Investing in Distressed Multifamily Properties in 2025: Opportunity Amid the CRE Crunch

Written By Jack McKinnon

Introduction: Rising Rates and a Brewing Opportunity

Over the past few years, commercial real estate (CRE) investors have faced a sharp reversal of fortunes. The Federal Reserve’s aggressive interest rate hikes from 2022 to 2024 – the steepest cycle in decades – sent borrowing costs soaring by 525 basis pointsvikingcapllc.com. Many property owners who locked in ultra-low rates earlier now confront debt service payments 75%–100% higher upon refinancingnar.realtor. Asset values have also fallen (by roughly 20% from their 2022 peak in the case of multifamilyvikingcapllc.com), leaving some loans underwater. These conditions have created stress across CRE sectors, but they also present a window of opportunity for savvy investors. In particular, distressed or undervalued multifamily properties – apartment communities, condos, and other residential rentals – are emerging as attractive targets for those prepared to navigate the turbulence.

Why multifamily? Even as financing challenges mount, the fundamental demand for rental housing remains resilient (more on that later). Smaller investors and syndicates that can raise capital stand to benefit from the current dislocation. With sellers under pressure and fewer active buyers, well-capitalized investors can negotiate favorable prices on multifamily assets that would have been unattainable during the boom. The tone in 2025 is cautious and data-driven – but behind the caution lies a subtle advantage for multifamily buyers willing to step in while others wait on the sidelines.

Below we explore how today’s market conditions are creating a “perfect storm” of distress-driven opportunity in the multifamily arena. We’ll examine the impact of interest rate hikes, the looming loan maturity wall, tighter credit and rising delinquencies, and the mechanics of distressed acquisitions (from bridge loan workouts to note purchases). We’ll also highlight why multifamily’s underlying performance – high occupancies, steady rent demand – makes it a comparatively safer bet in a risky environment. All claims are backed by recent research (from CBRE, Fannie Mae, Trepp, MBA, ULI, etc.) to ensure an authoritative, neutral analysis.

Interest Rates and the Great Reset in Multifamily

The rate shock. The Federal Reserve’s rapid rate increases from 2022–2024 fundamentally re-priced real estate. In the apartment sector, cheap debt had fueled frenzied growth and record-high pricing through 2021. But as the Fed began hiking rates in 2022, the market flipped from euphoria to a correction. By late 2023, benchmark rates were 5+ percentage points higher than two years priorvikingcapllc.com. For multifamily owners, this translated to much higher loan costs: many floating-rate loans doubled or tripled in interest expensevikingcapllc.com. Borrowers coming off low fixed rates also faced a payment shock – in some cases, new refinancing quotes implied monthly debt service up to double the previous levelnar.realtor.

Falling values and rising cap rates. Higher financing costs inevitably pushed property values down. Investors require higher cap rates (initial yields) to compensate for costlier debt. Green Street’s Commercial Property Price Index ended 2023 roughly 19% below its March 2022 peak, with multifamily among the hardest-hit sectorsvikingcapllc.com. In practical terms, an apartment building that might have sold for $50 million at the 2021 peak could now fetch, say, $40 million or less, given the same net income. These valuation declines are especially problematic for owners who bought or refinanced at peak prices – some now owe more than their properties are worth (“underwater” loans). According to MSCI data, about 14% of the ~$500 billion in CRE loans maturing in 2025 are underwater (loan balance exceeds property value)credaily.com. Multifamily is not immune: roughly 10% of 2025 multifamily loan balances (nearly $19 billion) are underwater, largely stemming from deals done at frothy 2020–2022 pricescredaily.com.

Freezing deal markets. The immediate effect of these dynamics was a freeze in transaction activity. Multifamily sales volume in 2023 dropped sharply as buyers and sellers hit a pricing impasse. By mid-2024, however, there were hints of a thaw. As the Fed finally paused and even began modest rate cuts in late 2024 (a 50 bps cut in September 2024), buyer sentiment improvedurbanland.uli.org. Sellers started to accept that the 2021 valuations were gone. In Q2 2024, nearly $40 billion in apartments traded – the first year-over-year increase in sales since early 2022urbanland.uli.org. Cap rates stabilized for the first time in two yearsurbanland.uli.org. This nascent recovery suggests the market is resetting: prices have adjusted downward, and some buyers are stepping back in, sensing that values are approaching a floor.

