Multifamily Developers Feel 'Winds At Our Back' After Slowdown

Multifamily development is slowly gaining momentum after a capital markets clampdown over the last 18 months. 

Developers are still just dipping their toes. The environment is nowhere near the peak years of the pandemic when money was pouring into the asset class. But there are indicators that developers and lenders are making moves to prepare for the next cycle, with interest rates coming down, inflation slowing and an emerging gap in the multifamily market.

It may be difficult, but the companies that can make the numbers work for multifamily projects during the lull in the pipeline now will have an outsized advantage upon completion, industry executives said Thursday at Bisnow’s Multifamily Annual Conference East.

“We’ve got winds at our back,” Jefferson Apartment Group President Greg Lamb said onstage at the North Bethesda Marriott & Conference Center. “We’re being pushed into producing housing, and we just have to push capital to get back in the game.”

At the same time, a window is emerging in which lawmakers will likely also be eager to advance policies focused on housing supply. Housing has become a top issue for the American public and was pushed onto the national stage in this year's presidential race. 

Now, with a Republican-controlled Congress and White House, both parties — but especially Democrats vying to regain control — are likely to use housing as a galvanizing issue to appeal to voters heading into the 2026 midterms, National Multifamily Housing Council President Sharon Wilson Géno said. 

“There's a real opportunity in this moment in time, and I think it's like a two-year window between now and the midterm elections, for us to keep people's attention focused on that and move some policy agendas forward,” she said. 

The opportunity on the development side is bolstered by the supply-demand dynamics. While construction surged during the pandemic and deliveries are expected to be elevated through 2025, a sharp decline in new product is projected starting in 2026.

About 508,000 units are slated for delivery next year, according to Yardi Matrix's fourth-quarter update. In 2026, that number is set to decline to 372,000 units.

Developers that can get projects underway now will be able to deliver in a more supply-constrained market a few years down the road.

“We're all trying to put whatever we have, or find whatever we can, to put back in production to start probably sometime in ’26 or ’27,” Lamb said. “It's going to be really difficult to get projects out of the ground in ’25, but we're all trying to tie up dirt to get things moving so that when capital does move back into our space, to get going.” 

AvalonBay Communities is one of the few developers getting projects started this year. The multifamily giant, one of the largest owners of apartment communities, is bullish about getting in early to fill the coming supply void. 

“We are leaning into development, which not everyone's saying,” AvalonBay CEO Benjamin Schall said during the event's opening keynote with Walker & Dunlop CEO and Chairman Willy Walker.

The REIT put shovels into the ground to kick off an Austin apartment development in September. Avalon Tech Ridge, the first phase of which is planned for 444 units, is AvalonBay's first development in the city. 

AvalonBay also launched a build-to-rent arm, executives announced on its Q3 earnings call. It aims to develop and acquire properties between 80 and 130 units, and it specifically sees opportunities in Texas, North Carolina and Colorado. 

The broader economic environment favors landlords, as people are renting for longer due to the high cost of for-sale housing.

AvalonBay tracks the reasons that tenants leave AvalonBay properties. Traditionally, 15% to 17% of them leave to buy a home, Schall said. In the last 18 months, that has dropped to 8% to 10%. 

“We’ve never seen those types of figures,” he said. “So there is for sure a portion of our customer base that is having to stay with us longer. And that’s one of the reasons you’re seeing in the overall industry why retention is high, turnover is as low as it is.” 

Schall said that dynamic provides a “pretty significant cushion” given the macroeconomic shifts needed to close the housing affordability gap.

Capital allocation to multifamily is beginning to open back up, panelists said, with investors foreseeing strong rent growth in the coming years due to lower supply. 

“We're starting to see banks come back and, in some instances, partnering, even on like a programmatic basis, with some private capital providers, which provide a whole loan solution for development,” FCP Senior Vice President Elizabeth Cotter said.

She said lenders that may now have 25% or 30% of their books in office are looking to get those numbers between 0% and 10% and are thus reallocating funds to other asset classes. 

“The money that's not getting transferred to data centers yet is probably coming into the multifamily space,” Cotter said.

But it’s not open season for capital, and several factors still must align to get deals to pencil.

With so much new product coming online within the next year, developers say they must be careful about where they start new projects. They are looking to the regions that have had less supply coming online and are poised for rent growth. 

“Where we're seeing compelling investments is in smaller markets, the secondary and tertiary,” Nuveen Green Capital Senior Director of Originations Ryan Doyle said. 

“So I'm thinking like Richmond, Wilmington, North Carolina, Atlanta, Georgia, if I think down the coast here, then Naples, Florida,” he added. “I think a lot of that's just driven because you haven't had the same supply in those markets.”

Developers' ability to break ground on projects soon depends on their financial structure.  

“If they're well capitalized, they can pull things together,” Whiting-Turner Vice President Jason Spicer said. “But a lot has been put on the shelf waiting for things to improve.”  

REITs like AvalonBay have an advantage because of their large balance sheets and ability to raise capital without relying on cautious banks or taking out floating-rate loans that come with interest rate risk. 

“There are few who can go after it right now like you can because of your financing and the capability for you to raise capital around that,” Walker told Schall. 

Still, the REIT is focused on markets with the strongest projected rent growth. 

“Our conviction on the suburban coasts remains very, very strong recently and in the near term, continuing to benefit from steady demand and just low levels of new supply, and so you’re seeing that come through our operating results,” Schall said.

Going into this next cycle, AvalonBay is also looking to expand its assets outside its core suburban coastal markets from 10% of its portfolio to 25%. That growth will come from a subsection of Sun Belt markets like Austin, southeast Florida and Denver.

“When I look at Austin today, the next couple of years, probably still some continued pain, right?” Schall said. “I mean, there's still a lot of deliveries that are coming through, particularly in certain submarkets there. But as we think about over the next cycle and I think about where rents were to where they are today, when I think about where asset values and cap rates were to where they are today, we feel like it's an attractive entry point.”