Monday Market Moves | Week of 21 July 2025
Welcome to Monday Market Moves, the weekly series from Essex Capital Markets briefing you on Chicago commercial real estate capital markets – including insights on the Multifamily Real Estate market in 2025. We cover key trends in CRE debt, refinancing, and capital structures to help investors, borrowers, and lenders navigate today’s evolving environment.
This Week – Multifamily: A Bright Spot in Commercial Real Estate
Multifamily real estate continues to outperform other CRE sectors, bolstered by resilient renter demand and disciplined new supply. Even as office and retail face headwinds, apartments remain a bright spot. Many markets are seeing strong absorption of new units, steady occupancy, and modest rent growth – a constructive backdrop for investors and lenders. In the Midwest especially, signals are upbeat: Chicago and other heartland metros boast low vacancies and healthy rent gains, reflecting solid fundamentals and limited construction. Overall, multifamily “shows continued strength nationwide, supported by renter demand, zoning reforms, and limited new supply”, setting an optimistic tone for the second half of 2025.
Capital Markets & Financing Conditions
Financing conditions for multifamily have improved markedly from a year ago. Interest rates have stabilized after the volatility of 2022–2024. The Federal Reserve has paused rate hikes – holding its benchmark rate around 4.25–4.50% – and is even signaling potential cuts later in 2025. This stability has translated into a welcome plateau (and slight decline) in mortgage rates from last year’s highs. For example, the 10-year Treasury yield is hovering in the mid-4% range, creating more predictable conditions for loan pricing. As a result, financing costs are “broadly cheaper… than last summer,” a relief for borrowers entering the market now.
Lender sentiment is increasingly optimistic, and capital is flowing. After a cautious period, virtually every debt capital source is active again: banks, life insurance companies, agencies, CMBS, and debt funds are all competing to lend on multifamily assets. The Mortgage Bankers Association (MBA) reports that commercial/multifamily mortgage originations rebounded strongly in early 2025, led by apartment deals. In fact, multifamily loan originations in Q1 2025 were about 39% higher than a year prior – a remarkable jump highlighting pent-up demand and growing confidence. Lenders and borrowers alike appear more comfortable transacting at today’s interest rates, rather than sitting on the sidelines. As MBA’s VP of Research noted, the Q1 surge “signals renewed momentum and growing confidence… borrowers and lenders are finding opportunities to move new deals forward” despite lingering rate volatility.
Importantly, credit is available and competitively priced. With abundant capital seeking placements, loan spreads have tightened modestly and debt capital is plentiful for multifamily acquisitions and refis. The improved pricing and competition mean well-qualified borrowers can often secure favorable terms, even in a higher base-rate environment. In short, the capital markets are open for business for multifamily: lenders are more accommodative now than at any time in the last two years. Borrowers are encouraged to take advantage of these conditions while they last, as uncertainties (macroeconomic risks, policy changes) could eventually temper this optimism. For now, however, market conditions present a constructive environment for financing – a window of opportunity for those ready to act.
Lender Activity and Loan Terms
All major lender groups are prioritizing multifamily in their 2025 allocations. In conversations and recent conferences, lenders have made clear that apartments sit at the top of their lending wish list for the year. This means borrowers have a wide menu of options, from conservative permanent loans to creative bridge financing. Here’s a look at the current lending landscape:
• Life Insurance Companies: Life insurers have maintained or increased their real estate lending targets for 2025, and they favor multifamily deals. They are focusing on high-quality, stabilized assets (often “core” properties in primary and strong secondary markets) with conservative leverage (typical debt-service coverage ratios ≥1.30x). Life companies offer attractive perks: they will often lock interest rates at application (eliminating rate risk during closing) and provide non-recourse loans with streamlined execution. While life company loans tend to carry slightly lower leverage, they compensate by being flexible on interest-only periods for strong deals and by reliably closing on the agreed terms. Notably, life lenders have stepped up to fill the void left by banks during the recent banking-sector pullback, and some are even willing to take out construction loans early – i.e. provide permanent financing on new projects before full stabilization if lease-up is on track. This helps qualified developers avoid costly interim loans and reflects life companies’ confidence in multifamily fundamentals.
• Agency Lenders (Fannie Mae & Freddie Mac): The GSEs remain core sources of multifamily finance, especially for standard stabilized properties and those with affordability components. Agency loan rates and spreads are very competitive as 2025 progresses. In fact, the FHFA modestly raised the agencies’ lending caps for 2025 (to $73 billion each, up from $70B in 2024) given improving market conditions. Both Fannie and Freddie have a strong mandate to support rentals: at least 50% of their 2025 volume must be “mission-driven” affordable housing, and certain workforce housing loans are excluded from the caps entirely to encourage more lending in that segment. For borrowers, this means the agencies are actively quoting deals – often the best choice for secondary/tertiary markets or Class B/C assets where other institutional lenders might be less comfortable. Agencies can go up to ~75-80% LTV on standard deals and even offer 35-year amortizations or interest-only terms for qualifying affordable/workforce housing loans. They’ll drop to DSCRs of ~1.25x and, while they lock the rate only just before closing (not at application), they too provide non-recourse execution. In short, the agencies are a steady, aggressive source of multifamily debt, especially if a project meets affordability criteria or is in a smaller market. Early 2025 data shows agency lending volume is up year-over-year, as they did not fully meet their 2024 allocations and are eager to deploy capital.
