Is Now the Time to Invest in Multifamily Real Estate?
The U.S. multifamily market is at a pivotal moment for value-focused investors. After a period of headwinds: rising interest rates, cooling rent growth, and an unprecedented wave of new apartment supply. Conditions in late 2024 and 2025 have begun to turn favorable for acquisitions. This is especially true for Class B and C apartment properties, often dubbed “workforce housing.” Macroeconomic trends like peaking interest rates, easing inflation, and a persistent housing shortage are aligning to create strategic opportunities for real estate syndicators. By taking a long-term view, syndicators can acquire and reposition Class B/C assets now at attractive prices and capitalize on sustained renter demand and future appreciation freddiemac.com. In this post, we’ll delve into the economic backdrop, market trends, and actionable insights that explain why now is an ideal time to invest in U.S. Class B and C multifamily properties.
Macroeconomic Backdrop: High Rates Stabilizing, Inflation Cooling
After aggressive interest rate hikes by the Federal Reserve in 2022–2023, the rate environment has largely stabilized entering 2025. The rapid rise in financing costs, the secured overnight financing rate (SOFR) jumped 5.30% between January 2022 and January 2024, put a chill on multifamily investment activity naiop.org. Many buyers sat on the sidelines through 2023 as borrowing became expensive and asset values adjusted downward. Now, with inflation on a downward trajectory and the Fed pausing rate increases, there’s growing consensus that we’re near the peak of this rate cycle mf.freddiemac.com. Stable interest rates are crucial: they bring price discovery back to the market, allowing buyers and sellers to agree on values and get deals done mf.freddiemac.com. In short, the financing volatility has started to ebb, removing a major uncertainty for syndicators underwriting new acquisitions.
High interest rates, while painful in the short term, have had a silver lining: they’ve softened property prices. Cap rates (initial yields) have expanded in many markets, meaning multifamily assets can now be bought at a discount relative to the ultra-low-cap-rate environment of 2021 naiop.orgnaiop.org. CBRE’s 2024 outlook noted that higher borrowing costs and sluggish fundamentals have created significant buying opportunities, with cap rates nearing their cyclical peak cbre.comcbre.com. For syndicators with capital, this moment of repricing is an opening to acquire solid Class B/C assets at lower valuations before the crowd returns.
Meanwhile, inflation has begun to cool, falling from 40-year highs toward more normal levels. This improves investor confidence and household stability. Importantly, multifamily real estate is often viewed as a hedge against inflation. Apartment leases typically renew annually, allowing landlords to adjust rents relatively quickly in response to rising prices multihousingnews.com. Thus, owning apartments can preserve purchasing power, and rents tend to climb along with overall costs, especially in tight housing markets. As one industry analysis put it, apartment investments “provide a partial hedge [against inflation] due to their intrinsic value and replacement cost,” with short lease terms and value-add potential enabling owners to keep up with inflation multihousingnews.com. For syndicators raising capital, the message is clear: multifamily assets (particularly affordably priced Class B/C units) can offer stability and income growth even as inflation fluctuates. With inflation now moderate and interest rates expected to hold steady or even decline in late 2024–2025, the macroeconomic winds are turning in favor of leveraged real estate buys.
Rent Growth Trends: From Surge to Slump – and Back Again
The past few years have been whiplash-inducing for apartment rent growth. After an extraordinary surge in 2021–2022 (national rents jumped roughly 24% over those two years during the pandemic housing boom) rent growth decelerated sharply in 2023 yardi.com. By late 2023 and into 2024, rent increases had cooled to a trickle, about 0.5–2% annual growth nationally, with some high-supply metros even seeing modest rent declines yardi.comnaiop.org. This cooldown was not a demand collapse so much as a supply-driven normalization. Developers, responding to the 2021 rent spike, went on a building spree. 2024 is marking the biggest wave of new apartment deliveries in decades, with roughly 440,000 to 480,000 new units expected to come online; about double the annual completions of the mid-2010s ir.marcusmillichap.com. In fact, 2024 represents the peak of the construction cycle, and such a glut of new supply has naturally tempered landlords’ pricing power.