For opportunistic investors, the takeaway is that 2025 represents a rare reset point. The financing environment has turned (high rates, tough loans), but the intrinsic need for housing persists. As we’ll see, a huge wave of loan maturities is forcing many owners’ hands. Those who can navigate expensive debt and bring fresh capital can acquire solid multifamily assets at a basis that assumes today’s higher rates – and thus potentially reap outsized gains if and when rates eventually ease.

The “Maturity Wall”: $2 Trillion Coming Due by 2026

One of the most pressing challenges – and opportunities – in 2025 is the wall of CRE debt maturities looming over the next few years. By one estimate, approximately $2.0 trillion of commercial real estate mortgages are scheduled to reach maturity from 2024 through 2026mossadams.com. Multifamily loans comprise the largest share – roughly 33% of this maturing volumemossadams.com. In other words, hundreds of billions of apartment loans must be refinanced or paid off in the very near term.

Estimated U.S. Commercial Real Estate Loan Maturities (2024–2026). The wave of debt coming due by 2026 totals roughly $2 trillion, with 2025 representing a major peak in original schedulesmossadams.com. Many of these loans were originated at low rates and now face refinancing at much higher rates.

A refinancing crunch. Under normal conditions, most CRE borrowers would simply refinance their loan at maturity into a new loan. But current conditions are far from normal. Refinancing is difficult because interest rates are so much higher and lending standards tighter (more on that below). A borrower with a maturing loan from 2018 or 2019 likely had an interest rate of ~4%; a new loan today could be 6–7%+ interest. The higher debt service often fails to meet lenders’ required debt coverage ratios unless the loan amount is reduced. Compounding the issue, property values are down ~15–20% from the peak, so the maximum loan a bank is willing to extend (say 65% of the property’s current value) may be much less than the borrower’s existing loan balance. If a borrower can refinance at all, they may be required to contribute substantial additional equity to pay down the loanmossadams.commossadams.com. Many owners, especially syndicators and smaller investors, simply don’t have that cash available. This scenario often forces three outcomes: sell the property, bring in new partners/capital, or default.

Kicking the can to 2026. Lenders are acutely aware of this looming “maturity wall” and, in many cases, have opted to extend loans coming due in 2024–25 to buy time. Rather than triggering a foreclosure wave in 2024, many banks and credit institutions have granted 1–2 year extensions or short-term modifications for borrowers who are at least making interest paymentsnar.realtor. This has the effect of pushing the peak of maturities further out. According to S&P Global, a significant portion of loans once due in 2024 or 2025 have been extended, with the largest maturity wave now projected for 2026credaily.com. That year is expected to see about $936 billion in CRE loan maturities, roughly 19% more than 2025’s amountcredaily.comcredaily.com. In essence, some of 2025’s pain has been deferred to 2026 – but not solved. As an industry publication put it, “The deadline moves – but not the danger.”credaily.com

Even with extensions, 2025 will still see hundreds of billions in loans coming due, including a hefty chunk of multifamily mortgages. NAR’s commercial outlook in late 2024 noted an estimated $544 billion in CRE loans maturing through 2025nar.realtor. Many of those are “at risk” due to interest rate resets and value declines – Biskner, a credit union lending executive, observed that in many cases properties’ values have fallen below their original loan amounts, meaning refinancing will “require substantial additional equity” to satisfy lendersnar.realtor. This is the crux of the distress: borrowers who can’t inject cash or find alternative financing may have no choice but to sell at a discount or turn the keys over.

From an investor’s perspective, this maturity cliff is essentially a large inventory of potential acquisitions. Some will come via the open market (owners proactively selling troubled assets), others via off-market note sales or foreclosures (discussed later). Industry counselors have indeed flagged the 2024–2026 loan maturities as one of the top challenges for real estate – but also an opportunity for those with “dry powder” to deploynar.realtorcredaily.com. It’s a classic contrarian play: while many see a wall of worry, opportunistic investors see a pipeline of deals.