•Banks and Credit Unions: After retrenching in 2022–23 amid rate hikes and liquidity strains, banks are slowly returning to the multifamily arena. Strengthened balance sheets and cautious underwriting have positioned many banks to cautiously grow their loan books again. Regional and community banks, in particular, are eager to win smaller-balance deals (often under $10 million) and are using their local market knowledge to compete. These lenders often emphasize relationship banking – they may require or prefer deposit accounts or other business from the borrower. Bank loan pricing has improved: five-year bank loans are being quoted roughly in the 5.8%–7.0% range in mid-2025, depending on the asset and sponsor. That is higher than comparable agency or life company quotes, but banks may offer more structural flexibility. For instance, banks often consider slightly more leverage or fund value-add business plans that fall outside strict agency parameters. Many bank loans are recourse and might include financial covenants or “reset” clauses if performance deteriorates. Still, banks can be very competitive for the right borrower: their underwriting is heavily sponsor-driven, and they excel at speed and local execution (closing faster and accommodating unique situations). As one industry update notes, local banks are now often competing head-to-head with agencies on stabilized middle-market deals, a notable shift from their hibernation a year ago. Borrowers with strong banking relationships or smaller properties may find fresh opportunities as banks re-enter the market and tighten their spreads to win business.
• Debt Funds and Private/Bridge Lenders: The bridge loan market is a notable bright spot in 2025. Private debt funds and specialty finance firms have capital to deploy and are aggressively targeting multifamily, especially deals that need renovation, lease-up, or other transitional financing. Market participants report multiple lender bids for bridge loans on quality assets, driving more borrower-friendly terms. Leverage is creeping up in this space and structures are more flexible – for example, some borrowers are now achieving cash-neutral refinances on transitional multifamily assets (i.e. refinancing without bringing additional equity), a feat that was difficult to achieve in the tighter credit environment of the past two years. Many bridge lenders offer non-recourse, high-leverage loans (often 75–85% LTC) with interest-only periods, to facilitate value-add plans. Of course, these loans come at higher rates (often floating over SOFR) but fill a critical gap, allowing borrowers to reposition properties for a future permanent takeout. Debt funds and mortgage REITs have stepped in to fill voids left by cautious banks, ensuring that even deals which don’t fit traditional lending boxes can find financing. This private credit surge is creating creative solutions – for instance, in one recent Chicago transaction, an intermediary arranged a 100% loan-to-cost, non-recourse bridge loan so that a limited partner could buy out the general partner and fund a full building renovation with zero new cash equity needed. Such high-leverage executions (essentially “no money down” recapitalizations) underscore that liquidity is available for compelling multifamily stories, provided the sponsors and market fundamentals check out.
• CMBS Conduits: Securitized lenders have also re-emerged for multifamily, particularly for larger loan balances and portfolio deals. CMBS loans can reach higher leverage or lower DSCRs than balance-sheet lenders, and they usually come with full-term interest-only structures. With underwriting standards improved post-2020, CMBS is a viable option for certain borrowers, though one must navigate their more rigorous and time-consuming process. Rates are also subject to market volatility until closing, since rate locks occur late in the process. Notably, some conduits are offering five-year terms now (besides the typical 10-year), which can appeal to those who anticipate refinancing or selling once the rate environment improves. In short, CMBS is “back” for multifamily, providing another outlet especially when a deal pushes the limits on proceeds or when a sponsor wants to avoid recourse but doesn’t fit agency criteria.
Across all lender types, the common theme is growing competition to lend on apartments, which is benefitting borrowers. Loan terms have become more borrower-friendly: we’re seeing slightly higher leverage, more interest-only periods, and narrowing spreads on strong deals as lenders vie for volume. Non-recourse options remain widely available (agencies, life companies, debt funds, CMBS) for qualifying assets. And while underwriting remains disciplined – lenders still scrutinize sponsor experience, realistic pro formas, and debt service coverage – the environment is far more accommodative than a year ago. In sum, multifamily borrowers in mid-2025 have ample financing options. Well-prepared sponsors with solid properties can secure attractively priced debt from a variety of sources. Lenders are hungry to deploy capital into the sector, making now an opportune moment to arrange financing or refinance before conditions potentially shift.
Borrower Opportunities and Strategies
The current market presents constructive opportunities for multifamily borrowers, especially those navigating loan maturities or looking to expand portfolios. With debt capital plentiful, borrowers who take a proactive, strategic approach can turn 2025’s challenges into advantages:
• Refinancing the 2025 Maturity Wave: A large volume of multifamily mortgages are coming due this year – approximately $213 billion of multifamily debt is scheduled to mature in 2025, the biggest single-year wave of maturities this cycle. These largely stem from five- to seven-year loans originated during the ultra-low-rate period of 2020–21. Now, borrowers must refinance at rates several hundred basis points higher than their original loans. The good news is that this is not expected to become a distress scenario for most stabilized properties, especially in strong markets like Chicago. Lenders and owners are generally approaching maturities with flexibility and creativity. Many 2025 refis involve recasting the capital stack: injecting some fresh equity, structuring earn-outs or future funding, or obtaining partial interest rate buydowns to meet debt service constraints. For example, some sponsors are choosing to invest additional cash or bring in mezzanine capital to lower the new first mortgage LTV, thereby securing better terms. Others are negotiating extensions or moderate loan modifications with their current lenders when feasible. Early engagement is crucial – borrowers who start discussions 6–12 months ahead of maturity are finding solutions to “bridge the gap” between the low-rate old loan and the new higher-rate environment. The overarching mindset is to treat this not as a crisis, but as a chance for strategic repositioning. By refinancing proactively (rather than waiting until the last minute), owners can often lock in terms before any further rate changes and even pull out capital for new opportunities if their property performance has improved. In sum, while 2025 refi loans carry higher coupons, most apartment owners can “make the numbers work” through prudent measures, and lenders are willing to collaborate on viable solutions. This prevents fire sales and keeps the market liquid – a big positive for borrowers and lenders alike.
