Negative Rents Reshape Multifamily Underwriting In 2025

When Growth Goes In Reverse

For years, underwriting multifamily deals hinged on projecting steady rent increases, but in 2025, that model no longer works. National rent growth has been negative for three consecutive months, disrupting assumptions baked into decades of acquisition modeling, reports GlobeSt. On a recent episode of The Gray Report, Gray Capital CIO Jay Reeder highlighted how the shift in market dynamics is reshaping investor strategy. The focus has moved from growth-driven underwriting to prioritizing downside protection.

Reeder summed up the problem plainly: “How do you underwrite when rent growth is negative and forecasted to stay that way?” Markets across the US are experiencing effective rent declines of 8% or more, while new supply continues to come online. In this environment, buyers are digging deep into rent rolls to spot lease anomalies and normalize irregular data points. With dynamic revenue tools skewing lease rates based on timing or term lengths, averages alone no longer tell the full story.

A Market On Pause

Compounding the challenge, sellers are often unwilling to mark down pricing, clinging to valuations set during the peak years of 2021–2022. Despite a worsening revenue picture, the bid-ask gap persists. Reeder described this disconnect as a market “stand-off.” Buyers with capital are waiting for price resets, but deals are still being offered at unrealistic growth-based levels. In many cases, even internal rates of return below 9% are being accepted, signaling that investors are adjusting expectations—but not always finding pricing to match.

Underwriting today also requires a more nuanced approach to expense and income projections. Many operators are seeing flat or even declining net operating income due to rising costs and stagnant rents. “There is a portion of our portfolio that we’re getting the renewals, but we’re kind of treading water,” Reeder explained. He noted that deals once considered promising may now appear unviable under more realistic assumptions.

Noise, Not Signal

Revenue management tools are also introducing new complexity. “What are your two-bedrooms going for?” is no longer a straightforward question. Lease rates can differ by $200–$300 within the same floor plan depending on when leases were signed or are set to expire. For buyers, this creates a need for forensic underwriting—one that goes beyond surface-level metrics to reveal the true, normalized income potential of a property.

This uncertainty is bleeding into capital markets as well. Lenders are increasingly wary of assumptions that rely on swift rent recovery, especially in overbuilt metros. With sustained rent declines, financing terms have tightened, and exit strategies based on short-term appreciation are proving harder to justify.

New Rules Of The Game

The psychological shift is perhaps the most significant. Investors long accustomed to building deals on projected rent growth and cap rate compression must now lead with discipline. That means validating every input with operational performance, managing expenses tightly, and staying focused on long-term income stability rather than speculative upside.

In Reeder’s words, “the emphasis of avoiding loss is more important than chasing high returns.” That’s the mindset defining underwriting in 2025—where walking away from an aggressive pro forma may be the smartest move in a market still finding its footing.