Credit Tightening and Early Signs of Distress

Banks pull back. As if higher base rates weren’t enough, investors also have to contend with tighter lending standards across the board. In the wake of several regional bank failures in 2023 and growing economic uncertainty, banks became far more conservative in their CRE lending. In fact, a Federal Reserve survey showed that nearly all banks tightened commercial real estate credit in late 2023. About 67% of banks tightened standards for non-residential CRE loans, and 65% did so for multifamily loans – an unprecedented level of caution outside of an official recessionmossadams.com. Banks large and small started requiring more collateral, lower loan-to-value ratios, higher debt coverage, and more stringent covenants. Moreover, many banks simply reduced their real estate lending volume or exited higher-risk categories. Regional and community banks, which provide a large share of financing for smaller CRE assets and secondary marketsmossadams.com, became especially choosy. This retreat is evident in the data: 2023 saw a sharp drop in new loan originations, and even routine refinancing became hard to secure for weaker dealsmossadams.com.

One result of this pullback is the rise of alternative lenders (private debt funds, mortgage REITs, etc.) stepping in to fill the gap – albeit at higher interest rates. Even agency lenders (Fannie Mae, Freddie Mac), who remain active in multifamily finance, have firm lending caps and increased scrutiny on deals. The end game is that borrowing is more expensive and less available than it has been in years, precisely at the moment when many owners need refinancing. For distressed multifamily investors, this dynamic is double-edged: on one hand, tighter credit weeds out many potential buyers (reducing competition for deals), but on the other hand it means you too must have solid financing lined up (or all-cash capacity) to capitalize on opportunities.

Rising delinquencies and distress. Given the challenges above, cracks are beginning to appear in loan performance – though so far a broad meltdown has been averted. Industry-wide, CRE loan default rates remain moderate (~2.0% across banks, CMBS, life insurers, and agencies as of mid-2024)buchananstreet.com, which is lower than the 3.5–4.0% seen during the Great Financial Crisis, thanks to proactive lender forbearance. However, certain segments are under real stress. The office sector is the most troubled (office loan delinquency rates hit record highs above 11% in 2025)trepp.com due to remote work impacts. Multifamily, by contrast, has historically low delinquency, but even here signs of strain are emerging in some loan pools. In the commercial mortgage-backed securities (CMBS) universe – which often includes loans on value-add and non-stabilized multifamily – the multifamily CMBS delinquency rate climbed to 7.1% by late 2025, its highest level in nearly a decadetrepp.com. This reflects a jump of over 50 basis points in one month, indicating that more multifamily owners (likely those with bridge loans or underperforming properties) are missing payments.

It’s important to note that delinquency rates for agency multifamily loans (Fannie/Freddie) remain very low (well below 1%multifamily.fanniemae.com) and banks have been extending loans to prevent defaultscredaily.com. So the distress is concentrated in certain corners of the market – typically, highly leveraged deals facing a rate reset or projects lease-up that haven’t hit breakeven. According to MSCI, the volume of officially “distressed” CRE loans reached ~$86 billion by end of 2023mossadams.com. Office properties made up the largest share, but new distress in late 2023 was increasingly coming from other sectors including multifamilymossadams.com. Furthermore, over $200 billion of CRE loans were in some stage of forbearance, payment delinquency, or covenant default risk as of late 2023mossadams.com – i.e. loans on the cusp of trouble if conditions don’t improve. All of this implies that while a wave of foreclosures hasn’t hit (thanks to “extend and pretend” strategies), pressure is steadily building in the system.

For investors eyeing distressed acquisitions, now is the time to do your homework on markets and assets. Distress tends to snowball with a lag: many owners can hold on for a while via loan extensions or cash infusions, but if interest rates stay high into 2025 and 2026, some will capitulate. Banks and special servicers are also likely to get less lenient as time goes on – one forecast expects foreclosures and loan sales to peak by early 2026 as lenders finally take losses and move onbrightoncapitaladvisors.com. Being prepared to act on opportunities (with financing and operational plan in hand) is crucial in this environment. In the next section, we’ll discuss exactly how investors can capitalize on these situations through various distressed investing strategies.

How Distressed Multifamily Deals Are Made

When a multifamily owner runs into financial trouble – say a looming loan maturity with no easy refinance, or a cash crunch due to high interest payments – what happens next? From an investor’s standpoint, there are a few channels through which a “distressed” property can change hands or get recapitalized. Understanding these mechanics will help you position for the right opportunity:

  • Bridge Loan Maturities & Forced Sales: In recent years, many value-add multifamily acquisitions were financed with short-term bridge loans (often 2–3 year terms, floating rate) to renovate and stabilize the asset before getting permanent financing. Those bridge loans are now coming due, and some sponsors can’t refinance because interest rates have spiked and/or the property hasn’t achieved the projected income. Lenders may extend the loan once or twice, but beyond that, the sponsor might be forced to sell the property, refinance with a high-cost private lender, or face foreclosure. This creates an opening for buyers to acquire the asset at a discount. For example, a property that might have sold as a turnkey deal for $X when interest rates were low could be picked up for a fraction of that after a failed bridge loan execution. These deals often surface through broker whisper lists or court-appointed receivership sales. Value-add investors who are comfortable taking on a partially improved property (and finishing the business plan) can benefit greatly – essentially stepping into the original sponsor’s shoes, but at a lower basis (since the prior owner’s equity may have been wiped out).

