June 23rd, 2025
🏢 U.S. Apartment Market: Vacancy Rates Falling, Rent Growth Rebounding
After several quarters of elevated vacancy rates, the U.S. multifamily market is finally showing signs of meaningful improvement. Vacancy rates peaked in late 2024 and are now on a downward trajectory heading into 2025 — a trend that investors should watch closely.
🔻 Vacancy Rate Momentum
A wave of newly delivered apartment projects is beginning to lease up, and that activity is helping to gradually chip away at the nation's oversupply. While rental demand continues to outpace historical norms, the number of new starts has slowed considerably. In fact, apartment deliveries are expected to drop by about 45% this year, thanks to a sharply declining construction pipeline — a tailwind for occupancy. So far, the decline in vacancy is being led by the top end of the market. Class A (four- and five-star) properties have already seen their average vacancy drop by 50 basis points from a peak of 11.7% at the end of 2024. That number is forecast to dip below 10% by year-end.
💰 Rent Growth Gaining Traction
As vacancies decline, pricing power is slowly returning. National asking rents are projected to grow 2.2% by the end of 2025, up from just 1.2% in Q1. While this is still below long-term averages, it marks a notable pickup in momentum. However, rent growth projections were trimmed by 50 basis points this quarter due to softer economic outlooks and muted performance in early 2025. Slower job growth and hiring are potential headwinds that could weigh on demand in some markets — especially those with more supply pressure, like the Sun Belt.
📉 Risks & Longer-Term Outlook
There are still downside risks on the horizon. Economists are dialing back growth and employment expectations for both 2025 and 2026. Should the labor market soften, lease-up timelines may extend, particularly in oversupplied metros. That said, the broader housing shortage remains a powerful demand driver for multifamily. Even through prior downturns — including the pandemic and the Great Recession — apartment demand proved resilient due to affordability constraints in the single-family market. Looking ahead, modest fiscal stimulus is expected by mid-2026, which could help support demand. However, slower population growth and declining immigration will limit long-term employment gains, suggesting that vacancy will decline only gradually over the next five years. Rent growth is expected to average around 2.7% annually through 2029 — below historical highs but still positive in real terms.
📈 Investor Takeaway
While the multifamily market is not out of the woods yet, fundamentals are stabilizing. Falling vacancy rates, declining supply pipelines, and improving rent growth are all encouraging signs for investors. Markets with high-quality assets and manageable new supply should be well-positioned to benefit from tightening conditions in the coming quarters.
One Click for Pricing Guidance on Fannie/Freddie/HUD
📬 CRE Debt Market Pulse – June 2025
💰 Liquidity Flows but Risk Still Lingers
Capital is plentiful, spreads are attractive, and lending markets remain highly competitive — but uncertainty around rates and policy is capping upside for real estate valuations. After a 5% rebound from late 2023 lows, pricing has leveled out.
📉 Rates Whipsaw, but Cuts Haven’t Come
Despite widespread expectations, front-end rate cuts haven’t materialized. Long-term Treasury yields have been volatile, holding back borrower appetite for fixed-rate debt and fueling demand for floating-rate structures.
🏦 Lender Landscape: Who’s Gaining Ground
Debt funds and insurers led CRE loan growth in Q1 2025.
Large banks are gradually returning to the market.
Small banks are still contending with older troubled loans.
CMBS issuance lags despite healthy liquidity — most new deals are tied to refinancing, not acquisitions.
📈 Loan Demand: Refi Rules the Day
Refinance activity is booming as owners look to reset terms. Acquisition and construction lending remains soft due to pricing uncertainty and high input costs. Variable-rate originations now make up ~50% of CMBS issuance, reflecting borrower hesitation to lock in.
🏢 Office: A Surprise Comeback?
Liquidity for high-quality office assets improved meaningfully in 1H25. Capital is slowly flowing into better-located Class B properties as lenders regain confidence in core urban footprints. Lower-quality office remains challenged.
📊 Delinquencies & Defaults: Still a Reality
Loan delinquencies continue to rise, but the pace has cooled. Maturity extensions and defaults are still common across near-term CMBS loans — nearly 35% of maturities through 2027 remain unresolved. Still, refinancing conditions have improved, and cash flow dilution is easing for many borrowers.
