September 8th, 2025

30 Second Overview:  

*Take this with a grain of salt as we would love for you to read every weekly newsletter, but we would HIGHLY RECOMMEND reading this weeks when you have time. It includes extremely relevant insight into the state of the multifamily market. 

• Implications of the One Big Beautiful Bill on CRE (Novogradac)

• Founding partner of $6.5B AUM Investment Group with 22,000 units discusses the state of LP Equity 

• Head of Acquisitions of Truamerica discusses their strategy and opportunities they see as an active buyer in a tough market.

Key Takeaways "The Rent Roll Podcast" Episode 48
 

Focuses on the impact of the One Big Beautiful Bill (OBBB), a significant tax reform legislation passed in July 2025, on rental housing, particularly affordable housing. The episode features an interview with Michael Novogradac, a leading expert on housing tax policy and founder of Novogradac & Company, who testified before Congress on the bill. The discussion covers the bill’s implications for the Low-Income Housing Tax Credit (LIHTC), Opportunity Zones (OZ), and other housing incentives. 

One Big Beautiful Bill (OBBB) Impact

- LIHTC Provisions:
  - 12% Increase in 9% Allocations: Permanently boosts LIHTC funding for new construction and preservation.
 

- PAB Threshold Reduction (50% to 25%): Allows states to finance more projects with existing bond volume (e.g., $2.5M vs. $5M on a $10M project), potentially doubling project capacity.
 

- Impact: Novogradac estimates 1.22M additional affordable units over 10 years, assuming states maintain PAB allocations for rental housing. Includes new construction and preservation (acquisition/rehab).
 

- Significance: With ~45M U.S. rental units and ~3M LIHTC units, 1.22M units is a substantial increase, unmatched since 2000.

  - Challenge: States must avoid redirecting PABs to other uses (e.g., single-family, industrial). Advocacy needed to maximize housing impact.

- Opportunity Zones (OZ):

  - Made Permanent: Extends OZ incentives, which have driven significant housing (EIG: 600,000+ units, half attributed to OZ; Novogradac: 200,000+ units in one-third of market).
 

- Change: Lowers eligible zone income threshold from 80% to 70% of AMI, reducing the number of zones.

  - Missed Opportunities (per Novogradac’s OZ Working Group):

    - Increase number of eligible zones to offset income threshold reduction.
    - Enhance basis step-up for affordable housing investments.
    - Lower renovation test (currently 100% of purchase price) for affordable housing.
    - Allow conversion of non-residential buildings to affordable housing to qualify.
    - Modify gain recognition rules after five years.
  - Assessment: Significant win, but missed chances to boost housing-specific OZ investment.

- Other Provisions:

  - Bonus Depreciation: Allows immediate deduction of personal property and land improvements, boosting equity for new/acquired properties and enhancing LIHTC investment value.
  - Interest Expense Deduction: Eased limitations, supporting property financing.
  - New Markets Tax Credit (NMTC): Supports mixed-use projects (commercial + residential), not pure rental housing.
  - Energy Credits: Phase-outs of renewable energy credits (e.g., 45L) require monitoring for projects with solar/energy-saving components.
- Grade for Housing Supply: Triple (near home run). The 1.22M-unit potential is monumental, but not a “home run” due to remaining gaps (e.g., workforce housing, further OZ enhancements).

- Biggest Miss:

  - Lack of incentives for workforce housing (60–120% AMI), addressed by proposed bills like the Middle-Income Housing Tax Credit (Senator Wyden) and Workforce Housing Tax Credit.
  - HOPE Act: Proposed to incentivize nonprofits to renovate existing affordable housing.
  - Neighborhood Homes Investment Act: For single-family home renovation in distressed areas.
  - Prioritization Issue: Some prioritize lower-income housing over workforce housing, delaying bipartisan support for middle-income incentives.

- Workforce Housing Outlook:

  - Need: Addresses the “missing middle” (60–120% AMI), where renters often move from LIHTC to older, lower-quality market-rate units, hindering upward mobility.
  - Benefit: Workforce housing credits could create a progression (LIHTC → workforce → market-rate), freeing LIHTC units for lower-income renters.
  - Challenges: Prioritization conflicts and legislative vehicles. Senator Wyden’s influence suggests potential passage in 1–2 years.

