August 29th, 2025
30 SECOND RECAP
Development Pulse- New project starts down, construction inflation is easing, developers still facing headwinds slowing construction activity across most property types, suggests rent growth and occupancy push
Cap Rates- Compression on the horizon for multifamily especially if we get fall rate cuts and a 10-year below 4%. Vacancy peaked in most markets, cap rates peaked in almost all
Permit Trends- Activity still well below the 2022 peak, investors selective by market and submarket creating different risk profiles across metros. Overall data points to balanced supply pipeline ahead
Labor Market Update- The U.S. job market cooled far more than expected in early summer. For investors, the near-term story is less about job creation and more about how quickly the Fed shifts toward rate cuts in response.
Agency IPO- More questions than answers, worth a quick read
1. 📉 Development Pulse
New project starts have fallen sharply since 2022, with activity in apartments, industrial, office, and hotels each down meaningfully.
Data centers are the exception — they now account for roughly half of all REIT development spending, masking deeper weakness elsewhere.
Forward-looking indicators (permitting, hiring, architecture billings) suggest little near-term rebound in construction demand.
💰 Costs & Returns
Construction inflation is easing — running closer to 4% this year versus 6% annually over the past three years — as softer demand tempers pricing pressure.
Profit margins remain compressed. Expected REIT development spreads (yield on cost vs. stabilized cap rates) sit around 20%, below the 30% long-term norm but better than last year’s lows.
Lower cap rates, especially compared with 2023–24, are helping developers salvage returns on select projects.
📍 Geographic Shifts
Developers have been pulling back from West Coast gateways like San Francisco and Los Angeles.
Sun Belt metros and select East Coast markets are attracting a larger share of REIT capital, reflecting stronger population growth and relative affordability.
🔎 Investor Takeaways
Developers face headwinds: weaker returns, high costs, and muted demand are keeping most new projects sidelined.
Landlords benefit: thinner supply pipelines should support rent growth and occupancy through the end of the decade.
Investors should watch data centers: the sector remains a bright spot with strong development momentum and above-average yield potential.
👉 Bottom Line:
Construction activity is slowing across most property types, setting the stage for a landlord-favorable supply-demand balance over the next several years. For investors, this points to resilience in rent and occupancy trends — with data centers continuing to stand out as the growth story.
2. 🏢 Multifamily Cap Rates Signal Market Inflection
Key Takeaway:
Apartment investors may soon benefit from falling vacancies and stronger rent growth as cap rates stabilize and, in some cases, compress.
Multifamily Leading the Way
Cap rates for apartments stopped rising about a year ago, and early signs of compression are emerging.
Vacancy has already peaked in 75% of top U.S. multifamily markets, while cap rates have peaked in nearly 90% of those markets.
This mirrors patterns seen after the Great Recession, when declining vacancies and stable cap rates preceded renewed rent growth.
Contrast with Other Sectors
Industrial: Occupancy slipping, rent growth slowing until 2026 → peak cap rates expected soon.
Retail: Negative absorption driving vacancy higher, rent growth likely to bottom by mid-2026.
Office: Remains the weakest link. High vacancies and fragmented demand mean cap rates likely drift higher into 2026.
Capital Flows & Deal Activity
Sales activity is up 43% YoY in Q2, with gains across all major property types.
Rising deal flow is recycling capital back into the market, as loan payoffs free lenders to redeploy funds.
Private equity “dry powder” stands at $350B, led by firms like Blackstone, Brookfield, and Starwood, signaling a strong appetite for acquisitions.
Macro Influences
Treasury Yields: 10-year remains in the 4–4.5% range; activity picks up when yields dip below 4%.
Federal Reserve:
Policy rate steady at 4.25–4.5% since late 2024. A September rate cut (81% probability per CME FedWatch) could make short-term financing more attractive, boosting deal flow and stabilizing cap rates further.
📈 Investor Insight:
Multifamily looks positioned for a recovery ahead of other property types, with stabilizing cap rates and falling vacancies supporting rent growth potential. Strong liquidity and easing credit conditions could accelerate this trend, especially if the Fed moves toward rate cuts in the fall.
3. 🏢 Multifamily Permit Trends
National Snapshot
Multifamily permitting reached 441,100 units over the trailing 12 months (~1.5% of stock).
Activity remains well below the October 2022 peak of 2.3%, suggesting a more balanced supply pipeline ahead.
Historically, about 85% of permits translate to starts, given cancellations and misclassifications.
🌎 Regional Highlights
Sun Belt: Permitting cooled from a late-’22 high (3.7% of stock) to 2.3% in July. Florida metros drove the latest uptick, but occupancy across the region remains weak due to elevated recent deliveries.
Midwest: Long a supply-constrained region, the Midwest’s edge is narrowing as permitting slows on the coasts, evening out fundamentals.
