Your April Newsletter from CALCAP!

CALCAP CONNECTIONS

April 2025

Principal's Corner

Short-Term Pain, Long-Term Gain: Multifamily’s Path

Forward

The multifamily market remained challenged through Q1 2025 as the sector continued to absorb a historic wave of new supply delivered over the past 18 months. Operational headwinds persist, particularly in the Southwest and Sunbelt regions where CALCAP primarily owns and operates. Elevated vacancies and flat-to-declining rent growth across many markets are continuing to pressure operating margins.

Compounding these challenges is a steady increase in operating expenses across the industry. A recent Trepp analysis showed that over the past five years:

Repair and maintenance costs have risen 16.5%,
Real estate taxes are up 16.6%,
Utilities have increased nearly 21%, and
Property insurance costs have doubled.

These cost pressures are having a measurable impact on property-level performance. We are seeing these trends across our portfolio, prompting a deeper focus on expense management and operational efficiency. We’ve also tightened resident screening and implemented advanced fraud detection software in response to a concerning rise in fraudulent application activity, including fabricated social security numbers, pay stubs, and even full “application kits” being sold online.

Another dynamic we are monitoring closely is the potential impact of new tariffs proposed by the current administration. While these tariffs—especially on construction materials—could further increase development costs, they may also accelerate a slowdown in new supply. According to a recent Transwestern report published in GlobeStreet, fewer new starts may help rebalance oversupplied markets over time. Additionally, onshoring trends tied to these policies could support job growth in pro-growth markets, further benefiting rental demand.

Despite the current headwinds, CALCAP remains confident in the long-term investment case for multifamily. A meaningful deceleration in construction starts, combined with strong demographic tailwinds, should help bring supply and demand back into alignment over the next 18 to 24 months. We believe this sets the foundation for future rent growth, stronger occupancy, and asset appreciation across well-located portfolios like ours.

Edward M. Aloe

President and CEO

626-229-9057

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Latest Headlines...

Multifamily Fundamentals Remain Healthy Despite Near-Term Challenges

It may take several more quarters of demand exceeding supply before multifamily rent growth accelerates.

Despite some near-term challenges, multifamily growth prospects and fundamentals remain healthy. Construction is normalizing, demand is robust, distress is concentrated and troubled properties will be recapitalized as institutional investors deploy dry powder, according to a recent Trepp analysis of the multifamily investment landscape.

Nearly 592,000 multifamily units were completed last year, a 50-year high. This supply wave has been largely concentrated in Sun Belt markets, which has resulted in owners dealing with higher vacancies and downward pressure on rents. Markets like Boston, Chicago, San Diego and Washington, D.C., where growth is slower and barriers to entry are higher, have held up much better, said the report.

“We have strong conviction that the investment thesis surrounding the sector and the Sun Belt region will play out over the next three to five years,” said the report. ”However, during this market reset, it is our view that it will take several more quarters of demand exceeding supply before rent growth accelerates in a meaningful way.”

View Article Here

Pivotal Year Ahead for Multifamily as Consumer Uncertainty Creeps In

Historically, there has been a correlation between consumer sentiment and household formation.

Although 2025 started on an optimistic note for the overall economy, investor uncertainty has begun to creep in as the new administration has moved forward with its agenda. Investor opinions are largely being influenced by uncertainty in the bond markets, the weakening U.S. dollar and the evolving trade war, said Marcus & Millichap multifamily division director Peter Standley.

At the same time, the multifamily industry has enjoyed strong fundamentals with four quarters of solid demand. More than 585,000 units were delivered last year and 410,000 are expected to be delivered this year. Absorption was extremely strong in 2024 with a net of 663,000 units, the second-highest calendar year total on record behind only 2021.

View Article Here

Real Estate Markets That Could Win in Several Tariff Scenarios

A Transwestern analysis said opportunities could be available for well-positioned industrial and multifamily assets.

Volatility spurred by the current tax regulation and tariff regimes could yield opportunities for well-positioned industrial and multifamily assets, according to an analysis authored by Transwestern executive managing director of research Hans Nordby.

“We believe growth is the natural state of the U.S. economy and there will be rent and value gains on top of good investment opportunities,” said the analysis.

Real estate may provide both an inflation hedge and value stability amid tariffs because it has long-term operating income attributes that resemble stock equity markets and steady yields similar to bonds, according to the report. Strategic industries and those that are more complex appear to be better positioned for expansion, including pharmaceuticals, computer chips, autos, as well as steel and energy, said Transwestern.

View Article Here

On the lighter side...

About CALCAP Advisors

About CALCAP

California Capital Real Estate Advisors, Inc., and its affiliate entities (CALCAP Asset Management, CALCAP Properties, CALCAP Lending, CALCAP Senior Healthcare, and CALCAP Strategic Opportunities, collectively known as “CALCAP”), is a California-based investment company founded in 2008 and headquartered in Pasadena, California. The Company sponsors alternative real estate investment opportunities focused on demographically driven housing. CALCAP has been able to consistently provide both individual and institutional investors with outstanding returns over the last 14 years. The Company uses a highly selective and disciplined investment approach, focused on delivering superior risk-adjusted returns. CALCAP currently has over $650mm in Assets Under Management. To learn more visit www.calcap.com.

Social Mission

CALCAP CARES is a 501(c)(3) private foundation organized to encourage employees to find a way to give back to the neighborhoods where we invest. CALCAP has created "GiveTime4Autism" as its initial program which gives employees the opportunity to donate unused vacation and sick days for a very worthy cause.