Key Takeaways

- OBBB Impact: A landmark for affordable housing, with a 12% LIHTC increase and PAB threshold reduction enabling 1.22M units over 10 years. Permanent OZ status supports workforce housing, but missed enhancements limit its housing focus.
- Policy Needs: Workforce housing incentives, preservation funding, and broader OZ benefits are critical to address the “missing middle” and aging LIHTC stock.
- Novogradac’s Role: His expertise and advocacy shaped OBBB’s housing provisions, emphasizing efficiency and supply expansion.

Episode 47: The Rent Roll Podcast

This episode focuses on challenges in the rental housing sector, particularly the scarcity of LP (Limited Partner) equity for multifamily and single-family rentals (SFR) or build-to-rent (BTR) projects. The episode critiques recent U.S. Census data on housing starts, and features an in-depth interview with Dan Meader, founding managing partner of Trinity Investors, a $6.5 billion investment firm based in Southlake, Texas, with heavy involvement in rental housing (about 22,000 multifamily units).

Critique of Government Data on Housing Starts

U.S. Census Bureau data on housing starts, released in the week of the episode (dated September 08, 2025, but discussing July 2025 data).

Key Critique:

Parsons argues the data "does not pass the sniff test" and has real policy implications (e.g., on inflation, CPI, and Fed rate decisions). He notes that excluding lagged shelter/rent data (which makes up ~30% of CPI), inflation has been around 2% (the Fed's target) since summer 2023. Using leading indicators like new lease rents would show even lower inflation.

Specific Data Issues:

July 2025 multifamily starts: 42,000 units—the second-highest July in nearly 40 years (only topped in the late 1980s, excluding 2020).

June 2025: Fifth-most active June in nearly 40 years.

Overall: Media (e.g., Bloomberg) reported a ~10% increase in multifamily starts to the strongest pace since mid-2023, suggesting a "massive rebound."

Counterarguments and Supporting Evidence:

Private sector data (CoStar, RealPage): Apartment starts at lowest levels in 12-13 years (back to mid-2010s post-GFC), with no signs of a rebound through Q2 2025.

American Institute of Architects' Billings Index: Multifamily category negative for 2+ years, no rebound.

National Multifamily Housing Council Survey: High delays due to economic uncertainty and unfeasible projects (high debt costs + flat/falling rents).

REIT Earnings Calls:

MAA (largest by units): CEO Brad Hill notes development pipeline "significantly below historical averages," trending down quarterly; returns need 10-20% improvement via cost reductions or rent growth.

AvalonBay (largest by market cap): CEO Ben Schall says new supply in established regions at decade-low levels.

Single-Family Context: Rick Palacios Jr. (John Burns Research) questions single-family starts data (+7% YoY in July), as surveys show 13% YoY drop; implies unrealistic 20% community count growth.

Consequences of Bad Data:

Reduces urgency for policies to boost construction (local, state, federal).

May mislead the Fed into thinking high rates aren't slowing starts (though Fed likely uses private data).

Historical Context: Census lagged in detecting 2023 declines seen first in private data; under-resourcing is a chronic issue.

Interview with Dan Meader, Founding Managing Partner of Trinity Investors

The bulk of the episode is an interview with Meader, whose firm manages $6.5 billion AUM, with 150 real estate investments (including 22,000 multifamily units) and 20 operating company investments. Trinity focuses on commercial real estate and control investing in operating companies, with overlap between the two.

Why LP Role (Not GP)?:

Domain expertise: Trinity focuses on sourcing/structuring deals, not day-to-day development (e.g., land, zoning).

Align interests: Share economics with GPs who handle details; avoid "one-at-bat" tedium.

"Three Bs" Framework: Baseball (institution teaching behavior; evaluate on body of work), Business Models (value add, alignment), Balance Sheets (support credit, sustainability).

 Advantages for Investors with Trinity:

Screens sponsors/assets; provides direct exposure without liability or management hassles (e.g., no 11 PM toilet fixes).