• Acquisition Opportunities from Distress: Even with generally healthy fundamentals, the reality is some properties will face stress. Particularly, assets that “kicked the can” with short-term extensions in 2022–24 without improving performance now have nowhere to hide. Properties that are undercapitalized, Class C, or didn’t execute planned renovations are most vulnerable. Some owners who could not hit projected rent increases and now face loan resets or expired rate caps may decide or be forced to sell at a discount. Industry observers note that the era of “extend-and-pretend” is ending – inevitably, a segment of rate-challenged assets that haven’t kept up will come to market as distressed sales. For opportunistic investors and well-capitalized borrowers, this could be a moment to acquire quality properties at improved basis. Value-add and private equity funds are raising capital for this very reason: they anticipate motivated sellers in late 2025 and want dry powder to move on attractively priced deals. (Notably, Chicago’s Mesirow Financial just closed a $1.245 billion fund for value-add apartment acquisitions in top markets, and other big players have launched similar rescue/opportunity funds.) Borrowers with readily available equity and financing lined up can take advantage of any uptick in distressed listings, particularly in overbuilt Sun Belt cities or on older vintage buildings that need rehab. The keys are patience and selectivity – while distress won’t be widespread, the deals that do emerge could offer excellent long-term upside once stabilized. Lenders, for their part, are still willing to finance acquisitions of troubled assets if the buyer brings a convincing business plan and additional equity to de-risk the deal (debt funds are especially active in this niche).
•“Buy Now” Upside – Favorable Market Dynamics: For more strategic investors, the current period may prove to be an ideal entry point. Market metrics suggest that values are near a cyclical bottom and poised to rise as conditions normalize. Cap rates, which rose in 2022–23 alongside interest rates, have largely stabilized in the mid-5% range for multifamily, and have even begun to tick down slightly from last year’s peak. Some forecasts predict mild cap rate compression over the next 12–18 months (potentially into the low-5% range by late 2025) as financing costs abate. If that holds, buyers who acquire assets now at higher cap rates stand to gain value simply from cap rate moves, in addition to any NOI growth. This possibility of future cap rate-driven appreciation is adding a bit of FOMO (“fear of missing out”) among investors – there’s a sense that today’s window of softer pricing may close by 2026. Furthermore, multifamily fundamentals remain strong (discussed below), so buying into this sector is viewed as less risky than other asset classes. For owners, stable or rising values ahead imply that refinancing in a year or two could be easier (with more loan proceeds). And for new borrowers, there is an argument to lock in debt now while lenders are hungry, and potentially refinance at a lower rate later if interest rates indeed decline. Essentially, the horizon looks positive for multifamily, and those who position themselves now – whether by refinancing, purchasing, or even selling and redeploying – can capitalize on the anticipated upswing.
• Creative Financing & Partnerships: Another theme is the emergence of innovative deal structures that create win-win outcomes. We are seeing more joint ventures and equity recapitalizations to navigate the current environment. Example: A limited partner in a Chicago apartment deal recently took the opportunity to buy out the general partner and recapitalize the project, rather than sell it outright, by securing a 100% LTC bridge loan (as noted earlier). Such maneuvers allow experienced operators to consolidate ownership and then refinance on better terms after completing value-add plans. Preferred equity and mezzanine debt are also widely available, providing borrowers tools to reduce their required cash infusions on refis or acquisitions. Lenders are increasingly open to structured finance solutions – be it participation agreements, earn-outs, or interest reserves – to make deals pencil. Borrowers should not hesitate to explore these options. In many cases, bringing in a capital partner or using mezz equity can rescue a deal that otherwise wouldn’t meet senior lender metrics, while still preserving the upside for the sponsor. The message: flexibility and creativity can unlock transactions in today’s market. With so many capital providers in play, borrowers who “stack capital” strategically (mixing senior loans, mezz, and equity) can get deals done that might have stalled last year. Commercial mortgage brokers are in a prime position to identify these opportunities and pair clients with the right funding mix.
Bottom line for borrowers: The multifamily financing climate in mid-2025 is far more forgiving and opportunity-rich than the past couple of years. Yes, interest rates are higher than the 2020 lows, but stability has returned, lenders are eager, and fundamentals are solid – a combination that savvy borrowers can leverage. By planning ahead for maturities, hunting for value-add acquisitions, and utilizing creative financing tools, sponsors can not only weather this period but set themselves up for significant gains in the coming market upswing. The tone is upbeat and proactive: this is a time to execute strategic moves, not to retreat.
Resilient Leasing Performance & Rent Trends
Multifamily’s appeal is underpinned by its solid property-level performance. Even with a record wave of new apartments delivering, national occupancy and rents have held up impressively in 2025. Loan underwriters and investors alike are taking comfort in these healthy fundamentals which bode well for debt service coverage and NOI growth:
• Steady Occupancy: The average U.S. apartment occupancy rate is around 94.5% as of mid-2025, only a tad below the pre-pandemic norm and still quite strong by historical standards. Occupancy has been roughly flat for several months now. The slight softening (down ~20 bps year-over-year nationally to ~94.4% in April) is mainly due to the high volume of new supply hitting the market. Encouragingly, tenant demand has proven resilient enough to keep vacancies in check even in high-supply metros. In other words, for each new unit delivered, there seems to be a renter to fill it, albeit sometimes at the expense of concessions or slower lease-ups. Some Sun Belt cities have seen notable upticks in vacancy (we detail regional differences below), but by and large renters continue to absorb new apartments. As evidence, despite 2024–25 deliveries being the highest since the 1980s, the national occupancy rate remains in the mid-94s – a testament to strong household formation and the enduring affordability gap between renting and owning. Many renters are “renters by necessity or choice” given high home prices and mortgage rates, which is bolstering apartment occupancy even as more units come online.