  • Recapitalization (“Recap”): Not all owners in distress will sell outright. Sometimes, they seek a recapitalization: bringing in new equity partners or restructuring the partnership to inject fresh capital. In a recap, a new investor (or group of investors) might contribute funds to pay down debt or cover cash shortfalls, in exchange for an ownership stake. Depending on the severity of distress, the new capital can come in senior to the existing equity (effectively diluting or “rescuing” the original investors). For the new investor, a recap can be attractive if you believe the asset is fundamentally sound and just over-leveraged – you get to participate in future upside without paying the full market price (since your capital might be used to reduce debt at a discount, etc.). Often, recaps happen pre-foreclosure: the owner proactively finds a “white knight” investor to recapitalize the deal and avoid a fire sale. As a syndicator or small fund, participating in recaps requires careful negotiation of terms (waterfall resets, preferred returns on new money, etc.), but it can be a win-win: the original owner salvages some position, and the new investor sets the deal on a sustainable footing for the recovery.

  • Preferred Equity & Mezzanine Debt: These are financing tools that play a big role in distressed situations. Preferred equity is an equity investment that sits between debt and common equity – the pref investor earns a fixed preferred return and often has rights to take over the asset if that return isn’t paid. Mezzanine debt is a junior loan (subordinate to the senior mortgage) that carries a higher interest rate and can convert to an equity stake upon default. Both pref equity and mezz debt essentially provide gap funding. In 2025, we’re seeing “increased use of preferred equity, mezzanine financing, and other creative structures” in multifamily dealsvikingcapllc.com. For instance, suppose a multifamily owner needs $5 million to refinance (because the new first mortgage came in short). A pref equity investor might provide that $5M in exchange for a priority return (say 10% annually) and an equity kicker when the property is eventually sold. This prevents a distressed sale and gives the owner more time to stabilize, while the pref investor secures a strong yield with downside protection (they have claim to the asset before the common equity). As an opportunistic investor, offering pref equity or mezzanine loans can be a way to get into a deal without buying the whole property – essentially acting as the “lender of last resort” for a good asset with temporary financial issues. It’s worth noting that these arrangements can be complex (you’ll want solid legal agreements), but they are increasingly common lifelines in the current marketvikingcapllc.com.

  • Note Purchases (“Loan-to-Own”): Another strategy is to buy the loan itself rather than the property. Banks and CMBS trusts with non-performing or high-risk loans will sometimes opt to sell the note at a discount instead of going through a lengthy foreclosure. For example, a local bank might have a $20M loan on a troubled apartment complex; rather than foreclose, they could quietly sell that loan to an investor for, say, $0.85 on the dollar ($17M). The note buyer then steps into the lender’s shoes and can either work out terms with the borrower or foreclose and take the property. This “loan-to-own” approach is a favored tactic of many distressed asset funds. It requires capital and special expertise (note purchases are a different process than property purchases), but the payoff can be big. The investor might end up owning the asset at an effective cost basis well below market. Indeed, industry observers predict increased bank loan sales by mid-2025, with distressed assets likely sold to credit funds focused on foreclosure and asset acquisitionbrightoncapitaladvisors.com. Regulatory pressure on banks (to reduce risky CRE exposure) will drive some of this activity. For smaller investors, participating in note sales can be challenging (they often happen in large pools or through brokerages that favor bigger players), but there may be local opportunities or smaller note sale offerings on individual assets, especially with local banks or private lenders. Teaming up with an experienced note buyer or fund is another way to get involved.