Class A luxury apartments, which account for the bulk of new construction, have borne the brunt of this supply pressure. To fill new buildings, owners have offered concessions and kept rent growth modest. Yet interestingly, Class A achieved slightly positive rent growth (~0.9%) in the year through late 2023, while Class B and C properties saw small rent declines of about –0.2% to –0.4% on average mf.freddiemac.com. Essentially, older Class B/C apartments gave up a bit of rent in the short run, likely due to competitive pressure from Class A discounts. Even so, occupancy remained very high across all asset classes, about 94.2–94.3% occupancy for Class A, B, and C alike as of late 2023 mf.freddiemac.com. This underscores that demand for apartments never evaporated; it’s simply that the influx of new units pushed rents to plateau temporarily. Many renters took the chance to upgrade to nicer buildings or negotiate lease renewals, causing Class B/C owners to hold rents steady to retain tenants.
Looking forward, analysts expect 2024 to represent the trough for rent growth, with forecasts around 1%–2.5% rent increase for the year mf.freddiemac.comyardi.com. For example, Yardi Matrix projects only about 1.7% rent growth in 2024, well below the long-term U.S. average (~2.5–3% annually) yardi.com. The good news for syndicators: beyond 2024, rent growth is widely predicted to reaccelerate. Why? Because the supply deluge is a short-term phenomenon. Construction starts have already pulled back dramatically – developers faced with high interest costs and softer rents are hitting the brakes. CBRE reports that new multifamily starts will fall by 45% in 2024 compared to pre-pandemic norms, and are down 70% from the 2022 peak, setting the stage for far fewer deliveries by 2025–2026 cbre.com. In other words, after this current wave of new apartments is absorbed, we’ll be heading into a period of under-building. By 2026, annual new supply may be less than half of 2024’s level cbre.com, which paves the way for a strong recovery in occupancy and rent growth in subsequent years.
Crucially, even amid the recent softening, renter demand has remained positive in most markets mf.freddiemac.com. National vacancy is hovering in the mid-5% range (about one percentage point higher than the 2010s average) and is expected to stay around 5.5–6.0% through the peak supply period mf.freddiemac.com. That’s a far cry from any “bust” scenario, it’s more akin to a mild oversupply hangover. CBRE anticipates that average occupancy will still stay above 94% in 2024 despite all the new construction cbre.com. This resiliency matters for Class B and C investors: it implies that workforce apartment assets should keep seeing near-full occupancy, even if rent growth is flat for another few quarters. For a syndicator, steady cash flow with minimal leasing risk is still achievable, especially by prioritizing assets in markets where new supply is limited or largely concentrated in the luxury segment.
Housing Shortage and Affordability: Demand Tailwinds for Class B/C
If there’s one factor that underpins the long-term strength of Class B and C multifamily, it’s this: America has a housing affordability crisis. Decades of under-building and population growth have left the U.S. dramatically undersupplied in housing, especially at moderate price points. The National Multifamily Housing Council (NMHC) estimates the U.S. needs to build 4.3 million additional apartments by 2035 to meet expected demand, including over 600,000 units just to catch up from underbuilding after the 2008 recession nmhc.org. We are simply not building enough, and most of what does get built today is high-end. In the five years from 2015 to 2020, the market actually lost 4.7 million affordable rental units (those with rents below $1,000), due to older units being upgraded or removed and virtually no new “Class C” development to replace them nmhc.org. This erosion of naturally affordable housing stock means Class B and C communities have an enduring, inelastic demand base – working-class households who need reasonably priced rental options.
The flip side of higher interest rates is that homeownership has become prohibitively expensive for millions of Americans, pushing even more people into the renter pool. Mortgage rates near 7% (versus ~3–4% in the late 2010s) and elevated home prices have put the starter home out of reach for many young families. Only about one-quarter of U.S. households can qualify for a mortgage today, roughly half the share that could qualify in 2019 ir.marcusmillichap.com. The National Association of Realtors found the median age of first-time homebuyers hit 38 in 2023, an all-time high, as people delay purchases naiop.org. A recent Oxford Economics report highlighted that the annual income needed to afford a median new home nearly doubled from 2019 to 2024, while household incomes rose only 29% naiop.org. As a result, by late 2024 only one-third of households could afford the typical home, compared to almost two-thirds five years prior naiop.org. This gap between housing costs and incomes is forcing people to rent by necessity – not just by choice.