• Moderate Rent Growth, Positive Trajectory: After the extraordinary post-pandemic rent surges and the cooling in 2023, rent growth has normalized to a sustainable pace. Nationally, rents are rising again (after plateauing in some markets last year) but at a modest rate. The average U.S. asking rent reached ~$1,761 in May 2025, up about 1.0% from a year prior. Year-to-date rent growth through the first half is ~1.2%, roughly half the typical pre-pandemic pace. This muted growth is actually seen as a healthy stabilization – landlords have regained some pricing power, but rents aren’t overheating in ways that would strain tenant budgets excessively. In fact, in many metros, rent increases are picking up slightly in 2025 versus late 2024, indicating a turn back to positive momentum. Importantly, no widespread rent declines are occurring on a national level; the market absorbed the supply spike with only localized rent dips. Effective rents did fall in some overbuilt pockets last year, but many of those markets have since “turned the corner” into modest positive growth this year. Overall, industry forecasts (e.g. CBRE, Freddie Mac) call for U.S. rent growth around 2%–3% in 2025 – slower than the long-term average ~2.8%, but comfortably above zero. Such low-to-mid single digit rent gains are actually ideal for the multifamily sector’s stability: enough to support rising incomes for owners, yet not so high as to invite heavy new supply or tenant default risk. It’s a “Goldilocks” scenario of steady, sustainable growth.
• Regional Variances – Midwest/Gateway Strength vs. Sun Belt Softness: The national averages mask big differences across regions. Notably, Midwest and many East Coast markets are outperforming the Sun Belt on rent growth right now. These areas did not experience as much overbuilding, so their rents are climbing faster than the national mean. For instance, Kansas City posted ~4.0% year-over-year rent growth – among the highest in the nation – and Columbus, OH is around 3.3%. Chicago’s rents are up ~3.6–3.8% year-over-year depending on the survey, well above the U.S. average. In contrast, several high-growth Sun Belt metros have seen year-over-year rent declines as they work through a glut of new units: as of June, Austin’s rents are down ~4–5% YOY, Denver -3.9%, Phoenix -2.6%, Orlando -1.2%, Dallas -1.2%. These drops are directly tied to record deliveries in those cities – for example, Austin and Nashville have delivered units equal to 10–15% of inventory in a short span, temporarily outpacing demand. The good news is that construction is slowing considerably in the overbuilt markets (more on that in a moment), and demand remains strong (many Sun Belt metros are still seeing near-record absorption of units, even if it’s not enough to fully offset supply). Therefore, the rent declines in those select cities are expected to be short-term growing pains. Indeed, monthly data shows the worst may be over: on a month-to-month basis, most markets – including some that were negative year-over-year – saw rent increases in June. Only 4 of the top 30 metros had minor rent slippage in June (e.g. Austin -0.3%, Phoenix -0.2%, Miami and Tampa -0.1%). Meanwhile, some previously lagging markets popped to the top of the monthly growth charts; Chicago led all major metros with a 0.7% rent increase in June alone, followed by Boston (+0.6%), and tech hubs like San Francisco and Seattle (+0.4%). This suggests a rebalancing: the high-supply Sun Belt markets are stabilizing, and the coastal/gateway cities (which had slower post-COVID recoveries) are now heating up slightly. For investors and lenders, the takeaway is that market selection matters – but in aggregate, the U.S. multifamily rent trend is positive and strengthening modestly as 2025 progresses.
• Affordability and Rent Burdens: One caveat to rising rents is the growing renter affordability challenge, which the industry is watching. A recent Harvard study found half of U.S. renters spend over 30% of income on housing, and over 25% spend more than 50%. Rents nationally climbed ~27% in the five years ending May 2025, far outpacing income growth for many households. This has led to political and social pressure in some locales (calls for rent control, etc.), and it means Class A landlords in expensive cities may need to be cautious about pushing rents too hard. However, one positive aspect of 2025’s environment is that rent growth has decelerated to align more closely with wage growth, giving renters some breathing room. The fact that concessions are selectively used (e.g. a few weeks free on new luxury lease-ups in oversupplied submarkets) also helps ease absorption. Workforce and Class B apartments remain near full occupancy in most markets, indicating that demand for moderately priced units is especially robust. This is good news from a credit perspective – affordable segments are the least likely to see vacancies, supporting consistent income streams for those properties. Many renters are also choosing to stay put and renew leases (to avoid moving costs or because single-family homeownership is out of reach), which helps property owners maintain retention and limit turnover loss. In summary, while affordability remains a long-term concern, 2025’s modest rent increases are generally viewed as sustainable – a “healthy equilibrium” where landlords get some growth but renters aren’t faced with the extreme spikes of 2021. This equilibrium supports stable loan performance (as tenants can largely absorb the rent bumps) and is one reason investors and lenders remain bullish on multifamily relative to other asset classes.
Overall, multifamily fundamentals in mid-2025 are encouraging: occupancy is high, rent growth is positive (if moderate), and new supply – while elevated – is being digested by the market. The fact that rents are rising again, even if slowly, boosts lenders’ confidence in underwriting cash flows. Borrowers benefit from this environment through dependable income streams, which translate to solid debt coverage ratios and the ability to support new financing. And as discussed next, the combination of steady fundamentals and improving capital markets is fueling a pickup in investment activity.
