Conditions Update (December 2025)

Earlier this year we expressed concern about the prospect for weaker operating conditions in the apartment industry.  Unfortunately, those concerns have been validated to an extent that warrants this update.

Apartment rents across the nation declined in October at the steepest rate in more than 15 years, according to CoStar’s Apartments.com.  Yardi Matrix reports that advertised rents have fallen for three months in a row and are now just barely positive on a year-over-year basis.  The major publicly-traded apartment REITs are all reporting similar trends and lowering guidance.  

Glencrest portfolio performance is generally following these trends.  Each property has unique characteristics, but in our portfolio overall we saw net effective rent growth slow to just under 1% last quarter – still positive but decelerating.

It isn’t surprising that the multifamily industry is weakening given what is happening with population growth, employment growth and consumer sentiment.  Some sources forecast that 2025 will be the first year in the history of the United States with a population decline due largely to the dramatic decrease in net international migration.  Employment conditions are flat to weak — total employment has been virtually unchanged for months and there were 700,000 more unemployed people in September 2025 vs. 2024.  Against this backdrop, consumer sentiment has recently fallen to near-record lows.  When people aren’t feeling confident about their economic prospects, they tend to share housing (with roommates, family, etc.) rather than obtaining their own and this puts a damper on demand.   Trends in single-family home prices may also influence demand in 2026. Home price growth has slowed sharply and is now negative in most major metropolitan areas.  Lower home prices may entice some potential renters to buy their housing instead.

On the supply side, although apartment construction is slowing after the surge inspired by extremely low interest rates a few years ago, the pipeline has remained higher than predicted by many experts.  Yardi Matrix just increased 2026 and 2027 new supply forecasts by 2.5% and 12.8% for example.  This will moderate rent growth over the next few years all else being equal.

The challenging conditions in the real economy have been somewhat masked by ongoing exuberance in the financial economy, particularly the high stock prices of certain technology companies associated with artificial intelligence.  These same companies are investing heavily in capital spending on the infrastructure they need, which is bolstering reported GDP, but the sustainability of this spending, and how it will impact things like employment and consumption going forward, remains uncertain.

The inconsistency between the real and financial economies is likely keeping interest rates higher than they would be if the signals were consistently weak, especially with reported inflation remaining about 3%, significantly higher than the Federal Reserve target.  This inconsistency may be influencing multifamily asset values as well.  Although transaction volume remains muted compared to pre-pandemic levels, starting equity yields are regularly below borrowing costs when properties do sell, which is inconsistent with the historic norm and particularly puzzling in the face of growing operating weakness.

The apartment industry is cyclical and the challenging conditions we report are part of the cycle.  It is hard to know how 2026 will unfold.  On the one hand, growth-favorable provisions of the “One Big Beautiful Bill” may begin to show real impact.  The CBO estimates that GDP growth will be increased by nearly 1% as a result of these provisions.  If this positive impulse evolves, and the stock market keeps going higher, perhaps consumer confidence and employment will increase, flowing through to better multifamily rent and occupancy conditions.  On the other hand, the stock market may be in a bubble that “pops” in 2026 and it certainly doesn’t seem like a strong immigration uptick is on the horizon anytime soon.  Meanwhile, the federal government continues to deficit spend and the national debt continues to grow, which may keep inflation and interest rates (at least without express government intervention) stubbornly high.

Glencrest retains conviction about the long-term return prospects for quality multifamily buildings and believes our industry will be more sheltered than many as technology continues to rapidly change our society.  We absolutely expect a return to better operating and investing conditions (not necessarily at the same time) and still believe that an allocation to private multifamily will improve an individual investor’s risk-adjusted portfolio return over time.

It remains to be seen how long this patch of weak operations persists. We plan to provide our annual investor update in the first quarter of next year and perhaps it will already be in the rear view mirror by then (although we doubt it). As long as the current uncertain environment continues, however, we encourage you to expect the following from our Generations program:

1. Distributions.  Dividends will be lower than they would be in a stronger economy.  Much growth is unlikely and many properties will see distributions stay flat or decline for some time.  When making dividend decisions, we will be more cautious about extrapolating positive rent trends and particularly focused on having reserves for capital reinvestment and refinancing in a potentially higher rate environment.

2. Acquisitions.  New investment volume will probably be slow until we see better operating conditions or lower prices.  This doesn’t mean we don’t expect to see any opportunities, but it feels like a time to be relatively careful and selective. 

3. Dispositions.  The presumption is that we will own every Generations investment for a long time to harvest cash flow and tax loss.  But this presumption is rebuttable rather than absolute and we are always considering the totality of the circumstances.  We might engage in some selective selling if valuations continue to diverge from our fundamental view.

Predicting the future is hard and change is the only certainty. We will continue to keep you updated and hope our periodic communications help with your investment decisions. As always, feel free to reach out to either of us directly with any questions or comments.

We remain grateful for your partnership.