Texas Faces Multifamily Market Crisis Amid Pipeline Glut

Plus: SFR rents continue to outpace apartment rent growth because owning a home is just too damn expensive.

Texas Faces Multifamily Market Crisis Amid Pipeline Glut

Plus: SFR rents continue to outpace apartment rent growth because owning a home is just too damn expensive.

Together with

Good morning. Ready for Thanksgiving? Us too. This is our last newsletter before the big day, and we'd like to extend our warmest Thanksgiving wishes to you and your loved ones. We’re taking the day off tomorrow, but we’ll be back on Friday and Sunday. Safe travels, and see you then!

Today’s issue is sponsored by VTS Activate, an innovative solution for multifamily owners, operators, and the residents they serve.

👋 First time reading? Sign up.

🎁 Want free merch? Share this.

Market Snapshot

S&P 500
Pct Chg:
Pct Chg:
10Y Treasury
Pct Chg:
Pct Chg:

*Data as of 11/21/2023 market close.


Texas Faces Multifamily Market Crisis Amid Pipeline Glut and Falling Valuations

Multifamily goes from darling to distress in Texas

(L-R) Greysteel's J.R. Ellis, Partners' Steve Triolet, Northmarq's Hayden Schnieders and Chase Gardner (LinkedIn, Apartments.com)

The once-booming Texas multifamily real estate market is now experiencing growing distress signals, largely due to overdevelopment, falling prices, and financial challenges for developers and investors.

Excessive supply: In Texas' major cities like Dallas-Fort Worth, San Antonio, and Austin, the multifamily development pipeline expanded massively during the pandemic. Dallas-Fort Worth alone has about 63,350 units in its current pipeline, a significant jump from the annual average of around 49,000 units in the past three years. The region has already delivered 23,662 units, 2x the count from last year. Such rapid development has led to a market shift, with occupancy rates in Austin and San Antonio falling below 90%, creating a tenant-favorable market.

Growing debt burden: On top of the supply problem, developers face a credit crunch as construction loans mature, forcing them to either sell their projects or refinance, which are increasingly difficult due to higher debt costs and lowered rental incomes. Many properties bought during 2021 and 2022, especially Class B and C value-add properties, have seen a sharp decline in value. Rising renovation costs and dropping rents have further complicated these investments.

Between the lines: The downturn in the Texas multifamily market is particularly harsh on small developers, syndicators, and Main Street investors. These groups are at risk of significant losses, contrasting with the few who have sufficient cash reserves to withstand the short-term turmoil. The situation is described as a looming massacre for these smaller players in the Lone Star state. “Anyone who has to sell something in the next six to 12 months understands that they’re probably not hitting their projections on exit price,” said J.R. Ellis, an investment sales executive at Greysteel, a national commercial real estate advisory firm.


Not always bigger: Strategies like assumable debt are gaining popularity in response to these unfavorable market conditions. This approach has been helpful in facilitating transactions in a market where traditional selling and refinancing have become more difficult due to the changing economic landscape. Nevertheless, the distress in Texas' multifamily real estate market is a cautionary tale about the risks of rapid and unchecked growth.


Get the best of everything with VTS Activate for Multifamily

Every day brings a new multifamily headline, and expectations are higher than ever for you and your teams. Cost efficiency is of utmost importance, leasing is of utmost importance, and resident experience is….well, also of utmost importance.

In an environment where everything is important all the time, VTS Activate for Multifamily is the single answer for more efficient operations and high-end resident experiences. Keep renewals coming with one platform for management, staff, and residents to connect with everything your properties offer.


  • The Return of The King: US office stocks rally significantly, marking their biggest one-day gain in three years amid real estate challenges.

  • Pension pioneers: Japan's GPIF, the largest pension fund globally with $1.4T assets, invests $1B in real estate via Brookfield and Blackstone.

  • Coup d'é·tat: Microsoft and Nvidia stocks hit record highs, while low corporate bond yields signal strong investor confidence.

  • Mixed signals: Q3 sees a $3B surge in CRE loan-backed securities, but ongoing challenges loom for 2023.

  • Interest nightmare: High global interest rates exacerbate homeownership challenges and market inequality.

  • Foreclosure fiasco: Nightingale Properties faces another lawsuit over a $30M loan for a Midtown East office building.

  • Fannie fallout: Miami's Tzadik Management alleges defamation by an Arbor Realty Trust affiliate, leading to a Fannie Mae blacklist.