Investment Market & Transaction Activity
After a quieter 2023, the multifamily investment market is regaining momentum in 2025. Buyers, sellers, and lenders are all adjusting to the new normal on interest rates, and deal flow is accelerating as a result. For commercial mortgage brokers, this means more transactions to finance and a generally more liquid market to navigate. Key trends in the investment arena include:
• Rising Sales Volume: Transaction metrics show clear improvement. U.S. apartment sales totaled roughly $158 billion over the last 12 months (through mid-2025). This puts annualized volume on track to be the highest since the frothy 2021–2022 period, and significantly above the 15-year average for multifamily sales. In Q1 2025 alone, investment sales were much stronger than the same time last year, mirroring the mortgage origination rebound. The increase in deals indicates that bid-ask spreads between sellers and buyers have narrowed – expectations are aligning now that everyone has had time to recalibrate pricing to the higher-rate environment. Private capital in particular has been active: many 1031 exchange buyers, syndicators, and family offices have jumped in to acquire properties at prices ~10–20% below 2021 peaks, viewing them as good long-term value. Meanwhile, some institutional investors that were on the sidelines are tiptoeing back (though they remain selective). The net effect is a broad base of buyers making moves, which has put a floor under prices and bolstered volume. Market sentiment is that the worst of the transaction slowdown is behind us, and each successive quarter in 2025 seems to be building on that optimism.
• Investor Preferences – Flight to Multifamily: It’s worth emphasizing that among CRE sectors, **multifamily is now widely considered the most preferred asset class for investors in 2025. Surveys of investors and reports by major brokerage houses show apartments ranking at or near the top for new acquisitions, above sectors like office, retail, or even industrial in some cases. The reasons are clear: strong and stable cash flows, resilience in economic uncertainty, and positive demographic/renter trends. Multifamily also offers an inflation hedge (leases roll annually, allowing rents to reset) and benefits from the housing shortage tailwinds. As a result, capital that might have gone to other property types is being reallocated to apartments, including capital from international investors and institutional funds that traditionally favored office or retail. This influx of demand is helping support values. Cap rates have largely flattened out in recent quarters – on average sitting in the mid-5% range nationally – after rising in 2022. In some high-demand markets, we even see slight cap rate compression again as competitive bidding returns. Forward-looking investors are betting that as interest rates eventually ease, multifamily cap rates could compress further, generating appreciation. There is a sense that buying multifamily now is a relatively safe bet with upside, whereas other sectors carry more fundamental risk (e.g. offices with remote work). This confidence in multifamily’s outlook is driving robust investor interest, which in turn means more loans and financings for those transactions.
• Pricing and Values: The price correction of 2022–23 (when values fell ~15%+ in some markets due to higher rates) seems to have bottomed out. We’re now seeing price stability and even modest upticks for high-quality assets. Brokers report that well-located properties with stable rent rolls are garnering multiple offers. While buyers are still price-sensitive (nobody is overpaying in today’s environment), if sellers set realistic price guidance, liquidity is there. For example, in Chicago, about $4.4 billion of multifamily sales occurred in the past 12 months, a solid volume not far off the peak frenzy of 2021. Cap rates in Chicago average around 6% – which is actually a healthy spread over current borrowing rates, allowing deals to pencil for investors. This dynamic (higher cap rate vs loan coupon) means many acquisitions can still achieve neutral or positive leverage with the right financing. Sellers have adjusted to the new values – those who insist on 2021 prices are largely not transacting, but those who price at today’s cap rates are finding buyers and achieving liquidity. For assets that need a little help (e.g. an unstabilized lease-up or a property with some deferred maintenance), buyers are pricing in the risk, but debt funds are often willing to finance the value-add plan, so transactions are happening rather than falling apart. Overall, the market clearing mechanism is working again: pricing has recalibrated, and that’s enabling volume to flow.
• Institutional Capital Returning: After two years of caution, big-money investors are reawakening to multifamily. A notable sign was Blackstone’s nearly $10 billion acquisition of a large apartment REIT portfolio in late 2024, which signaled renewed confidence in the sector. Throughout 2025, we’ve seen additional large portfolio deals and fundraises: e.g., Fairfield Residential closed a $1.47B value-add fund in Q1, Mesirow’s $1.2B fund as mentioned, and multiple REITs indicating plans to expand their apartment holdings. Institutional buyers are especially focused on core and core-plus multifamily – assets that are stabilized in strong markets – as they view these as bond-like income streams with growth potential. With interest rates appearing to have peaked and even receded slightly, these investors who were waiting on the sidelines are now feeling pressure to deploy capital (or risk missing the early recovery phase). The re-entry of institutional capital adds depth to the bidder pool and can drive pricing for top-tier assets. It’s also leading to more financing opportunities in the form of large portfolio loans, credit facilities for funds, and mezzanine debt for JV equity structures. In short, the big players are back, further reinforcing the positive cycle for multifamily investment.
