Your January Newsletter from CALCAP!

CALCAP CONNECTIONS

January 2026

Principal's Corner

A Market Working Through the Cycle

As discussed in prior newlsetters, the lower- to middle-income renter continues to feel pressure in what has become an increasingly K-shaped economy. Elevated bad debt and collection issues persisted into Q4 as workforce residents continue to struggle with inflation and rising non-housing costs. While demand for rental housing remains strong, household formation has slowed, and affordability constraints are beginning to influence resident behavior and near-term cash flows.

At the macro level, capital markets remain selective and transaction activity muted. Interest rates continue to stay “higher for longer,” and while lenders have shown flexibility through extensions and modifications, that flexibility will not last indefinitely. The bid-ask spread continues to limit transaction volume, as buyers seek positive leverage and sellers remain reluctant to transact at today’s pricing. In many cases, refinancing math still fails without meaningful new equity — particularly for assets acquired during the 2020–2022 period. As a result, transaction velocity remains low, not due to a lack of interest in multifamily assets, but because of unresolved and over-leveraged capital structures. By way of example, Phoenix recorded just 58 multifamily sales over 100 units in 2025, well below the historical norm of approximately 150–175 transactions.

Oversupply in several Sun Belt markets continues to weigh on rent growth, particularly in submarkets that experienced aggressive new deliveries over the past three years. Concessions remain prevalent, and competition for qualified residents is still being felt across many markets. That said, the supply pipeline has meaningfully slowed, and we expect new deliveries to continue tapering through 2026. Markets that avoided overbuilding — such as Kansas City — continue to perform materially better, reinforcing the importance of disciplined market selection and diversification across cycles.

Despite widespread expectations, underlying distress has been slow to fully materialize. Lenders have largely opted to “extend and pretend” rather than foreclose, delaying true price discovery. We believe this dynamic is beginning to shift. Time is no longer working in favor of fatigued sponsors or lenders, and many loans — particularly bridge loans approaching final extension options — are nearing hard decision points. As we move into 2026, we expect increased lender capitulation, forced asset sales, recapitalizations, and note transactions that will ultimately help clear the market.

Edward M. Aloe

President and CEO

626-229-9057

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Latest Headlines...

Build-To-Rent Grows As Trump Increases Scrutiny On Single Family Rentals

Build-to-rent is no longer an early-stage product.

Six years ago, the industry was still hashing out the finer details on what to call itself. Dan Goldberg, president of the student housing and BTR operator and developer Core Spaces, said major players in the space got together through the Urban Land Institute’s Single-Family Rental Council to define common vernacular and industry expectations.

“When we market to search engine optimizations on Google, no consumer in our experience is Googling, ‘How can I get build-to-rent product?’” Goldberg said.

BTR falls under the single-family rental umbrella and is typically made up of communities of 50 or more homes or townhomes. It usually has a lower density than traditional multifamily.

View Article Here

2026 Multifamily Outlook: The Big Reset

If capital markets in 2026 reward patience, operations demand precision, with owners and managers describing the coming year less as a recovery phase than as a period of disciplined execution, where protecting cash flow and resident relationships takes precedence over chasing rent growth. With many markets still digesting new supply, operators are underwriting 2026 as a year to defend value, not stretch assumptions.

That defensive posture begins with an acceptance of the operating reality. “On a lot of these assets where there’s a lot of supply, we’re playing more defense than offense,” says Philip Morgan, CEO of the Houston-based Morgan Group. Morgan notes the immediate goal is to stabilize occupancy and wait out the supply wave rather than force rate increases that the market will not support. For many portfolios, success in 2026 will be measured by consistency rather than growth.

Renewals, as a result, have become the most important revenue lever. Turnover is expensive in any environment, but in a concessionary market it can erase months of progress. “Retention is huge,” says Bonifield. “Turn costs are high, and, if you’re in a concessionary environment, you’re taking a step back on net effective rent as well. Avoiding those turns goes straight to the bottom line.” Operators are increasingly willing to be flexible on renewal pricing if it prevents vacancy and the need to reset rents through new-lease incentives.

View Article Here

From Macro to Micro: How Local Fundamentals Will Define Multifamily in 2026

The “K-shaped” analogy, most often applied to segments of the economy and/or labor market performing at drastically different levels, also resonates with multifamily in different cities across the country. In simple terms, a “K-shaped” recovery describes an environment where some markets are improving while others continue to fall behind, even as overall conditions appear to be stabilizing. Predictably, the amount of new supply is the main cause of the dispersion between the strong performers and the laggards. What's unexpected, however, is how wide the gap has become between the "have" and "have not" markets. The difference today compared with a couple of years ago is that the performance will be less regional and more localized.

Stated in regional terms, the Sun Belt has for the last few years vastly underperformed the Midwest and, more recently, gateway cities, but that does not tell the whole story. For example, Sun Belt markets even in the same state—Austin and Houston—saw a 5% difference in year-over-year rent growth as of the third quarter of 2025, according to Yardi Matrix. Both cities are success stories in terms of economic growth, but Austin’s multifamily completions as a percentage of existing stock were 5.2% last year compared with 1.7% in Houston, hence the disparity in performance.

View Article Here

On the Lighter Side...

About CALCAP Advisors

About CALCAP

California Capital Real Estate Advisors, Inc., 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 17 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.