For syndicators focused on Class B/C apartments, these trends couldn’t be more important. They translate into robust demand for rentals, especially moderately priced units, for years to come. Many would-be first-time buyers will remain renters into their 30s and 40s, bolstering occupancy in well-kept Class B properties (often the bridge between older Class C units and new Class A). Moreover, renting has become a lifestyle preference for a growing segment of the population, not merely a fallback. Surveys show a majority of renters value the flexibility and convenience of renting; many are consciously choosing to rent longer even if they could buy multihousingnews.com. The stigma of renting has faded, which enlarges the renter demographic beyond those priced out of homeownership.
What about rent affordability? It’s true that rents themselves have risen substantially in recent years, but they are generally still far cheaper per month than owning in today’s environment. According to Marcus & Millichap, the premium of a monthly mortgage payment on a median-priced home versus the average apartment rent hit its highest level in at least 20 years in 2023 ir.marcusmillichap.com. While that gap may shrink slightly as home prices and rates stabilize, CBRE expects the cost gap will remain highly elevated in 2024 with the mortgage payment on a newly purchased home about 35%+ higher than an average apartment rent cbre.com. Renting will continue to be the economically rational choice for many households.
Importantly, workforce housing (Class B/C) benefits from being the most affordable tier of the rental market. Even if new luxury apartments in a city are offering one or two months free rent, they will still command higher rents than an older Class B property. Class B and C apartments thus serve as the housing of last resort for many families, and their occupancy reflects that. For instance, affordable housing communities often sustain occupancy rates in the high-90% range in many markets, with waitlists for units. (One analysis noted that as of late 2024, affordable housing nationwide had a minuscule 2.7% vacancy rate despite a 17% expansion in inventory over 5 years, underscoring relentless demand.) Even in the Freddie Mac data for late 2023, Class C properties had occupancy essentially equal to Class A/B, albeit after a slightly larger dip, indicating that lower-rent units stay filled even in softer market conditions mf.freddiemac.com.
All of these factors boil down to a simple fact: the renter pool for Class B and C apartments is growing and will remain deep. Younger Gen Z renters are entering the market (Gen Z is now about one-quarter of the U.S. population and hitting their 20s mf.freddiemac.com), Millennials are still renting in large numbers through their 30s, and downsizing Boomers add further demand. At the same time, the supply of Class B/C units is essentially fixed and almost no new Class B or C apartments are built (due to high construction costs and zoning constraints, developers can usually only profit by building Class A). In many cities, older Class B/C stock is even being lost to redevelopment or renovation. High demand + limited supply = sustained occupancy and rent growth potential. This dynamic strongly favors owning these asset classes. A Freddie Mac report summarizes it well: despite short-term supply headwinds, over the longer term the multifamily market is buoyed by the overall housing shortage, the expensive for-sale market, and the next generation of renters aging into the market mf.freddiemac.com. These secular tailwinds particularly benefit the affordable and mid-tier rental segments.
Value-Add Opportunities in Class B and C Assets
For real estate syndicators, Class B and C multifamily properties offer fertile ground for value-add strategies. These properties (typically 15+ year-old buildings with some deferred maintenance or dated interiors) can often be acquired at higher cap rates and lower price per unit compared to shiny Class A assets. That means more cash flow yield going in, and room for upside through renovations and improved management. In the current market, the value-add playbook is especially appealing: many Class B/C owners held off on major upgrades during the pandemic and high-inflation period (when labor and material costs spiked). There is pent-up potential to renovate units, add amenities, or improve operations to unlock higher rents and value. Notably, even moderate upgrades that keep units in the “workforce” price range can have big impacts, since demand far outstrips supply for quality affordable rentals.
