July 1st, 2025
What we cover in todays newsletter:
🏢 HUD Premium Overhaul HUD proposes flat 0.25% Mortgage Insurance Premium for FHA multifamily loans
📉 Consumer & Economic Data Consumer spending dips, inflation eases, reshoring activity, and job market trends
🏙️ Multifamily Sector Update Rising rents, declining vacancies, and the impact of construction slowdown
🏗️ Shadow Vacancy & Lease-Up Risk CBRE introduces new shadow vacancy metric; investors shift to tenant retention strategies
🌐 Section 899 Repealed Foreign investor tax provision removed, but caution lingers
🏙️ Chicago ROFR Laws New right of first refusal (ROFR) requirements in key neighborhoods and growing national trend
🏢 HUD Proposes Big Cut to FHA Multifamily Insurance Premiums
What’s New:
The U.S. Department of Housing and Urban Development (HUD) has issued a proposal to overhaul Mortgage Insurance Premiums (MIPs) for FHA-insured multifamily housing loans. This move is aimed at easing financing burdens and accelerating rental housing development—an opportunity investors will want to watch closely.
🔻 Key Change: Flat 0.25% MIP Rate
HUD is proposing a uniform annual MIP rate of 0.25% across all multifamily loan programs, replacing the old tiered system. This simplifies the fee structure and lowers costs across the board.
🚫 Streamlining: Special MIP Categories Eliminated
The current categories for Green & Energy Efficient Housing, Affordable Housing, and Broadly Affordable Housing—introduced in 2016—will be phased out. This means less red tape, fewer compliance requirements, and reduced administrative costs.
📈 Why It Matters to Investors:
Lower Capital Costs: Reduced MIP means cheaper financing and better returns.
Broader Project Eligibility: Market-rate developments stand to benefit, encouraging more widespread use of FHA multifamily loans.
Favorable Timing: The change could help counterbalance high construction and interest costs in today's market.
📅 Timeline & Comments:
HUD’s proposed changes are scheduled for Federal Register publication on June 26, 2025, with implementation expected later this summer. Public comments will be accepted for 30 days post-publication.
💡 Investor Takeaway:
If you’re planning new multifamily projects or refinancing existing ones, this shift could significantly improve your bottom line. Start prepping applications now to align with the upcoming policy changes.
One Click for Pricing Guidance on Fannie/Freddie/HUD
📉 U.S. Consumer Spending Dips, Inflation Eases — Market Signals for Investors
Jobs steady for now, but tariffs and demand shifts could reshape the economic landscape
As the Federal Reserve weighs its next move on interest rates, recent data from the U.S. Commerce and Labor Departments offers a mixed bag for investors — especially those with real estate or consumer-exposed portfolios.
🛍️ Consumer Spending Slows in May
Personal spending declined 0.1% from April, while household income dropped 0.4%, signaling softer consumer activity.
Inflation, tracked by the Fed’s preferred gauge (PCE index), eased to 2.3%, edging closer to the Fed’s 2% rate-cut target.
Key sector shifts:
Housing-related spending jumped 13.7%, remaining a top driver.
Auto sales plunged 49.3%, largely due to a post-tariff buying pullback.
Spending on gas (-19.8%) and food/accommodations (-10.6%) also slipped.
🔍 Investor Insight: Slower consumption may hint at reduced discretionary income, but strong housing spend suggests continued demand in multifamily and residential services. Prepare for mixed tenant behavior depending on region and asset class.
🏭 Manufacturing Reshoring in Focus: GE Appliances Moves Washer Production to U.S.
GE Appliances (owned by Haier) is investing $490M to move washer production from China to Louisville, KY, creating 800 new jobs. The move reflects a wider reshoring trend across sectors like autos and semiconductors, as companies aim to mitigate trade tariffs.
🏗️ Investor Insight: This onshoring momentum could revitalize industrial and workforce housing demand in emerging manufacturing hubs. Watch for rising demand in secondary cities tied to U.S. production expansion.
🧑💼 Labor Market: Claims Mixed, Signs of Softening Emerge
Initial jobless claims fell to 236,000, down 10,000 from the prior week — still historically low.
But continued claims (reflecting longer unemployment) rose slightly to 1.8 million, indicating some stress under the surface.
Economists warn that recent layoff notices in key sectors could lead to a pickup in job losses over the summer.