• Development and New Construction Activity: On the development front, multifamily construction is finally slowing after several record-setting years. This is a critical trend that will shape the market balance ahead. By mid-2025, new apartment starts are down roughly 74% from their 2021 peak, and about 30% below pre-pandemic norms. In many cities, projects in planning have been put on hold due to high construction costs, tighter construction financing, and uncertainty over near-term rents. For instance, the inventory under construction in Chicago is already 50% below the historical average, and new completions in 2025 are projected to fall 40% compared to recent years. Nationally, 2024 will see the last of the big pipeline deliver, and thereafter the development pipeline thins out considerably. This deceleration in supply is a tailwind for existing owners and investors – it gives the market breathing room to absorb the units that have opened and helps maintain a landlord-favorable supply/demand balance. Concretely, fewer new deliveries mean vacancy rates should start tightening again by late 2025 (we’re already seeing signs of this in forecasts) and rent growth could reaccelerate in 2026 once the oversupply is worked through. For borrowers and lenders, the slowdown in construction reduces future competitive pressure and stabilizes the outlook for property incomes. From a financing perspective, it also shifts focus: construction lending has been tougher to obtain, but now that the volume of projects is down, lenders are more keen to fund acquisitions and refinancings of existing assets (lower risk than ground-up development). Additionally, niche opportunities like office-to-residential conversions are gaining traction in some cities (where obsolete office buildings are turned into apartments) – these often come with public incentives and can be attractive projects in an otherwise slow development climate. Overall, the pullback in new supply is a positive leading indicator for multifamily performance and is cited by many analysts as a reason to be bullish on buying apartments now.
Summing up the investment climate: Confidence is returning and deal-making is accelerating. Multifamily’s safe-haven status has been reaffirmed through the recent economic bumps, and capital is finding its way back into the sector in a big way. For commercial brokers, this means more transactions to finance and the ability to negotiate competitive loan terms thanks to improving fundamentals. Looking ahead, as long as interest rates remain in a reasonable range (or improve) and the economy avoids a severe downturn, we anticipate the multifamily investment market will stay active and upbeat through the remainder of 2025.
Policy & Program Developments
Recent policy changes and government programs are adding further support to the multifamily sector, particularly in ways that improve financing feasibility and incentivize development. Commercial mortgage brokers should be aware of these new tools and tailwinds that can benefit their clients:
• Major Federal Tax Legislation (“Big Bill Act” of 2025): Earlier this month, a comprehensive tax and economic package was signed into law (nicknamed the “One Big Beautiful Bill Act”), and it contains several huge wins for commercial real estate. This legislation averts many scheduled tax increases by extending provisions from 2017, and crucially introduces or extends incentives aimed at spurring investment. For multifamily owners and developers, the highlights include: 100% bonus depreciation is fully restored and made permanent, meaning investors can once again immediately write off the full cost of eligible property improvements in the year placed in service. (The 2017 tax law’s bonus depreciation had started phasing down from 100% to 80% in 2023 and would have expired by 2027, but the new law cancels that phase-out.) Now, full expensing of qualifying assets – from appliances and flooring to landscaping – is a long-term feature, allowing faster depreciation schedules and improved after-tax cash flows for multifamily projects. This is expected to “supercharge” real estate tax benefits, making it easier to offset rising construction costs and interest expenses by front-loading tax deductions. Additionally, the law makes the 20% Qualified Business Income (QBI) deduction permanent for pass-through entities. Real estate LLCs and partnerships (which encompass most multifamily ownership structures) will continue to deduct 20% of their rental income each year indefinitely, rather than losing that break after 2025 as previously scheduled. This provides ongoing tax relief and improves net yields for property owners (a $100,000 rental profit now consistently comes with a $20k deduction). Another key element: 1031 like-kind exchanges were preserved in full with no new limits or caps. Despite occasional talk in Washington of curbing 1031s, the final bill “fully preserves the ability to defer capital gains by reinvesting in real estate… no new limits – investors can still exchange any size property”. This maintains a bedrock of CRE investment strategy – multifamily investors can continue selling and buying replacement properties without triggering immediate tax, which encourages portfolio churn and liquidity. The law also explicitly protects Opportunity Zone (OZ) incentives, effectively renewing the OZ program beyond its original sunset. Investors can still roll capital gains into Qualified Opportunity Funds and enjoy tax deferral (and other OZ benefits) for investing in designated underserved areas. The bottom line is that this federal legislation creates a highly favorable tax environment for multifamily: full expensing, preserved exchanges, and permanent pass-through deductions together mean higher after-tax returns and more capital freed up for new deals. Industry leaders are calling these changes “a huge win for commercial real estate” that “makes CRE investments more attractive”by boosting near-term cash flow and liquidity. As brokers, it’s useful to highlight these benefits to clients – for instance, a borrower doing a value-add rehab can now factor in bonus depreciation to improve their project’s Internal Rate of Return (IRR), or a seller can be more confident listing a property knowing 1031 buyers are still motivated to transact. These policy shifts create a more favorable climate for multifamily financing and investment at the national level.
• Housing Programs and Credits: Concurrent with the tax bill, recent federal budget moves have aimed to spur housing supply and affordability. Notably, the latest budget increased the allocation of Low-Income Housing Tax Credits (LIHTC) by 12.5%. LIHTC is the primary tool for financing affordable apartment construction, and this boost will enable hundreds of thousands of additional affordable units to pencil out financially in coming years. For developers and lenders involved in LIHTC deals, this expansion is welcome news – more projects will move forward, backed by the tax credit equity. Furthermore, as mentioned, the Opportunity Zone (OZ) program was renewed so that it can continue driving investment into designated areas. OZ funds have been active in multifamily development, and this renewal provides certainty that those benefits (deferral and potential elimination of some gains) remain available for investments started in 2025 and beyond. In combination, the LIHTC increase and OZ extension signal that public policy is leaning in to support housing production – a positive sign for the construction lending and permanent financing of those projects.