Handles stress: Stays engaged in underperforming deals (e.g., bank negotiations).

Diversification: Encourages multiple investments; sometimes bundles similar assets.

Evaluating GPs:

Beyond track record: Personal participation, handling stress/downs (transparency, character).

Cycles survived; long-term relationships; references from other investors.

Avoid extremes (e.g., "don't need money" or "take anyone's money").

Investment Preferences:

Direct asset investing (not funds); mindful of diversification.

Current View on Multifamily: Cyclical; choppy market (wide bid-ask spread, no rate relief yet). Not at bottom (no capitulation); hold, don't sell/buy hastily.

Negative Leverage:

Common now (WACC > yield on cost); focus on rent growth, cost reductions, execution risk (e.g., complexity like hospitals vs. warehouses).

Bifurcation: Bullish on ground-up development (manageable risks, value add); cautious on existing/workforce housing (uncertain values, e.g., 1985-vintage at $185/door).

Buy Box: Bias to Southwest/Southeast (demographics, jobs, taxes); macro factors (avoid high-tax/bankrupt states like Illinois). Prefers build over buy; reasonable capital stacks, balance sheets for financing.

Advice for GPs Seeking LPs:

Know your value; defend experience/track record.

Realistic about challenges; strong business model/balance sheet.

Respect details (e.g., property management as "shitty business" but critical—tenant screening, contracts).

Understand client acquisition costs (tenant credit, turnover); pricing strategy (beyond undercutting competitors; AI/dynamic models).

Ideal Traits: Character, realism, patience, alignment, decent balance sheet.

Episode 49: The Rent Roll Podcast

Hosted by Jay Parsons, Episode 49 of *The Rent Roll Podcast* features an in-depth interview with Matt Ferrari, Co-Chief Investment Officer and Head of Acquisitions at TruAmerica. It includes a discussion on a notable 2025 multifamily market statistic involving AvalonBay.

Table Discussion: AvalonBay’s Texas Acquisitions vs. DC Dispositions

Parsons presents a table comparing two significant AvalonBay transactions, which he considers the most fascinating multifamily statistic of 2025:

- Texas Acquisitions (February 2025)

  - Buyer: AvalonBay; Seller: BSR.

  - Properties: Class A apartments in Dallas and Austin suburbs.

  - Cap Rate: High 4% (e.g., ~4.7–4.9%).

  - Vintage: 1995–2021, with six of eight properties built since 2015.

- Washington, DC Dispositions (August 2025)

  - Buyer: Folger Pratt; Seller: AvalonBay.

  - Properties: Four Class A apartments in urban DC submarkets.

  - Cap Rate: 5.94%.

  - Vintage: 2003–2018, with three of four built since 2012.

- Key Observations

  - A ~100 basis point (bp) cap rate spread (high 4s in Texas vs. high 5s in DC) is unusual, historically reversed (coastal urban markets like DC typically commanded lower cap rates pre-COVID).

  - DC’s Tenant Opportunity to Purchase Act (TOPA) laws delay transactions, contributing to lower liquidity in high-regulation markets (e.g., DC, NYC, LA).

  - Texas suburbs reflect higher liquidity in low-regulation markets, driven by policy risks in coastal urban areas (e.g., eviction restrictions, rent control, transfer taxes).

  - Despite strong demand in coastal cities (e.g., NYC, San Francisco leading rent growth), regulatory burdens increase investment risk, making suburban markets more attractive.

  - Parsons questions if the 100 bp discount for coastal urban markets is the new normal, suggesting it’s a cyclical opportunistic bet rather than a permanent shift. Buyers like Folger Pratt are drawn by discounts below replacement cost, anticipating regulatory reform or stabilization.

-Implications

  - Prime suburbs (e.g., Dallas, Austin, Northern Virginia, Silicon Valley) are now among the most liquid markets, commanding price premiums due to lower regulatory risk and development barriers (e.g., NIMBYism, restrictive zoning).

  - This shift may push smaller, sub-institutional investors to less attractive suburban areas or tertiary markets as institutional capital dominates prime suburbs.