  • Meeting the demand: JPMorgan (JPM ) closes $29.1M in construction financing for an affordable housing project in Orlando, Florida.

  • Multifamily meltdown: Multifamily is facing more pressure as September's CMBS payoffs drop to a surprising 71.7%.

  • Sinking properties: The European Central Bank warns that the sinking euro zone CRE sector could pose a threat to banks and investors.

  • Building boom: Construction employment rose in 43 states and DC in September compared to the previous year, according to new analysis.


NYC Retail Sector Sees Soaring Demand Ahead of Black Friday

Number of Retail Spaces Dwindles Across Manhattan

Times Square has experienced the largest decline in available space over the past year, with the rate falling by 300 basis points. (CoStar)

As Black Friday approaches, Manhattan's retail sector is enjoying an expected surge in demand, resulting in shrinking availability of retail space across the borough, according to CoStar Analytics.

Pre-holiday momentum: With the anticipated shopping frenzy of Black Friday, Manhattan's retail sector is witnessing a notable uptick in demand. Available retail space is diminishing rapidly in the Big Apple, indicating a surge in consumer activity. It’s a positive sign for retailers during the holiday season. Not unexpected—but it’s worth pointing out given the ongoing post-pandemic lull.

Fewer Available Retail Spaces Across Manhattan

Implications for owners: The shrinking availability of retail space in Manhattan poses an opportunity for property owners in terms of increased rental rates and potential negotiation power. With high demand and limited supply, property owners have a favorable position to attract tenants willing to pay a premium for prime retail locations during the busy shopping season.


Spreading the holiday cheer: The surge in demand for NYC retail space ahead of Black Friday is a positive sign for the entire US retail sector. It not only indicates strong consumer activity and confidence but also presents opportunities for property owners to capitalize on increased rental rates and negotiation power. As retailers gear up for the busy shopping season, the anticipated boost in foot traffic and sales further fuels optimism for the sector's performance in the coming months.


📖 READ: The main entrance of Manhattan's Penn Station has recently received a significant facelift. Here’s when it will finally be completed.

🎧 LISTEN: Three CRE investors share lessons learned from their best and worst deal experiences in this Best Ever CRE podcast episode.

❄️ MERCH: Our CRE Daily Winter Merch line is nearly sold out. Only 50 sweaters left—get yours before they're all gone!


For Single-Family Homes, Turns Out The Rent Isn’t Too Damn High…

Single-family home rentals in the U.S. are experiencing significant rent increases, surpassing the growth seen in apartment rentals. This trend is driven by the high cost of buying homes, which pushes more potential buyers towards renting.

SFR market: Large rental companies like Tricon Residential, Invitation Homes, and AMH, owning around 180,000 homes, have reported rent increases over 6% for Q3. This surge is attributed to record-high home prices, making the rental option more appealing. Single-family home renters, often more settled than apartment dwellers, are less likely to move and more accepting of rent hikes.

Apartment market: While apartment rents soared by about 15% in 2021 and continued rising in 2022, there's a moderating trend. Factors like new construction are slowing the pace of rent increases. For example, Mid-America Apartment Communities observed a 2.2% decrease in new-lease rents in Q3 compared to the previous year.

Housing affordability: The gap between owning and renting has widened significantly. The average mortgage payment is now 52% higher than monthly rents. Housing affordability is at its worst since 1985, with high sale prices and mortgage rates creating a challenging environment for potential buyers. This has given landlords in the rental market an advantage.


Next best thing: The SFR market continues to outpace apartments — primarily because it’s the next best thing to homeownership, which remains historically unaffordable. Rental homes offer stability and attractive opportunities for landlords due to the willingness of SFR tenants to absorb rent increases. The future of the rental market will be shaped by the dynamics of housing affordability and the shifting preferences of prospective homebuyers.


While the US saw a moderate decline in occupancy over the past five years, some small apartment markets, like Boise City, Gainesville, and Deltona, suffered significantly worse performances due to high construction and below pre-pandemic demand. Other markets, like Crestview and Augusta, also faced decreasing occupancy. Of the major metros, only Jacksonville and Phoenix had occupancy declines comparable to these smaller markets.

What did you think of today's newsletter?

Login or Subscribe to participate in polls.

View All
Foreign Investment in US CRE at Lowest Point Since 2011
June 14, 2024
U.S. Asking Rents Climb for Second Consecutive Month in May
June 13, 2024
Arbor Realty Trust’s Big Short Struggles to Deliver
June 12, 2024

Back to top