  • Loan Modifications (Hope Notes & A/B Splits): This final item is more about understanding the landscape than a direct investor play, but it’s worth mentioning. Lenders and borrowers are increasingly using creative modifications to avoid default – one such tool is the “hope note.” In a hope note structure, the lender splits the loan into two pieces: (1) a performing A-note that reflects the debt amount supportable by the property’s current cash flow and value, and (2) a hope B-note for the rest of the balance, which carries no current payments and only gets paid if/when the property’s value recovers above a certain thresholdvikingcapllc.com. This effectively defers the pain; the lender doesn’t write off the loan, but they don’t force an immediate loss realization either. The borrower gets to keep operating the property without foreclosure, hoping that improvement in NOI or market cap rates will eventually make them whole. Hope notes and A/B loan splits are becoming more common in 2025 as a compromise between extend-and-pretend and foreclosurevikingcapllc.com. For investors, if you’re buying a distressed asset or note, you might encounter a situation where the loan has been modified in this way. It could mean the deal isn’t as straightforward as paying off one note – you may have to deal with a subordinate “hope” note held by the original lender. On the flip side, if you are the new capital coming in (via pref equity, etc.), these structures show that lenders are willing to share future upside rather than crystalize losses nowbrightoncapitaladvisors.com. Overall, the proliferation of such structures underscores how critical financial creativity is in this cycle – as one industry expert noted, these tools “aren’t adding risk – they’re managing risk” to bridge the gap until debt markets stabilizevikingcapllc.com.

In summary, the distressed multifamily playbook in 2025 is all about bridging the gap – whether by buying at foreclosure, injecting rescue capital, or renegotiating debt – to carry a fundamentally sound asset through a period of financial strain. Successful investors will be those who can structure deals that work for all parties (lender, distressed owner, new capital) and underwrite conservatively for a higher-rate environment. Crucially, one must also have an operational plan: turning around a distressed property might involve leasing up vacant units, completing stalled renovations, cutting excessive expenses, or improving management. It’s not just a paper transaction; it’s a hands-on value-add process. Fortunately, multifamily’s underlying income stability provides a solid foundation for turnarounds, as we explore next.

Multifamily’s Resilience: Strong Fundamentals Beneath the Stress

Amid all the talk of financial distress, it’s easy to lose sight of a key fact: people still need places to live. The multifamily sector’s operational fundamentals – occupancy, rent demand, long-term need for housing – remain relatively strong in 2025, even if financing is a headache. This is a critical distinction between multifamily and, say, office properties. While offices suffer from secular demand decline (work-from-home, etc.), apartments continue to benefit from demographic and economic tailwinds. Here are a few data-driven points underscoring multifamily’s resilience:

  • Solid Occupancies: Despite a surge of new apartment supply in the last couple of years, renters have largely absorbed the units. The U.S. average multifamily vacancy rate is forecasted to end 2025 at around 4.9%cbre.com, which is only slightly above the ultra-tight vacancies of the 2010s and well below long-term historical averages. An occupancy rate in the mid-90s% implies that most landlords are still finding tenants without severe concessions. In many markets, occupancy did dip in 2023 due to record deliveries, but occupancies began recovering by late 2024 as the pace of new construction slowedcbre.com. For instance, of the top 16 high-supply metro markets tracked by CBRE, 10 had already peaked in new deliveries by Q4 2024, and all are expected to see improved vacancies and a return to positive rent growth in 2025cbre.comcbre.com. Simply put, renter demand is holding up – young adults continue to form households, and population growth (especially in Sun Belt and Mountain West regions) is feeding demand for apartmentscbre.com.

  • Positive (if modest) Rent Growth: After the double-digit rent spikes of 2021, rent growth moderated significantly. Some overheated markets saw slight rent declines in 2023–24 as supply caught up. However, looking ahead, rent growth is expected to stay positive in 2025 (around 2%–3% nationally), which, while below the post-pandemic frenzy, is roughly in line with inflation and long-term normscbre.com. CBRE projects average annual rent growth of 2.6% in 2025cbre.com. Importantly, many of the markets that had negative rent growth in 2024 are anticipated to turn positive again in 2025 as new construction tapers offcbre.com. By 2026, as the construction pipeline empties out, some markets could even see above-average rent increases due to the combination of shrinking supply pipeline (fewer new units) and steady demandcbre.comcbre.com. In other words, today’s softness in rents appears to be cyclical and supply-driven, not indicative of a structural demand problem.