West Coast: Permit activity is running ~90 bps below its 10-year average, creating a supportive backdrop for rent growth in several metros.
📍 Market-Level Insights
San Francisco: Permitting has stayed near 1% of inventory, well under historical norms. Limited new construction plus still-recovering rents make SF one of the strongest near-term opportunities among the top 50 markets — rated “overweight.”
Los Angeles: With permitting at just 0.8% of stock, low new supply should help offset weaker demand dynamics.
Columbus: Bucking the national slowdown, permitting remains well above average and near all-time highs, likely fueled by purpose-built student housing projects.
🔎 Investor Takeaways
Sun Belt risk: Supply overhang continues to weigh on rent growth and occupancy.
West Coast recovery: Constrained pipelines set the stage for stronger fundamentals.
Market selectivity is key: SF and LA benefit from supply discipline, while Columbus may face near-term pressure from a building surge.
4.🧑💼 Labor Market Update
The U.S. labor market lost momentum this summer, with job gains averaging just 35,000 per month between May and July, well below prior trends.
Payrolls fell in 23 states plus D.C., a sharp deterioration compared with the past year, when only three states shed jobs.
Labor force participation is shrinking nationally — down 793,000 workers (-0.5%) since April — due to deportations, retirements, and persistent long-term unemployment.
📍 Regional & State Highlights
Midwest strength: Missouri (+0.7% over two months; 4.5% annualized) led the nation, with Indiana, Ohio, and Wisconsin also posting above-trend gains. These states benefited from a growing labor pool.
South Carolina standout: The state added 14,600 jobs (+0.6%), supported by the fastest labor force growth in the country (+0.5%).
Large states falter: California, Texas, and Florida all slowed sharply. Florida lost 13,600 jobs (-0.8% annualized), while Texas added only 2,700 (+0.1%).
Steepest declines: Utah (-12,500 jobs, -0.7%) and Arizona (-20,000 jobs, -0.6%) posted the sharpest two-month drops. Wyoming also ranked among the worst due to a shrinking labor force.
D.C. drag: Federal job cuts pushed payrolls down another 0.3%, continuing a year-long decline steeper than any state.
🔎 Key Dynamics
Labor force availability is a key differentiator. Eight of the 12 states with faster job growth also saw labor force expansion.
Demand weakness matters too. Arizona illustrates the point: payrolls fell despite continued growth in its labor force.
Small states dominate growth rankings, with only New York and Ohio among the nation’s largest economies showing accelerating hiring.
💡 Investor Takeaways
Broad-based slowdown: The weakness is not limited to a few sectors or geographies — it’s showing up across much of the country.
Fed pivot likely: With payroll gains undershooting and the labor force shrinking, markets are now betting heavily on a rate cut as soon as September.
Macro implications: Softer labor data suggests slower near-term demand growth, but may relieve pressure on financing costs if the Fed follows through with easing.
👉 Bottom Line:
The U.S. job market cooled far more than expected in early summer. For investors, the near-term story is less about job creation and more about how quickly the Fed shifts toward rate cuts in response.
5. 🏦 Agency Recap Plans Leave Market in the Dark
Mortgage industry leaders are increasingly frustrated with the Trump Administration’s murky approach to recapitalizing Fannie Mae and Freddie Mac. Despite high-level comments and press leaks, there’s still little clarity on how the process will unfold — or even what the administration’s ultimate objective is.
🔍 What We Know
IPO Plans: Reports suggest the White House aims to raise about $30 billion through a public offering of Fannie and Freddie shares — far below earlier expectations of $250 billion.
Mixed Messaging: Conflicting signals persist about whether recapitalization would bring the GSEs out of conservatorship or keep them under government control.
Market Confusion: FHFA Director Bill Pulte recently suggested the agencies could remain in conservatorship — contradicting assumptions that Trump favored full privatization.
⚖️ Key Uncertainties
Will the Treasury maintain its crisis-era ownership stake in the agencies?
Will there be an explicit government guarantee on agency-backed loans?
Could Fannie and Freddie be merged, restructured, or partially privatized?
Who is actually directing policy — FHFA, Treasury, or Trump’s inner circle?
💡 Industry Takeaways
Advocacy is sidelined: Traditional channels for policy input (Congress, FHFA, Treasury) appear less influential, leaving banks and trade groups uncertain about their role.
Private-label implications: Some investors believe the IPO, if it happens, won’t materially change how Fannie and Freddie operate — which could benefit private-label securitizations by preserving the current competitive landscape.
Market Outlook:
With recap plans still undefined, stakeholders expect limited near-term disruption to the housing finance system, but remain wary of potential surprises.
👉 Bottom Line:
The administration’s recapitalization push has created more questions than answers. Until there’s a clear framework, expect continued uncertainty — but also stability in how the GSEs function in the mortgage market.
*Sources for todays newsletter include: Green Street/RCA/Moodys/Costar/Trepp/Newmark
