Walk through the capital markets in early 2024 and you see a tale of two asset classes.

Multifamily is hot. Properties are trading. Capital is flowing. Lenders are competing for business. Valuations are recovering.

Office is cold. Retail is selective. Industrial is cautiously optimistic.

The difference isn't random. It's driven by fundamental market dynamics that every sponsor should understand.

Why multifamily is working

Three structural factors explain multifamily's strength:

1. Supply/demand imbalance

The U.S. is short 5-7 million housing units depending on which study you read. That shortage is real. Population is growing. Household formation is accelerating. New supply can't keep up.

That shortage drives rent growth. Even in markets with recent construction, rent growth continues at 3-4% annually. That's meaningful upside for investors.

Office has the opposite problem. 20%+ vacancy in major metros. Subleasing pressure. Long-term demand uncertainty (work-from-home is permanent). Lenders won't touch office without steep discounts and long hold periods.

2. Income stability

Multifamily rent is essential expense. Families prioritize housing. During recessions, multifamily holds better than other assets. Institutional capital loves that stability.

Office tenants are discretionary. Retail is exposed to e-commerce. Hotels are cyclical. Multifamily is recession-resistant. In uncertain times, lenders and equity investors gravitate toward stability.

3. Valuation reality

Multifamily has repriced significantly. Cap rates that were 3% in 2021 are now 5.5-6%. That repricing made deals feasible again. Senior lenders can finance at 70% LTV without stressing. Equity investors can underwrite at double-digit returns. That math wasn't working 18 months ago.

Our advice

If you're a multifamily sponsor, raise capital now. Market is in your favor. Terms are favorable. Capital is competitive.

If you're in another sector, know that you're swimming upstream. Price capital accordingly. Build in time for fundraising. Accept that you'll pay more. Or wait for market shift.

Markets shift. But shift is never permanent. Right now, multifamily is where the capital flows.