🔎 Market Snapshot:
Total CRE debt outstanding: ~$6T (Q1 2025)
Biggest CRE lenders: Banks ($3.2T), Insurers ($784B), CMBS ($1.7T)
📌 Investor Takeaways
Floating-rate loans dominate in today’s climate — but fixed-rate windows may open if rate volatility settles. CRE debt offers solid risk-adjusted returns relative to direct ownership, especially in core sectors. Stay focused on refi-heavy opportunities and creditworthy assets as underwriting remains tight.
🏦 Price of Loans: Spreads Compress, Risk/Reward Still Strong
CRE lending spreads are now near long-term averages but still offer compelling value vs. investment-grade corporate bonds. As competition intensifies, spread compression is expected to continue into 2H25.
Current spread by asset type:
Multifamily: 155 bps (23rd percentile)
Office: 280 bps (79th percentile)
Lodging: 285 bps (54th percentile)
💳 Rates & Refinancing: Headwinds Fading
CMBS rates are ~70 bps above in-place coupons (down from 200+ bps in early '24), improving the refinancing outlook. On the residential side, ⅔ of homeowners are locked into sub-4% rates, limiting refi demand.
🏛 Key Lender Themes:
Banks
Lending is recovering, especially at large banks, which have cleaner balance sheets. Small banks still working through legacy construction loan exposures. Expect growth via warehouse lines to debt funds rather than direct CRE lending.
CMBS
Strong issuance YTD, especially in office (~30%). Underwriting has eased: office LTVs rose from 55% to 61% in 1Q25. Class A office dominates SASB issuance, but improving liquidity suggests Class B assets may gain traction next.
Insurance Companies
CRE lending is now a growing share of insurer portfolios, driven by stable income profiles and attractive yields. Expect sustained loan growth from insurers in 2H25.
Debt Funds
Aggressively growing portfolios, leveraging strong capital inflows and bank-supplied warehouse credit. Most active funds are targeting $100B+ in equity raises for 2025, implying ~$300–$400B in total lending capacity.
⚠️ Performance Watch: Delinquencies, Losses & Reserves
Delinquencies have risen, especially in CMBS, but pace is slowing. Historical patterns suggest peak losses likely in 2026. Banks and mREITs have peaked their loan reserves, implying most expected losses are already provisioned.
🏢 REIT Debt Markets: Healthy & Low-Leverage
REITs benefit from:
Lower leverage than private peers, Fewer near-term maturities, Access to unsecured markets (~90 bps tighter spreads than CMBS), As a result, secured issuance has picked up, while unsecured issuance has slowed in 1H25.
📈 Relative Value: CRE Debt Wins on Risk-Adjusted Basis
Lenders give up only ~75 bps of return versus equity, but with significantly lower risk. The equity risk premium is at the 10th percentile historically, underscoring the appeal of debt investing right now.
📌 Strategic Takeaways for 2H25
Refinancing wave continues, supported by stabilizing spreads and easing underwriting. Office debt markets are back — selectively — especially for institutional assets. Debt funds and insurers are leading new originations, while banks cautiously re-engage. Consider reallocating to CRE debt over equity, especially for risk-sensitive mandates.
One Click for Pricing Guidance on Mezz/Debt Fund/CMBS
🏗️ Multifamily Construction Slows Sharply in May — But Permits Offer Hope
The U.S. multifamily sector hit a speed bump in May, with construction starts plunging 30% month-over-month — the steepest drop so far this year. The slowdown reflects mounting pressure from high interest rates, escalating construction costs, and fresh uncertainty tied to tariff policy. Still, a slight uptick in permits could signal that developers aren’t entirely backing off.
📉 Construction Starts Retreat to 6-Month Low
According to U.S. Census Bureau data, just 316,000 units in 5+ unit buildings broke ground in May, marking the slowest pace since November 2024. The decline effectively wiped out gains seen earlier this year, when starts trended upward from February through April. Economists at Wells Fargo called the May pullback a reversal of all prior 2025 progress. But context is important. The National Association of Home Builders (NAHB) noted that multifamily starts are highly volatile month to month. In the past year alone, totals have swung from 266,000 in November 2024 to 454,000 as recently as April.