Figure: Older multifamily properties have achieved higher average rent growth over time than newer properties, as lower starting rents leave more room for increases. Source: CBRE Research.
Historical data supports the superior growth profile of older, value-add properties. According to CBRE research, apartment communities built before 2010 have averaged 4.6% annual rent growth over the past decade, versus 3.4% for post-2010 properties cbre.com. In other words, older Class B/C assets have seen faster rent appreciation in the long run. Part of the reason is simply math: a 5% bump on a low rent is easier to achieve than on a luxury rent, and high demand at the affordable end drives continual rent steps as tenants’ incomes rise. Older properties also tend to experience less volatility through cycles and they have lower highs but higher lows, but since renters flock to affordability in downturns cbre.com. The CBRE study further found that rent growth accelerates as a typical property ages into its second and third decade of life, peaking when a property is 20–30 years old (often aligning with a period when a new owner renovates or repositions it) cbre.comcbre.com. The takeaway for investors is compelling: with prudent upgrades and management, Class B and C properties can outperform fancier new assets in rent growth, providing a solid path to increasing NOI (Net Operating Income).
Of course, older properties do come with challenges such as higher ongoing maintenance, potential capital expenditure needs (roof, boilers, etc.), and fewer modern amenities. However, these risks are usually baked into a lower acquisition price and higher cap rate at purchase. Syndicators should underwrite adequate reserves for repairs and improvements, but if you buy at the right basis, the returns can far outweigh the costs. As CBRE noted, the risks of older assets are typically compensated by higher cap rates or required returns, and investors who price in those factors can reap the reward of outsized rent growth in the long term cbre.com. In practical terms, this means Class B/C acquisitions today might achieve a going-in cap rate maybe 1–2 percentage points higher than a Class A deal – a crucial cushion when interest rates are elevated. Those extra yield points give syndicators more breathing room to cover debt service and finance improvements, all while charging rents that remain affordable to a large tenant base.
Value-add strategies in Class B/C properties can range from light cosmetic rehabs (new flooring, appliances, paint, common-area updates) to more substantial renovations (adding in-unit laundry, updating HVAC for efficiency, etc.). Even simple operational improvements such as professionalizing management, tightening expense controls, implementing ratio utility billing can boost net income. In today’s market, a key value-add angle is also energy efficiency and sustainability upgrades (improving insulation, LED lighting, water-saving fixtures) which not only reduce expenses but can attract “green” financing incentives. Syndicators who execute these improvements position their assets to command higher rents without pricing units out of the workforce segment. For example, upgrading an older Class C property to a nicer Class B- can justify, say, a 10–20% rent increase while still remaining well below Class A rents in that market. This translates directly into a higher valuation on exit, especially as cap rates compress in a future lower-rate environment.
Another timely opportunity is the wave of loan maturities and financial distress hitting some multifamily owners who bought at the peak. Many properties bought in 2019–2021 with short-term or floating-rate debt are now facing refinance hurdles due to the higher rates. Lenders were often extending loans (“extend and pretend”) hoping rates would drop by 2025, but with rates lingering high, some owners will be forced to sell, refinance at unfavorable terms, or even face foreclosure naiop.orgnaiop.org. This is especially true for value-add syndicators from a couple years ago who overpaid with rosy rent growth pro formas. As a result, the market is likely to see more Class B/C assets coming to market at distressed or motivated pricing in 2025. In fact, experts anticipate a rise in “forced sales” as banks finally stop extending loans and require payoff or sale naiop.org. For new buyers with fresh capital, this is a chance to snag quality assets at a basis well below their long-term intrinsic value. Partnering with experienced operators, investors can acquire these properties at a significant discount and then implement the deferred value-add plans that the prior owner couldn’t execute naiop.org. By enhancing amenities, renovating units, or simply normalizing operations, the new ownership can generate substantial upside (“alpha”) and potentially outsized returns upon stabilization naiop.org.