  - The disconnect between core (Class A) and value-add (e.g., 1980s vintage) markets suggests distressed assets won’t significantly impact cap rates for high-quality properties.

Multifamily Acquisitions Market

Ferrari discusses TruAmerica’s strategy as an active buyer in a slow market, where many LPs are tied up in existing deals or waiting out the cycle.

- Why TruAmerica Stays Active:

  - Diverse capital sources: Discretionary fund, separate core-plus accounts, and joint venture (JV) partners targeting varied returns.

  - Views current market as the most exciting since 2010 due to arbitrage opportunities (e.g., mismanaged deals, over-leveraged syndications, lender-owned properties). Cap rates vary widely by market, submarket, vintage, and operator (e.g., low 5s in Dallas vs. high 5s in Orlando).

  - Opportunities to differentiate through operational improvements (e.g., fixing low occupancy, optimizing expenses, leveraging technology).

- Value-Add Profile:

  - Current vs. Peak (2021–2022): Previously, value-add meant high-end renovations (e.g., quartz countertops, stainless steel appliances) assuming strong rent growth. Now, more modest, market-specific upgrades (e.g., spray countertops, retaining black appliances) due to flat/falling rents and expensive debt.

  - Target Assets: Both 1980s vintage and newer (7–8-year-old) deals with operational issues (e.g., 85% occupancy vs. 94% submarket average) or mismanagement. Focus on markets/submarkets with rent growth tailwinds.

  - Cap Rate Spread: 1980s value-add deals at 5.5–6.25% vs. Class A core at 4.5–5%. Wider spreads than historical norms create opportunities, but require strong capex teams to assess renovation needs.

- Sellers’ Profile:

  - Diverse: Public REITs, private sellers, lenders, developers, fund managers. Lender sales (e.g., foreclosed value-add deals) are new but infrequent.

  - Many sellers hold back, expecting better fundamentals or lower interest rates, widening the bid-ask spread (e.g., sellers want low 5s for 1980s deals, buyers offer 6–7%).

- Capital Challenges:

  - LPs are pickier due to limited capital from fewer sales, requiring stronger deal-specific pitches.

  - Investors must accept potential year-one softness (e.g., gain-to-lease, where new leases are below existing rents) for long-term gains, justified by higher cap rates or operational upside.

  - Herd mentality: LPs were less cautious in 2021–2022; now, fear dominates, but opportunities exist for disciplined buyers.

- Distressed 1980s Deals:

  - Many were bought by inexperienced syndicators at peak (2021–2022) in suboptimal Dallas submarkets, with unrealistic rent projections or high leverage.

  - Future: Owners face refinancing with cash-in or sales at a loss. Market-clearing cap rates (e.g., 7%) could attract buyers, but sellers resist (want low 5s). Institutional capital avoids these, leaving room for opportunistic buyers to profit post-reset.

  - Distress won’t significantly impact core Class A cap rates, as it’s a distinct market segment.

- New Construction:

  - No widespread distress among developers; many accept lower-than-expected profits to recycle capital for future projects.

  - Capital chases newer assets, but buyers need IRR, not just basis. Lease-up challenges (e.g., concessions, slower stabilization) persist, but spring 2026 leasing season could spur sales as properties stabilize.

  - Development remains attractive for groups unable to compete for existing Class A assets, as discounts to replacement cost and future supply constraints favor new builds.

Key Takeaways:

- Market Dynamics: The multifamily market offers arbitrage opportunities due to mismanagement, distressed deals, and cap rate disparities. Prime suburbs are highly liquid, while regulatory burdens depress coastal urban markets.

- TruAmerica’s Edge: Diverse capital, operational expertise, and a focus on value-add (both 1980s and newer assets) enable activity in a slow market.

- Policy Outlook: A potential national housing emergency could streamline construction, but faces NIMBY opposition. Affordable housing remains critical despite temporary market-rate competition.

- Future Trends: Distressed 1980s deals will clear at higher cap rates, while new construction benefits from future supply constraints. Capital will shift to secondary suburbs or tertiary markets as prime areas become competitive.

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