🧠 Investor Insight: While employment remains steady, a softening labor market could push the Fed to cut rates sooner — possibly as early as December. That could relieve financing costs for debt-backed real estate strategies.
📌 Investor Takeaways
Multifamily fundamentals remain strong, but brace for softer consumer confidence.
Industrial and logistics assets near U.S. manufacturing zones (e.g., Kentucky, Ohio, South Carolina) may see increased activity.
Keep an eye on Fed rate moves post–July meeting, especially as job market cracks widen.
🏙️ U.S. Multifamily Sector Gets a Boost as Housing Market Stalls
As the single-family home market struggles with high mortgage rates and slowing sales, the U.S. multifamily sector is seeing renewed strength, according to recent mid-year reports from Avison Young, Cushman & Wakefield, JLL, and CoStar Market Analytics.
📈 Key Drivers of Multifamily Momentum
Mortgage Rates Still High: The 30-year fixed-rate mortgage has remained between 6.76% and 6.89% for over two months, discouraging would-be homebuyers and pushing more Americans into rentals.
Affordability Crunch Fuels Rental Demand: Young adults staying longer at home, first-time buyers sidelined by costs, and a challenging purchase market are expanding the renter pool.
Supply Shortage Looming: A sharp slowdown in new apartment construction is forecast — especially in the South — with deliveries set to fall 45% this year. This "supply cliff" is expected to drive rent growth and tighten vacancies.
Vacancy Rates Are Falling: U.S. apartment vacancy peaked late last year and is now trending downward, with rent growth expected to rise from 1.2% in Q1 to 2.2% by year-end.
📊 What Investors Should Watch
South & Sun Belt Dynamics: While markets like Miami show strong performance (e.g., 95% occupancy at Wynwood Haus), some Sun Belt metros may see demand ease slightly due to slowing immigration—a trend that could impact South Florida, Dallas-Fort Worth, and L.A.
Investor Sentiment Remains Strong: According to JLL, deals are still closing quickly, with little hesitation despite market volatility. Contracts are moving forward with fewer contingencies, especially in high-demand regions like Southern California.
Tight Spreads Signal Confidence: Cap rates are compressing, even with treasury yields elevated, reflecting investor conviction in upcoming rent increases.
📌 Takeaway for Real Estate Investors
The fundamentals are aligning in favor of multifamily investment:
✅ Rising rents
✅ Declining vacancies
✅ Shrinking construction pipeline
✅ Strong occupancy in key metros
With the "supply cliff" setting the stage for higher returns, now may be the ideal window to pursue acquisitions or new developments — particularly in resilient urban markets.
Source: CoStar News
One Click for Pricing Guidance on Mezz/Debt Fund/CMBS
🏗️ Shadow Vacancy & Lease-Up Glut Redefine Multifamily Investing
New CBRE report reveals how surging supply is masking true vacancy and reshaping underwriting models
A historic apartment construction boom is distorting traditional performance metrics in U.S. multifamily markets — and savvy investors are rewriting their playbooks in response.
CBRE is rolling out its first formal “Shadow Vacancy” report, which tracks units in the initial lease-up phase — an overlooked metric that’s now critical in high-supply cities like Austin, Atlanta, and Phoenix.
📊 What’s the Shadow Vacancy Effect?
Traditional occupancy stats exclude lease-up units, but CBRE says these now lift vacancy by 150 basis points, dragging annual rent growth down to just 0.9% (vs. 2.7% from 2015–2019).
Austin’s headline vacancy sits at ~7%, but with lease-up inventory included, it's closer to 11% — a stark difference that impacts both pricing and investor confidence.
🔍 Investor Insight: If you're evaluating markets based only on stabilized occupancy, you may be underestimating actual risk and pricing pressure.
📈 Retention Over Rent Growth: The New Underwriting Paradigm
Investors are prioritizing tenant retention over pushing for new rent gains — a major shift from previous cycles where new leases set pricing benchmarks.
Offering concessions (like 1 month free) reduces effective rents but can fuel strong renewal-driven NOI growth if tenants stay another year without discounts.
Renewal rent strategies are now baked into bid models, with investors underwriting 3–3.5% rent growth, even in flat markets, to remain competitive.
💡 “Protecting the back door” (i.e., reducing tenant turnover) is now central to investment strategy. Landlords are deliberately discounting renewals to minimize churn amid fierce lease-up competition.
🏠 Tenant Behavior: Why They’re Staying Put
Renewals hit 55.7% in Q1, near pandemic-era highs.