📝 Permits Edge Higher — A Glimmer of Optimism
While starts slowed, the number of multifamily permits issued rose 1.4% in May and is up 13% year-over-year, per census data. That’s a critical signal. According to NAHB, the jump in permitting suggests May’s disappointing starts data may be more statistical noise than a true shift in market trajectory.
💼 Developers Remain Cautiously Engaged
Multifamily REITs, in their Q1 earnings calls, expressed intentions to expand their development pipelines this year. However, many pointed to tariff-related cost uncertainties as a new variable impacting their outlook. With construction materials facing potentially higher prices, developers may adopt a more selective approach to project starts in the near term.
🏘️ Demand Is Still There — and Supply Is Tightening
Despite near-term construction volatility, the fundamentals remain favorable. According to CoStar, the U.S. apartment vacancy rate peaked at the end of 2024 and is now trending downward — a trajectory expected to continue through 2025. Rental demand is outpacing historical averages, and completions are expected to fall nearly 45% this year as the construction pipeline continues to thin. This supply-demand imbalance is likely to support rent growth and create new opportunities for ground-up development — especially in high-demand submarkets.
📊 Investor Takeaway
The construction slowdown in May may raise eyebrows, but rising permits and stable fundamentals suggest it’s not time to hit the panic button. With demand holding strong and completions dropping, market conditions could favor developers and investors positioned to deliver new supply in 2026 and beyond. Keep a close eye on permitting trends and tariff developments, and consider targeting markets where rental demand remains resilient and construction costs are more predictable.
One Click for Pricing Guidance on Multifamily Equity
🗞️ CMBS Loan Maturities Signal Wave of Distress Ahead
Foreclosures Likely to Climb as Billions in Loans Come Due
The commercial real estate market is bracing for increased turbulence in the second half of the year, as a surge of large CMBS (Commercial Mortgage-Backed Securities) loans head toward maturity — with office properties leading the risk profile.
📌 Key Figures:
$15.4 billion in CMBS loans (43 mortgages of $100M or more) will hit final maturity by year-end. Office properties make up over 50% of this maturing debt. An additional $45.6 billion in loans are also set to expire, though many include extension options.
🏢 Office Sector in the Hot Seat
Office buildings remain under pressure as remote work continues to impact leasing fundamentals. Despite some improvement in lending conditions, servicers are becoming more hesitant to extend loans — especially in cases where borrowers struggle to make a compelling case for refinancing.
💡 One unexpected twist: better capital market conditions have made it harder to argue that refinancing options don’t exist, leading to stricter scrutiny by servicers.
🔍 Loan Health Snapshot
About two-thirds of upcoming maturities are still performing, but many are flagged on watchlists, signaling rising concern. Nearly $5 billion of the maturing loan volume is already in special servicing — an early warning sign of distress. Foreclosure activity is expected to rise, particularly where borrowers lack capital or viable exit strategies.
🏨 Sector Breakdown:
Office: 54.9% of maturing volume
Retail: 24.9%
Hotel: 16.1%
Mixed-Use & Multifamily: Minor share
📈 What’s Ahead
Experts warn the real crunch may come in 2026, as many borrowers who were unable to refinance this year push deadlines forward — adding weight to the looming “wall of maturities.”
🔎 Investor Takeaway
Now is the time to evaluate distressed opportunities, especially in office and retail sectors. Keep a close eye on servicer behavior, cash flow health, and asset-specific fundamentals — not all properties will face the same outcome, even within struggling categories.
📊 CMBS Refinancing Trends – 1H25
🔑 Key Takeaway:
Strong-performing assets continue to secure CMBS refinancing, while weaker assets are facing special servicing, negotiated extensions, or sales. Lender flexibility remains contingent on borrower commitment and asset fundamentals.
