Remember "Survive Till 25"?
When the Fed started raising rates in early 2022, it became the rallying cry for multifamily investors feeling the squeeze. The ones who bought deals with floating rates or short-term loans at historically low rates suddenly found themselves underwater as interest rates climbed.
The mantra was simple: if you could just hold on, operate your properties well, and avoid distress until 2025, the Fed would cut rates, the market would recover, and you'd be able to sell or refinance your way to a successful exit.
Well, we're heading into 2026 now. And that relief never came.
Interest rates today are just as high as they were a couple of years ago. The environment for owners looking to sell or refinance hasn't improved in any meaningful way. And yet, I'm still hearing from investors who believe 2026 is going to be the year everything turns around.
They assume rates will drop. They assume rents will climb, due to less supply hittign the market. And frankly, those assumptions are still based more on wishful thinking than actual analysis.
Here's what the market is actually telling us.
The economic recovery we're experiencing right now is K-shaped. High-income earners continue to earn more and spend at elevated levels, but low-income earners are getting pummeled. Minimal income growth, combined with persistent inflation, is eroding their ability to move up the housing ladder or even maintain their current lifestyle.
What does that mean for multifamily? Class A properties serving higher-income tenants have performed well. But Class C properties are struggling, and the owners of those assets are increasingly finding themselves in distress.
Now, a lot of investors look at this dynamic and think,
"Well, if the average resident is feeling the heat and the economy is struggling, surely the Fed will cut rates."
But even if that’s the case, that doesn’t directly mean lenders will lend at lower rates.
Lenders price interest rates based on their perceived risk. And right now, there's more risk in the market than there was a few years ago. Lenders are less confident in the average resident's creditworthiness and ability to pay rent, especially in class C real estate.
There are fewer lenders enthusiastically looking to issue new loans, and more lenders are focused on managing their existing troubled loans.
On the operational side, the average class C tenant is less creditworthy, earning less, and experiencing slower income growth… and here's something many multifamily investors forget: a resident's ability to pay rent is the only thing that fundamentally matters. Everything else builds from there.
So even if rates do decline slightly, that doesn't solve for lenders being more cautious, selective, and nervous about who they're willing to work with.
What does this mean for investors heading into 2026?
Despite what many in the industry believe, 2026 is unlikely to be a year of significant rent growth or dramatically lower interest rates. The market simply isn't set up for that, especially in the Class C segment.
The good news? If you're a buyer right now, you have more leverage than you've had at any point in the last five-plus years.
Here's why:
Sellers are starting to experience some critical pressure points. Many are re-leasing apartments at lower rents than they achieved a year or two ago. That hasn't happened in over a decade in most markets, and it's making owners nervous.
They're seeing properties listed at lower prices than brokers told them they could achieve just a couple of years ago. And when they talk to lenders about refinancing, they're being quoted less favorable terms and rates than they saw on their last refi.
These triggering events are creating more activity in the marketplace and allowing buyers to be patient and selective when pursuing deals. And that patience will be critical heading into 2026, especially given that it's likely to be a year of minimal or no growth (both in regard to rents and asset values).
So how do you hedge against this reality?
By being extremely selective about the deals you pursue. It's critical that investors are buying at the right prices right now. Not the prices sellers want. Not the prices that pencil based on optimistic 2026 assumptions. Not the price that the seller was asking 2 years ago. The right prices based on what the market is actually doing today.
That's the strategy we're following with our current acquisitions, and it's the approach we're taking as we prepare for the next and final phase of our fund.
Looking ahead, we're preparing to launch the final round of funding for our current fund, the NH Multifamily Fund III. This is the third and final tranche, and we're being as patient and selective as ever in how we're deploying capital in this environment.
Keep an eye out for upcoming emails with more details, including information on an upcoming webinar where we'll walk through the fund, recent activity, and what we're seeing in the market today.
Talk soon,
Axel