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Capital flows back to Sunbelt multifamily deals as underwriting tightens
Industry experts say lenders are scrutinizing fundamentals and investors are contributing more equity as loan proceeds decline.
For the past two years, multifamily markets across Sunbelt states have faced record unit deliveries, higher interest rates, and softening rent growth, according to ConnectCRE. Despite those headwinds, investors are increasingly focusing on specific opportunities rather than avoiding the region entirely.
ConnectCRE reports that capital is gravitating toward well-located properties backed by experienced sponsors and underwriting that reflects current market conditions. The conversation has shifted from whether to invest in the Sunbelt to where to buy and at what price, as “the market has become much more disciplined,” according to Jeff Rosenfeld, managing partner at North River Partners.
Rosenfeld said multifamily properties built post-pandemic are generally trading at values below replacement costs, which he framed as an entry point for “patient investors” looking for a demand recovery. ConnectCRE also notes that investors have remained interested over the past two years, but they have not returned to buying sprees, with Garrett Karam, chief investment officer at EMBREY, expecting continued selectivity into early next year.
The article says debt and equity remain available for acquisitions and development, but financing is undergoing more scrutiny than during the post-pandemic boom. On the equity side, investors are typically contributing larger capital amounts as loan proceeds decline, and ConnectCRE cites Northmarq’s analysis that deals ignoring today’s financing environment, replacement costs, and exit risks are struggling to attract investment.