✅ Successful CMBS Refinancings
Roughly 50% of the top 10 maturing CMBS loans in 1H25 were refinanced into new single-borrower deals, including:
🏢 Seagram & MetLife Buildings – RFR 2025-SGRM, IRV 2025-200P
🛍 Houston Galleria Mall – HGMT 2025-HGLR
🏖 Grand Wailea Resort (Blackstone) – BX 2025-GW
🏙 Three Bryant Park (RFR) – NYC 2025-3BP
🛠 Maturity Extensions & Servicing
🏗 Willis Tower (Blackstone)
Loan: $1.33B (BBCMS 2018-TALL)
Result: 5-year extension to 2030 via special servicing
Terms: $25M annual paydown; supported by $1.4B appraisal
🏨 Ashford Hospitality Trust
Loan: $782.7M → $590M (AHT 2018-ASHF)
Sold 4 of 22 hotels; paid down $35.8M in March to secure final extension
🏢 Five Bryant Park (Savanna)
Loan: $463M (DBGS 2018-5BP)
Maturity passed; borrower indicates intent to repay soon
🏬 20 Times Square (Maefield / Fortress)
Loan: $523M (TSQ 2018-20TS + 4 conduit deals)
Struggling with cash flow; secured extension through May 2026
🚨 Delinquency & Workout Situations
🏢 Stonemont Financial Portfolio
Loan: $925M → $664.7M (JPMCC 2020-NNN + 3 conduit deals)
66 properties → 40; concentrated in weak Chicago market
Multiple dark branches; servicer exploring receiver appointment
📌 Strategic Insight:
CMBS servicers are showing greater flexibility in 2025—but only when borrowers: Are actively contributing capital, Maintain asset quality or leasing momentum, Demonstrate willingness to cooperate on paydowns and restructuring
📈 Market Pulse: Lake Union Leading Seattle’s Rent Growth Surge
Seattle’s apartment market is heating up again — and Lake Union is leading the charge. With asking rents up 4.9% year-over-year, this prime urban neighborhood is outperforming all others in the Puget Sound region, thanks to a powerful combination of tight supply and revived demand for in-city living.
🔑 Key Drivers of Growth
Vacancy hits record low: Lake Union’s vacancy rate has dropped to just 5%, marking the lowest level on record. With no new construction since early 2024 and nearly 1,000 new units already leased, supply is at a standstill. Amazon’s back-to-office policy: The tech giant, headquartered in the neighborhood, mandated a five-day office return late last year — helping drive a surge in rental demand. Construction freeze: For the first time since the Great Recession, no new multifamily projects are under development in Lake Union.
💰 Pricing Snapshot
Lake Union and Bellevue now share the title of most expensive rental submarkets in the metro, with average asking rents at $2,800/month — well above the Puget Sound regional average of $2,100.
📊 Rent Recovery and Growth Momentum
It’s a strong reversal from 2020, when Lake Union was one of the hardest-hit areas during the pandemic-driven urban exodus. That year, occupancy dropped 6% and rents tumbled 10%. But fast forward to today, and the number of occupied units has climbed 22% since the start of the decade — signaling a full rebound and renewed confidence in the market.
📍 Other Hotspots to Watch
Queen Anne: 2.9% annual rent growth
Downtown Seattle: 2.6% rent growth
Like Lake Union, both neighborhoods are seeing limited new supply, which should continue to support upward pressure on rents moving into the second half of 2025.
💼 Investor Takeaway
Lake Union is back — and arguably stronger than ever. Investors holding assets in this submarket are positioned well to benefit from sustained rent growth. With no new supply on the horizon and strong tenant demand from major employers, pricing power should remain in landlords' hands well into 2026. Looking for growth? Keep your eye on Seattle’s urban core — especially areas where new construction has stalled but rental demand is bouncing back.
Updated Positive HUD Guidance
FHA has lifted prior limitations on refinancing newly constructed properties under the Section 223(f) program, notably those consisting of single-family homes or predominantly small-scale (≤5 units) buildings. The 2021 guidance restricting such applications has been rescinded, and while new regulatory direction is pending, deals will be evaluated individually for eligibility. In parallel,
FHA is prioritizing streamlining environmental review requirements—specifically addressing radon protocols in light of FHFA’s updates and aligning with the Federal Flood Risk Management Standard—to help reduce costs and delays in multifamily loan processing.
There is a push to change Davis Bacon requirements which would be a win for FHA lenders and borrowers as it would reduce projects costs and streamline the building process.
News and Notable Reports
