest in learning about the many themes that drive the broader economy and the multifamily ecosystem.

One such trend is interest rates, and specifically, the long end of the curve.

Recently, I've heard reputable institutional investors state that the long end of the curve (i.e. 10-yr, 20-yr, and 30-yr U.S. Bonds) could continue to rise if (or when) the Fed decides to cut rates.

We saw this play out from the Fed's 50 basis point cut in mid-September 2024 until the end of 2024, when the 10-yr Treasury rose by more than 100 basis points.

However, today we're in a much different economy than we were nearly one year ago: CPI ex shelter was 2.0% in June, illegal immigration is non-existent, 12M+ people were removed from Social Security rolls, foreign direct investment capital is pouring into the U.S., major trade deals are being negotiated, and most importantly, the U.S. had it's first monthly budget surplus in 20 years in June.

So why would rates rise again?

I have a working theory that's still under construction, but here's what I have so far.

1. The Fed's "Independence" would be undermined given that President Trump has publicly reprimanded Jerome Powell for not cutting rates. The ripple effect here is the risk of public perception that the U.S. President's power is too far-reaching. The if-then logical thought becomes, "Well if Trump can influence monetary policy via brute force, what else can (will) he influence?"

2. 'Risk on' investing will come roaring back in an attempt to front-run future growth and in doing so, a major rebalancing may occur from safe assets (bonds, money markets, cash) into risk assets (stocks, real estate, crypto). I would argue this is already happening in the U.S. economy, as evidenced by tremendous capital flows over the past 60 days into stocks and crypto, and cutting rates in 2H 2025 would likely only accelerate this trend.

3. Erosion of confidence is also a real possibility because if the Fed cuts rates, the market at large will ask itself "Why now?". If the readily available answers aren't sufficient or obvious then the natural inclination is to assume "The Fed must know something about the economy that I don't", and this uncertainty could lead to a sell off in Treasuries and upward movement in yields.

The last point that I'm thinking about is perhaps the most important one, because it could have the largest ramifications.

To preface this final point, I'll share a quote that I heard recently in this video interview with Tom Lee. In minute 14, he said, " The U.S. prints a lot of dollars, and yet, the borrowing costs are really low. It's very mysterious".

With this in mind, it's possible that a perfect storm could be forming on the horizon. Here's why.

The new administration is pulling every lever at their disposal to get the U.S. fiscal policy onto a sustainable path.

A few of these levers include aggressive tariffs and trade negotiations, $10T+ in foreign direct investment commitments in the U.S., and making permanent the 2017 Tax Cuts and Jobs Act through the recently passed Big Beautiful Bill.

Everything is being done to get America back on track to fiscal sustainability.

But, what happens if these levers are not enough to solve America's current debt trap and fiscal crisis?

I hope we don't find out, but if we do, my hunch is that Treasury yields would rise precipitously.

My current outlook is that the only way out of the current debt trap is to lower rates below CPI (i.e. "negative real rates"), create fiscal stimulus either through money printing, favorable policy and deregulation, increased foreign investment, or a combination thereof, and hope that real GDP growth can outpace inflation ("positive real growth").

Institutional investors call this "running hot", and I believe this is the strategy that's being setup by the current administration.

Simply put, America will not find a sustainable fiscal path by focusing only on shrinking spending. Growth must be the primary focus.

What do you think? Is the U.S. at a fiscal "fork in the road"?

Weekly Listen

You may have noticed, but I didn't publish The Multifamily Download last week as I took a week off to recharge.

In doing so, I enjoyed listening to what I thought was an excellent non-real estate podcast in which Chris Williamson and Alex Hormozi chopped it up for 4+ hours. Both are late-30s entrepreneurs that have carved impressive paths for themselves.

You can listen to the full episode here.

Wrap Up

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

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Thanks for reading. See you next week!

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