In summary, Class B and C multifamily deals offer the ideal mix of current income and future upside for syndicators. The current market dislocation has created an entry point where you can buy low, fix up, and ride the recovery. As long as you account for necessary capital improvements and choose locations with healthy rental demand, the odds are stacked in your favor. The secular demand drivers we discussed: affordability pressures, limited housing supply, and more renters act as a tailwind for any value created through renovations. Syndicators should view Class B/C not as “second tier” assets, but rather as the backbone of rental housing in America, with loyal demand and proven performance over time.
Timing Is Everything: Market Timing Advantages in 2025
All the ingredients we’ve discussed including economic conditions, supply-demand imbalance, pricing resets combine to make the current timing uniquely advantageous for acquisitions in the Class B and C multifamily space. Real estate is a cyclical business, and the down-cycle phase we’ve been in is transitioning. Here’s why 2024–2025 is a window of opportunity that savvy syndicators should seize:
Soft Pricing and Peak Yields: Apartment values have corrected from their 2021 peaks due to higher cap rates. In many markets, cap rates for garden-style Class B/C apartments are 1–2% higher than two years ago, translating to purchase prices that are 15–25% off peak values. CBRE notes that cap rates are near their peak now, but won’t stay there for long as competition returns cbre.com. In the Midwest and Northeast, for example, cap rates are higher than Sun Belt levels, allowing rare positive leverage opportunities (financing rates at or below cap rates) in 2024 cbre.com. Buying when yields are high and sentiment is low is a classic formula for long-term success.
Improving Debt Outlook: While interest rates remain elevated, the expectation is that the next big move is down, not up. Whether rate cuts come in late 2024 or sometime 2025, a syndicator buying now can plan to refinance at a lower rate later, supercharging cash flows. Even a 100 bps drop in loan rates can dramatically boost a project’s NOI and investor returns. Moreover, financing is available and banks and agencies are lending, and debt funds have capital, especially for stabilized workforce housing assets with strong occupancy. Locking in deals before rates actually decline means you benefit from any future cap rate compression (when rates fall, property values tend to rise).
Less Buyer Competition: Transaction volumes hit a lull in 2023 as many investors adopted a wait-and-see approach mf.freddiemac.com. That means less competition and more negotiating power for active buyers now. Anecdotally, some sales processes in late 2023 had a fraction of the bidders that similar deals attracted in 2021. Marcus & Millichap’s 2024 outlook expects that significant dry powder (cash) on the sidelines will start deploying, increasing buyer activity in 2024 ir.marcusmillichap.com. Early 2024 is a sweet spot when motivated sellers exist (due to loan pressures or year-end financials) but many buyers haven’t reentered yet. Syndicators who move quickly can lock in deals before the crowd returns, potentially at bargain pricing or with favorable terms (seller concessions, assumable low-rate debt, etc.).
Strong Long-Term Fundamentals: By the time a Class B/C acquisition made now is repositioned and stabilized (say 12–24 months from now), the market fundamentals are projected to be on an upswing. Rental demand will be bolstered by a larger renter cohort (Gen Z and millennials) and fewer new deliveries, as we discussed. Freddie Mac’s forecast for 2025 and beyond is for positive rent growth and sustained high occupancy, supported by the chronic housing shortage and expensive homeownership mf.freddiemac.com. Thus, an asset acquired today could enjoy several years of improving cash flow because of rising rents, high occupancy, and declining expenses (if inflation stays moderate), which increases its value. For a syndicator with a 5-7 year horizon, buying in 2024–2025 and aiming to sell by 2030 looks promising. You’d likely be selling into a market with strong fundamentals and possibly lower cap rates, capturing both NOI growth and cap rate compression.
Downside Protection: Class B and C properties inherently have a degree of downside protection because they serve the largest renter segment. In an economic downturn, renters downgrade from Class A to Class B/C to save money, keeping occupancy high. And if the economy surprises to the upside, Class B/C landlords can raise rents more aggressively in tight markets. This balanced risk profile is ideal for syndicators raising capital from investors who want stable, recession-resilient assets. As one industry veteran quipped, “people will give up the luxury apartment before they give up a roof over their head entirely.” Owning the more affordable roof means your property is closer to the “last stop” in housing – a very secure place to be in uncertain times.