  • Development Pullback = Future Tailwind: One striking trend is the collapse in new multifamily construction starts in response to high financing costs. Starts have dropped by more than 40% from 2021 to 2024jpmorgan.com. By mid-2025, new multifamily starts are expected to be 74% below their 2021 peak and well below even the pre-pandemic averagecbre.com. This means that after the current wave of projects completes in 2024–2025, there will be a construction lull in 2026–2027. For existing assets (including those an investor might buy now), a development slowdown is good news: less future competition, and more leverage to raise rents as demand accumulates. CBRE analysts note that “as the construction pipeline shrinks, strong renter demand will lower the vacancy rate and precipitate above-average rent growth in 2026.”cbre.comcbre.com This dynamic echoes prior cycles where a glut year is followed by a tightening. Investors who acquire properties during the currently challenged phase could see fundamentals strengthen over their hold period as the supply-demand balance improves.

  • Housing Affordability Pressures: Paradoxically, the same high interest rates hurting CRE owners are also keeping many would-be homebuyers in the rental market. With 30-year mortgage rates around 7%, plus home prices still near record highs in many areas, the cost gap between owning and renting is huge. CBRE reports that the monthly payment to buy a median-priced home (with 10% down) is now 2–3 times higher than the average monthly rent in major marketscbre.com. Moreover, roughly 80% of current homeowners have locked-in mortgage rates below 5%, making them reluctant to sell and thus limiting housing supply for buyerscbre.com. The result: renting remains the only viable option for a large swath of households, including families who might prefer to own but are priced out. This is bolstering baseline rental demand. There’s also an element of demographics – Millennials (the largest adult cohort) are in their prime renting years, and Gen Z is entering the rental pool behind them. The Urban Land Institute notes that “robust demand” for apartments persists, even with many new completions, and any current supply-demand imbalances are likely to be “temporary… worked out over the next 6–12 months.”nar.realtor. Long-term, the U.S. still has a housing shortage, not an excess, particularly in affordable units. All these factors underscore why multifamily is often viewed as a defensive asset class: people may cut back on discretionary spending in hard times, but they will prioritize paying rent for shelter.

  • Track Record of Stability: Historically, multifamily real estate has shown strong performance through cycles. Default and loss rates on multifamily loans have been lower than other property types (apart from certain blip events) due to the diversified income stream (many tenants vs. a few big ones) and essential nature of housing. The National Council of Real Estate Investment Fiduciaries (NCREIF) data indicates that, over the past decades, apartments have delivered competitive total returns with relatively low volatility, often rebounding faster after downturns than offices or retail. In fact, entering 2025, investor surveys rank multifamily as the most preferred asset class in CREcbre.com. This sentiment stems from those solid fundamentals and the belief that, once the financial dust settles, apartments will continue to produce stable cash flows and appreciate over time. Even during the current slump, multifamily confidence is higher than that for most other sectors – a mid-2025 industry “fear & greed” index showed investors gradually shifting from caution to expansion in multifamily, whereas sectors like office remained firmly in distress territorycredaily.com.

In short, the multifamily sector’s challenges are more about financing than demand. That’s a crucial distinction. The underlying property operations are generally healthy – occupancies are high, and rents are inching up. This gives investors a margin of safety: if you buy a multifamily property in 2025, you’re likely acquiring a going concern that still throws off income (perhaps not as much as projected a couple years ago, but solid nonetheless). You’re not buying an empty building hoping tenants show up; you’re buying a cash-flowing asset that’s temporarily mis-priced due to capital market issues. This is the essence of the opportunity. Of course, every market and submarket is different – one must still be vigilant about local overbuilding or employer risks – but broadly, the long-term demand drivers for rentals remain intact.

Positioning for Opportunity: Smaller Investors and Syndicates

It’s clear that institutional players are gearing up for this moment. Large private equity funds and asset managers have raised substantial “dry powder” to deploy into distressed real estate. In fact, private CRE funds raised $85 billion in the first 8 months of 2025 alone, on pace to top $129 billion for the year – a sharp rebound in capital raising, and the strongest year since 2022credaily.com. Notably, debt and opportunistic strategies are in vogue. Blackstone, for example, closed an $8 billion real estate debt fund (one of the largest ever) to target refinancing opportunitiescredaily.com. Brookfield and Carlyle have each raised mega-funds ($9B+ size) with mandates including distress and special situationscredaily.com. This institutional interest sends a clear signal: smart money anticipates that today’s market dislocation will yield highly attractive deals in the next 1–2 yearscredaily.com.