• Local Incentives and Zoning Reforms: On the local level, many cities are implementing creative programs to encourage multifamily development or conversion, especially in downtown areas that need revitalization. For example, Chicago’s “LaSalle Street Reimagined” initiative is in full swing, offering incentives to convert underused office buildings in the central Loop into apartments. The city has lined up tax increment financing (TIF) and other carrots, and currently six major office-to-residential conversions are underway in Chicago’s LaSalle Street corridor, set to add roughly 1,765 new apartments and $900 million of investment to the downtown housing stock. This not only addresses the office vacancy issue but also creates new multifamily inventory in a sought-after urban location. Commercial brokers should note that such projects often come with unique financing structures (mix of public and private funds), but also that cities are willing to partner with developers – potentially reducing risk. Beyond Chicago, zoning reforms are becoming more common: cities like Minneapolis and states like California have eliminated single-family zoning in many areas to allow more apartments, and others are offering density bonuses or fast-track approvals for projects that include affordable units. All of these policy tailwinds – from zoning changes to direct subsidies – are gradually improving the development pipeline feasibility. While construction has slowed short-term (as noted earlier), these incentives will help ensure that when projects do move forward, they have support. For existing asset owners, more conversions and redevelopment can also uplift neighborhoods and property values over time.
• Regulatory Environment: It’s also worth mentioning what didn’t happen in terms of regulation. There were fears of stricter rent control or changes to interest deductibility for rental property loans, etc., but so far in 2025 no sweeping negative regulations have materialized at the federal level. (In fact, the new law explicitly left things like carried interest taxation unchanged for real estate funds, and maintained Section 163(j) interest deductibility rules with no new limits, ensuring that apartment owners can still deduct mortgage interest fully if they opt out via real estate’s exemption.) On the banking side, regulators are watching CRE loans but have not forced any abrupt changes in underwriting standards beyond prudent risk management. The FHFA did not tighten the screws on Fannie/Freddie multifamily lending beyond maintaining affordability requirements, as we saw with the caps discussion. All this suggests a relatively stable regulatory backdrop – a relief for lenders and borrowers who were concerned about potential shocks. One area to watch is local rent control measures: some jurisdictions are debating limits on rent increases due to affordability concerns. However, the multifamily industry has been actively engaging in those discussions, and any such measures are likely to be moderate (e.g. tying increases to CPI). From a finance perspective, current policies are largely supportive or neutral for multifamily, so the focus can remain on market forces rather than legislative headwinds.
In summary, 2025’s policy landscape is favorable for multifamily finance. Tax incentives are aligning with industry needs (boosting depreciation, preserving exchanges), government-backed lenders have ample capacity, and new programs are tackling housing supply and downtown revitalization. For brokers and borrowers, these developments mean more tools in the toolbox – whether it’s leveraging a tax credit in a capital stack, marketing the tax advantages of a deal to equity investors, or simply enjoying a broader lending appetite thanks to agency support. Keeping abreast of these incentives can help structure deals that capitalize on every advantage available in this evolving environment.
Regional Spotlight: Midwest Resilience and Chicago’s Momentum
While multifamily is performing well nationally, the Midwest region – and Chicago in particular – deserves special mention for its robust conditions. Borrowers and investors in Midwest markets are finding a lot to like, as these areas combine steady demand with prudent supply levels and attractive yields.
Chicago – Stable and Steady: The Chicago metro exemplifies a balanced multifamily market in 2025. Occupancy rates in Chicago are hovering around 95–96%, among the highest of any major U.S. city. In fact, Chicago’s stabilized occupancy was ~95.9% in Q1 and vacancy now sits just ~4.7%, one of the lowest vacancy rates among large metros. This tight occupancy is driven by strong rental demand (Chicago’s diverse job base and population stability keep apartments filled) and limited new construction preventing oversupply. Unlike some Sun Belt cities, Chicago has had relatively restrained development – its inventory growth has been modest, with construction starts actually below historical averages. As a result, rent growth in Chicago, while not explosive, has been very solid: currently about 3.5–3.8% year-over-year, nearly triple the national average pace. This is a remarkable feat for a high-cost, fully built-out city and speaks to Chicago’s healthy supply-demand equilibrium. The metro’s rents are expected to continue on an upward trajectory; some forecasts even project 5%+ rent growth for Chicago in 2025 given the dearth of new deliveries and ongoing demand. Key factors include the city’s affordability relative to coastal markets (making it attractive to both renters and investors) and the phenomenon of “renters by choice” – many Chicagoans are renting longer due to high homeownership costs, thus boosting rental demand.
From an investment and lending standpoint, Chicago presents a rare picture of stability in an often volatile sector. The market’s 5.3% vacancy rate and low construction activity have made it one of the most balanced multifamily markets in the U.S. Cap rates in Chicago average around the 6% range on recent trades, which provides an attractive spread over financing costs. This means investors can acquire Chicago assets with immediate cash-on-cash returns, unlike some coastal markets where cap rates are sub-4%. Indeed, investor demand spans from downtown high-rises to suburban garden complexes – there’s appetite for all asset tiers, evidenced by multiple bids on well-leased properties across the metro. Private local buyers (often via 1031 exchanges) have been particularly active, stepping in as some institutional capital stayed cautious. Lenders, for their part, like Chicago’s fundamentals: banks and agencies are keen to lend here, seeing it as a stable bet. Both banks and GSEs have competitive programs in Chicago, as noted earlier – with some banks even matching agency terms on mid-sized deals due to their comfort with the market. Thus, borrowers in Chicago often enjoy the luxury of choosing from multiple financing offers.
