Reid Bennett, National Multifamily Council Chair & Senior Vice President, SVN
Distress Is Coming - Slowly, Then All At Once
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Guest: Reid Bennett, National Multifamily Council Chair & Senior Vice President, SVN
The Signal in the Noise: Multifamily’s Slow-Motion Reset
A surge in lender BOV requests from banks (broker opinion of value), sticky occupancies despite macro angst, and a closing spread between rent growth and operating costs define today’s multifamily landscape. In this conversation with Reid Bennett, National Council Chair of Multifamily at SVN and a 24-year broker across market-rate, workforce, and affordable housing, you’re getting a from-the-trenches read that cuts through the headlines.
Where Multifamily Distress Is – and Isn’t (Yet)
Bennett’s team has produced an extraordinary volume of lender-driven broker opinions of value over the past 18 months, far more than in the prior five years, a clear indicator that banks are triaging exposures and pricing the risk. Yet forced transactions remain limited.
Some lenders, Bennett notes, even review BOVs verbally to avoid formal marks (that would force them to mark loans to market not book values), a tell that credit files are being padded and strategies debated before action.
“Extend and pretend” is here, but with a difference: unlike during the Global Financal Crisis of 2008-2012, the industry isn’t staring into the same abyss, and many are waiting for interest rate relief to bail them out. For operators facing maturities with cash flows that don’t cover debt service, though, the math still bites and, says Bennett, the day of reckoning is coming for a subset of assets where updated valuations don’t cover even 60–70% of outstanding loans.
Locked-In Homeowners, Sticky Occupancy
If the GFC channeled renters into homeownership on loose credit, the post-2020 cycle flipped the script. With millions of owners pinned to sub-3% mortgages, resale inventory is starved. Replacement housing costs are up on both rates and prices, keeping would-be buyers in apartments longer. The result: occupancies in many locales remain in the mid-90’s, while landlords in stronger submarkets report renewal rent bumps of $100–$150 that make selling less attractive. The demand floor remains intact; transactional limitations are elsewhere.
NOI Under Siege: Insurance, Taxes, Payroll
Even where top-line rents hold, net operating income (NOI) is not climbing in step. Insurance premiums have reset sharply. Assessed values from the 2021–22 peak are rolling through tax bills with a lag. And the on-site labor market is tight: owners report paying materially higher wages for managers, maintenance, and leasing staff, sometimes offering $80–$100k for roles that fetched ~$55–60k pre-pandemic and are still struggling to fill them. Payroll pressure is now a first-order variable in underwriting; sponsors should reality-test their admin and maintenance lines against today’s market, not yesterday’s pro formas.
Affordable vs. Workforce: Know Your Tools
Bennett distinguishes between workforce housing (market-rate product serving moderate incomes, usually garden-style, secondary/tertiary locations) and Affordable under the Low Income Housing Tax Credit (LIHTC) regime (typically serving households ≤60% average median income (AMI) with 15-year initial compliance plus 15-year extended use).
He outlines three common execution paths that multifamily buyers are exploring: (1) Acquisition-rehab of an older market-rate asset located in a qualified census tract, funded with tax credits and deep capex (e.g., $70k/unit) to renovate; (2) Year-15 re-syndication to refresh the improvements and affordability; and (3) Qualified Contract routes to exit affordability and return a property to market rate, depending on program specifics.
Competition for credits has intensified; more developers defer a larger portion of fees to win awards, a reminder that LIHTC deals are fee- and compliance-heavy and operationally demanding.
Class A Gives, B/C Holds
With the construction pipeline concentrated at the top end, Bennett sees concessions and “loss-to-lease” show up first at Class A, think 14-month leases with two months free to protect face rents. In contrast, B and C assets in many markets have seen substantial rent increases over the last several years, and, absent heavy new supply, those asking levels have proven stickier.
As always, supply sets the price: cities that make development cumbersome or impose rent controls ironically entrench higher rents; markets that allow overbuilding see landlords compete away pricing power, which is precisely how affordability improves without regulation.
Capital Is There; Pricing Is Not (Yet)
Debt is available, Bennett cites recent Fannie Mae quotes around ~5.2% interest-only for five years, and equity is anxious to deploy. Bonus depreciation being locked in has re-energized a slice of buyers who prize tax efficiency, nudging activity higher even amid macro uncertainty.
But the bid-ask gap remains the gating item: sellers anchored by in-place growth and limited alternatives hesitate to trade at today’s cap-rate math; buyers, facing tighter debt conditions, pricier payrolls, and normalized insurance, need a margin of safety. Volume collapsed in 2023–24 (Bennett references a ~73% drop in some markets) but his team is now tracking toward one of their best years ever, suggesting motivated-seller flow is quietly building and tax-sensitive buyers are re-engaging where underwriting clears.
What to Watch
Three dashboards matter most for operators and investors:
- Labor & Jobs – wage growth and staffing availability drive both tenants’ ability to pay and owners’ OpEx; watch payroll inflation as closely as rents.
- Supply – pipeline deliveries and concession trends at Class A signal the direction of effective rents and renewal leverage downstream to B & C assets.
- Credit Behavior – lender posture on extensions, mark-to-market discipline (or avoidance), and the first waves of note sales and REO will set the cadence for distressed opportunities.
Bottom line for CRE professionals:
This isn’t 2009, but it isn’t 2021 either. Expect a gradual reset, more a grinding reconciliation of NOI and debt service than a sudden capitulation. Supply solves affordability better than regulation; payroll and insurance are the silent spoilers; and the first movers in 2025 may be the groups that can underwrite through the noise, lean into bonus depreciation, and buy sub-institutional assets where lenders quietly need a hand.
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