Where does that leave smaller investors and syndication participants? Encouragingly, there is room in the gap for well-prepared non-institutional players. Many distressed or motivated multifamily sales will be in the small to mid-sized range – e.g. a $5 million apartment building owned by a local group, or a $20 million complex owned by a regional syndicator. The big funds often focus on larger transactions (or portfolios) for efficiency, meaning smaller deals can fly under the radar and avoid heavy competition. Local knowledge and agility can be a big advantage here. A syndicator who knows their market intimately may catch wind of an owner needing an equity partner, or a bank looking to offload a troubled loan, before it ever hits a public listing.

Here are strategies for smaller investors to capitalize on the current climate (in a prudent, data-backed way):

  • Build Your “War Chest”: Access to capital is king in distress situations. Smaller investors should line up their equity (and debt commitments) in advance. This might involve assembling a syndicate of high-net-worth partners, securing a bridge financing facility, or partnering with a private lender. Being able to execute quickly and confidently is often what wins deals – e.g. a bank will accept a slightly lower price from a buyer who can close fast with cash or hard money, rather than a higher offer with financing uncertainty. Even if you don’t have a huge fund, consider forming joint ventures: perhaps partner with a family office or an experienced sponsor who lacks cash but has deals. The goal is to have dry powder ready, because distressed assets don’t wait around for long once they hit the market.

  • Target Quality-in-Disguise: Not all distressed properties are equal. You want to target those where the cause of distress is financial structure, not asset quality. For example, a newer apartment community in a strong rental market that struggled only because the developer’s bridge loan came due – that’s a prime target. The property itself is fine (maybe even high performing), it was just over-leveraged or timed poorly. On the other hand, a truly troubled property (say a half-vacant, obsolete building in a declining area) might be a value trap – no amount of financial engineering will fix a lack of demand. In 2025, there will be plenty of fundamentally good multifamily assets sold at discounts simply due to macro financial pressures. Focus on those. Multifamily’s long-term fundamentals are in your favor, but location still matters, and buying “quality at a discount” beats buying junk at an extreme discount. Remember, distressed investing is not about low price alone – it’s about value relative to future potential.

  • Use Creative Financing (Wisely): As detailed earlier, there are creative ways to structure deals in this environment – seller financing, assuming existing loans (if assumable), pref equity layers, etc. Smaller investors can be nimble in structuring offers that solve a seller’s problem. For example, maybe a seller has a 3.5% assumable agency loan – that loan is gold in a 7% interest world, so you might assume it and raise mezz/pref for the rest. Or if a lender is willing to extend the loan for a new sponsor, you negotiate a loan assumption with modification (becoming the new borrower and immediately extending the term at a fee). Preferred equity can also be used on the buy side; you could bring in a pref partner to juice your buying power, allowing you to close the deal with less common equity while giving the pref investor a fixed return. Viking Capital notes that sponsors leveraging tools like preferred equity and hope notes are often able to extend hold periods and prevent forced sales, effectively waiting out the stormvikingcapllc.com. As a buyer, aligning with these strategies (e.g. agreeing with the lender on a hope note structure post-purchase) can create a win-win – you get the property with manageable payments, the lender avoids a fire sale loss. The key is to balance creativity with prudence. Don’t over-financialize to the point of re-introducing too much leverage risk. The goal is to maintain flexibility and staying power.

  • Plan for Higher-for-Longer: A subtle pro-multifamily argument is that even if interest rates stay elevated for a while (the “higher for longer” scenario), multifamily can still perform. Investors should underwrite deals with conservative assumptions: assume no cap rate compression (i.e. resell at equal or higher cap rate than today), assume modest rent growth (maybe 2% a year), and ensure the deal cash-flows even at today’s interest rates. If the numbers pencil out under those conditions, you have a buffer. Any improvements – say, the Fed cutting rates by 2025–2026, or inflation easing which could lower expenses – would be upside. Many analysts expect borrowing costs to gradually ease as inflation comes under control and the Fed potentially reduces rates in 2025–2026nar.realtor. But don’t bet the farm on it – make the deal work without needing a refinance miracle. Value-add investors often talk about “buying at a discount” and then refinancing in a couple years to pull out equity. That playbook can still work, but it should be icing on the cake, not the cake. The core return should come from operations (improving NOI through better management, renovations, etc.) and from buying below intrinsic value. If you lock in a decent fixed-rate loan now (even if it’s 6-6.5%), and the property yields 7-8% cash-on-cash from operations, that’s a solid base. Then if rates do fall to, say, 5% in a few years, you can refinance and boost cash flow further – or enjoy cap rate compression increasing the asset’s value. Essentially, position yourself to win in the current environment, with potential to win bigger if conditions improve.