Other Midwest Markets: Beyond Chicago, several Midwest metros are outperforming expectations. For example, Columbus, OH and Kansas City, MO have logged annual rent gains of 3–4%, outpacing the U.S. average. Detroit (yes, Detroit) saw rents rise about 2.9% year-over-year and has benefited from minimal new construction. Cleveland experienced record apartment absorption in 2024 and rent growth above 3%, even though its vacancy is a bit higher around 8%. These Midwest markets generally share common traits: limited new supply pipelines, affordable rents, and stable local economies. They didn’t get overextended during the boom, so now they’re not suffering the bust. Additionally, Midwest cities often have higher cap rates, which is enticing more investors now in a yield-hungry climate. CBRE projects that Midwest and Northeast cities will see rent increases above 3% in 2025, exceeding the national forecast, thanks to these favorable supply/demand dynamics. This is a reversal of early 2020s trends when the Sun Belt led growth – now the “Steady Eddy” markets in the heartland are having their moment.
For borrowers in the Midwest, this environment is advantageous. Strong rent rolls and occupancy mean properties are cash-flowing well, supporting refinance appraisals and debt coverage. Also, many Midwest markets still have room for rent growth relative to incomes (they remain more affordable than coastal cities), which gives lenders confidence in pro forma underwriting. Local banks in the region are actively lending, often with local market knowledge that gives comfort on smaller deals. Moreover, competition among lenders can be less intense in tertiary Midwest cities, so borrowers might find relationship-driven financing more accessible.
In summary, the Midwest region – led by Chicago – is demonstrating resilience and even upside surprises in the multifamily sector. It offers a compelling narrative of stability and opportunity: stable enough to reassure conservative lenders, yet offering enough growth and yield to attract investors looking for returns. For any mortgage brokers and investors with a Midwestern footprint, the message is positive: these markets are delivering solid performance and remain ripe for financing and investment activity. While glamour markets like Austin or Phoenix sort out their oversupply, the Midwest is quietly thriving, and those engaged here are reaping the benefits of that prudence.
Outlook: Constructive and Opportunity-Focused
As we head deeper into the summer of 2025, the multifamily commercial real estate sector is awash in signs of optimism. The confluence of stable fundamentals, improving capital markets, and supportive policy paints a constructive picture for the months ahead. Lenders are actively quoting deals, borrowers are finding ways to transact, and market sentiment is notably brighter than it was a year ago. Importantly, capital markets have shown resilience despite macro uncertainties – financing channels are open and lenders are adjusting to global events and policy shifts without losing their appetite.
Underwriting remains prudent (no one is returning to the lax days of the last boom), but well-prepared, qualified borrowers are being rewarded with highly competitive terms. Competition among lenders – from banks and life companies to agencies and debt funds – means borrowers can often negotiate better rates or structures if they have strong deals. For instance, it’s now common to see interest-only periods or flexible covenants on multifamily loans that meet quality benchmarks. Bridge financing is plentiful and creative, enabling value-add players to continue recycling capital and repositioning assets. And the permanent loan market is liquid, giving stabilized owners options to lock in rates or cash-out refinance to fuel new acquisitions.
From the borrower/investor perspective, the tone is increasingly “cautiously optimistic” turning to outright optimistic. Where 2023 was about uncertainty and pause, 2025 is about action and opportunity. Borrowers who engage the market early (whether for refinancing a 2025 maturity or sourcing debt for a new purchase) are finding that they have more flexibility and choice now than at any time in recent memory. Acting sooner rather than later also positions borrowers to weather any future headwinds – it’s a strategy of “get it done while the window is open.” Many owners are heeding this advice, resulting in the spike in loan originations we’ve seen. Additionally, those who positioned themselves during the slower period (e.g., lined up equity, got properties “finance-ready”) are now capitalizing on the renewed liquidity.
For commercial mortgage brokers, all of this is encouraging. There is an abundance of relevant financing news to share with clients: interest rates steady, lenders back in force, new government incentives to leverage, etc. The role of the broker as a capital markets advisor is more valuable than ever – by navigating the expanded field of lenders and programs, brokers can secure the best deals for borrowers in this dynamic environment. Given the upbeat conditions, brokers can confidently frame deals in a positive light: rather than focusing on challenges (like higher rates), the narrative is about solutions and opportunities (like more lending options and strategic refinances). The tone to clients can be: “Now is a great time to explore your financing options, because the market is working in your favor in many ways.”
There are of course variables to watch – inflation, Fed policy, geopolitical events – that could introduce volatility. But as of mid-2025, the consensus is that multifamily is on solid footing. Even potential challenges (e.g. a wave of loan maturities) are being met proactively with sound risk management and fresh capital, rather than panic. The sector’s demonstrated resilience (shrugging off global events and rate swings) gives confidence that it can handle what comes next. Many lenders and investors recall being surprised by how well the first half of 2025 went, and they are entering the second half with guarded optimism that this momentum can continue.
In conclusion, the multifamily market heading into late July 2025 is characterized by optimism and opportunity. Lending conditions are the best they’ve been in years for borrowers, market fundamentals remain favorable, and new policies are tilting the playing field to further encourage multifamily investment. For borrowers and mortgage professionals, the guidance is clear: seize the moment. Whether it’s locking in a refinance before rates potentially dip (giving a chance to refinance again) or acquiring an asset while others are still hesitating, there is a sense that those who act decisively now will be glad they did. As one industry newsletter put it, “Current market conditions are more supportive than they have been in at least two years… Borrowers who engage the market early are likely to enjoy more flexibility to evaluate options and secure favorable terms”. In that spirit, this week’s market update ends on an upbeat note – the multifamily finance landscape looks bright, and with the right strategy, borrowers can turn today’s trends into tomorrow’s successes. It’s time to get busy in the multifamily real estate market, as the second half of 2025 holds plenty of promise.
Sources:
– Multihousing News
– Talon Vest
– FHFA
– Yield Pro
– Multifamily Dive
– Matthews
– MMGREA
– Talon Vest
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