Despite narratives about renters buying homes, most switch rentals — and fewer are doing even that now.
In high-supply markets like Austin, renewal rents have gone negative, but tenants are staying due to hassle costs and minimal incentive to move.
📌 Investor Takeaway: Stability wins over pricing — modest discounts on renewals can yield better long-term returns than chasing new tenants with aggressive incentives.
📅 What’s Next: A Return to Normalcy on the Horizon
CBRE projects construction will slow sharply in the next 3–5 years, easing shadow vacancy and enabling renewed rent growth across lease types.
Evidence from markets like Oakland shows that once excess supply is absorbed, rent growth rebounds fast — even with stable vacancy.
🧠 In Oakland, rents fell -7.7% during the 2021 supply glut but rebounded 10.5% in Q1 2022. A similar trajectory is anticipated for today’s oversupplied metros.
🧾 Final Word for Investors
Cap rates for high-quality, newer assets remain compressed, as buyers are betting on the eventual return of strong rent growth.
Smart underwriting today means factoring in both lease-up drag and retention upside — the dual drivers of NOI performance in this cycle.
One Click for Pricing Guidance on Multifamily Equity
U.S. Ditches Section 899 — But Investor Caution Persists
Foreign investment saved (for now), while local ROFR laws raise new hurdles for apartment deals.
Congressional leaders, at the urging of the U.S. Treasury, have announced the removal of Section 899 from the One Big Beautiful Bill Act, eliminating a provision that would have levied steep taxes on foreign capital gains, dividends, and other U.S. investment income. Meanwhile, real estate investors are bracing for the rising use of right of first refusal (ROFR) laws like Chicago’s new Block 606 ordinance, which may dampen multifamily deal flow.
🌐 Section 899 Removed: Foreign Capital Breathes a Sigh of Relief
What It Was: Section 899 proposed up to 20% tax on income earned by foreign investors from countries imposing digital service taxes or the OECD’s undertaxed profits rule.
Impact Averted: Had it passed, the policy would have likely choked foreign investment in U.S. commercial real estate. Fortunately, major OECD countries have since exempted U.S. tech firms, satisfying the policy’s original aim.
Lingering Concerns: Despite its removal, the episode serves as a wake-up call on regulatory risk. Investors may continue to approach U.S. assets with caution, wary of policy volatility and “stroke-of-the-pen” risks.
🧠 Investor Insight: The threat may be gone, but reputational damage lingers. Expect a more cautious foreign capital environment in the near term, especially in gateway markets.
🏙️ Chicago’s Block 606 ROFR Law: What It Means for Multifamily Investors
New Requirements: As of March, tenants in Logan Square, Avondale, Humboldt Park, Hermosa, and West Town have a formal right to match third-party offers when their apartment buildings (with 5+ units) go up for sale.
Process Timeline:
60-day notice before listing
90-day period to form a tenant association and show financing
120-day due diligence period
Investor Impact:
Slower transactions, Shallower bidding pools, Rising title and financing costs
Political Fallout: Two aldermen now want their wards exempted due to negative effects.
🔍 Investor Insight: Expect higher cap rates and less aggressive bidding in affected Chicago submarkets. Increased friction and uncertainty may push capital to other metro areas.
📍 ROFR Legislation Gaining Ground in Major Markets
Forms of ROFR Across the U.S.:
TOPA (e.g., D.C., Chicago): Tenants have first right to buy.
COPA (e.g., San Francisco): Qualified nonprofits get ROFR.
Government ROFR (e.g., Prince George’s County, VA): Local governments have purchase rights.
Currently Active: Washington, D.C. Metro, Baltimore, Chicago, San Francisco
Pending/Proposed: New York, Massachusetts, Minneapolis (vetoed for now), Maryland (enacted for small properties in 2024)
📌 Investor Alert: ROFR laws are becoming a popular tool among progressive municipalities. Investors should monitor state and city proposals closely as these policies can suppress liquidity, slow transactions, and pressure asset values.
📊 Final Takeaways for Investors
Section 899’s repeal restores confidence, but foreign investors may remain cautious after the close call.
Local ROFR laws are a rising risk factor, particularly in blue-state and high-density markets — shaping both acquisition strategy and underwriting assumptions.
Consider regional policy stability as a core metric in market selection.
Build in longer transaction timelines and higher legal diligence costs when underwriting in ROFR-affected zones.