  • Leverage Professional Management and Asset Management: With distress comes the need for active oversight. Smaller investors should have a plan for professional property management to drive occupancy and control costs on any acquired asset. Many distress deals involve taking over a property that hasn’t been optimally run (perhaps the previous owner was cutting costs to survive, or deferred maintenance). By investing in competent management and necessary improvements, you can often increase NOI relatively quickly, adding value independent of market cap rates. Similarly, asset management (the strategic oversight of the property’s financial performance) is critical – e.g. executing lease-ups, repositioning unit mixes, implementing expense savings, appealing tax assessments, etc. The current high expense environment (insurance, property taxes, utilities have all risen) squeezes margins, so a hands-on approach is needed to maintain profitability. The good news for multifamily is that demand-side interventions (leasing incentives, amenity upgrades to attract tenants) have an effect because there is genuine renter demand. Contrast this with a half-empty office building where no amount of management can create new demand in a soft office market. Multifamily allows an astute owner to add value through operations, which is a core principle of value-add investing.

  • Mind the Downside: Finally, even as we talk up the opportunity, prudent investors must mind the risks. CRE markets are cyclical, and while we’ve stressed multifamily’s strong fundamentals, one must consider downside scenarios. What if a recession hits and job losses cause higher apartment vacancies? What if inflation reignites or financing dries up even more? Having adequate reserves and a contingency plan is part of the game. The beauty of buying at a distressed price is you have a cushion – but you may need to ride out a rough period before the upside is realized. Ensure your capital structure is not brittle: avoid short-term debt that could put you in the same bind the seller was in. If you do take on bridging finance, secure rate caps or budget for refinancing at higher rates just in case. Essentially, approach each deal with a stress test: if occupancy dropped 5% or interest expense went up 1%, would the investment still be solvent? By mitigating the downside, you can more confidently pursue the upside.

Conclusion: A Once-in-a-Cycle Opening for Multifamily Investors

The current CRE market, as we head through 2025, can certainly feel daunting. Headlines highlight $trillions in maturing debt, rising defaults, and high interest rates. However, as we’ve detailed, within these challenges lies a distinct opportunity – especially in the multifamily sector. The convergence of factors (loan maturity cliffs, lender pullback, and owners caught offside by rate hikes) is creating motivated sellers and distressed situations in an asset class that is fundamentally sound in the long run. For investors who can cut through the noise and focus on data and fundamentals, this may be a once-in-a-decade chance to acquire quality multifamily properties at favorable prices.

Crucially, the case for multifamily investing is underpinned by long-term secular demand. Higher financing costs are a cyclical issue – they will evolve over time – but the need for housing is constant. By stepping into the market when others are fearful, smaller investors and syndicates can position themselves ahead of the recovery curve. As private capital flows indicate (with billions being raised for opportunistic and debt strategiescredaily.com), those with a contrarian mindset today could be rewarded tomorrow. In the words of one industry leader, investors are betting that “today’s slow market will open the door to tomorrow’s deals.”credaily.com

Of course, success in this arena requires diligence and discipline. A neutral, data-driven approach – as we’ve taken in this article – should guide decision making. Not every distressed deal is a good deal; selectivity and solid underwriting are paramount. But for a multifamily syndication group or a savvy individual investor, the stars are aligning to pick up undervalued multifamily assets at a time when underlying cash flows remain intact and future prospects (demographic, economic, and potentially financial easing) point upward. It’s a classic case of “be greedy when others are fearful”, executed with prudence.

In summary, 2025’s market conditions have cracked the door open for those looking to invest in distressed or undervalued multifamily properties. The combination of high rates and looming maturities is a short-term storm that well-prepared investors can weather – and in doing so, inherit the clear skies that follow. Multifamily real estate, with its stable tenant demand and historically reliable income, offers a compelling harbor in that storm. By leveraging creative strategies and focusing on intrinsic property performance, investors can not only protect their downside but also set the stage for substantial upside as normalcy returns. This is an environment that subtly favors the multifamily investor who does their homework. The opportunity is there – the next move is yours.

Sources:

Jack McKinnon
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