Actionable Insights for Syndicators
In practical terms, how can syndicators capitalize on this timing? Here are a few strategic insights and steps:
Target Markets Wisely: Focus on regions with solid job growth and limited new construction in the pipeline. Markets in the Midwest and Northeast currently offer balanced supply-demand and higher cap rates, supporting better cash-on-cash returns cbre.com. Also consider Sun Belt secondary markets where new supply is finally slowing but population growth remains strong. These may have short-term softness but excellent long-term upside once the supply is absorbed.
Buy Quality Workforce Assets: Look for well-located Class B or C properties with good bones. Properties that may be a little tired but have no fatal flaws (e.g. avoid properties with major structural issues or in areas with declining population). Given the choice, buy the property with a stable tenant base and decent occupancy over a vacated, fully distressed asset. You can always renovate units, but it’s harder to create demand where there is none. Properties built in the 1980s–2000s often hit a sweet spot: modern enough to avoid obsolete layouts, but old enough to be priced attractively and open to value-add improvement.
Underwrite Conservatively (but not fearfully): In your deal analysis, use today’s rents and today’s interest rates to ensure the deal makes sense with current numbers (stress test for further interest rate delays or higher insurance costs, for example). But also recognize the embedded growth: if the submarket rents are, say, $1.20/SF for Class B and your property averages $1.00/SF, you have headroom to raise rents through renovations or improved marketing. Don’t assume 10% annual rent spikes, but a modest 2–4% growth assumption long-term is reasonable given the demand outlook yardi.com. Plan your exit cap rate a bit higher than entry cap rate as a buffer, yet understand that if rates fall, you could easily beat that exit assumption (a bonus for investors).
Execute the Value-Add and Repositioning: The current market favors those who can add value through active asset management. Upon acquisition, implement your renovation program swiftly to tap into rent potential before new competition arises. Also, consider repositioning the asset’s tenant mix or branding. For example, if you acquire a Class C property in a improving neighborhood, rebrand it with a new name and marketing to attract a more stable tenant profile at slightly higher rents. In Class B assets, small amenity additions (dog park, package lockers, updated laundry rooms, security features) can make a big difference in tenant satisfaction and justify rent bumps. Operational efficiency is key too: explore rubs (utility bill-back) to increase income, and lock in longer-term contracts for services to control expenses. Every dollar of NOI you add is magnified in value upon sale.
Communicate the Story to Investors: Finally, as a syndicator, you need to convince your equity partners that now is the time to deploy capital. Arm yourself with the data, like the reports from CBRE, Freddie Mac, Marcus & Millichap, etc. to show that market conditions are primed for a rebound ir.marcusmillichap.commf.freddiemac.com. Emphasize the long-term cash flow stability of workforce apartments and how buying at a cyclical low can generate above-average appreciation. Educated investors understand that real estate cycles turn; by articulating the current opportunity (and backing it with credible sources as we have here), you can instill confidence that this strategy is well-founded.
In conclusion, 2024–2025 offers a convergence of positive factors for Class B and C multifamily investment. We have a temporary soft patch in rents coupled with long-term housing demand on the rise; high interest rates that suppressed prices, yet a likely easing ahead; and a value-add landscape rich with targets that can be bought and improved for substantial gains. For real estate syndicators, the mission is clear: capitalize on this moment. By acquiring quality workforce housing assets now, one can build portfolio value through repositioning and ride the next wave of rent growth as the market normalizes. As the saying goes, “You make money in real estate when you buy, not when you sell.” Buying into Class B/C multifamily at today’s favorable pricing and market dynamics could prove to be a masterstroke when we look back a few years from now. In a nation that desperately needs more affordable housing, investing in these properties is not only financially astute – it’s aligned with providing homes that Americans need, which is a fundamentally resilient business to be in mf.freddiemac.comnmhc.org. Syndicators who step up now may reap both significant profits and the satisfaction of helping address the housing crunch, one community at a time.
