Underwriting Deals in a Higher‑for‑Longer World
Underwriting in 2025 starts with humility about cap‑rate spreads and debt costs. Even as rates stabilize, they remain elevated and volatile, compressing cap‑rate spreads relative to long-term norms. That’s why the best models carry stricter exit cap, slower rent growth (~2.2% baseline), and higher vacancy buffers.
Agencies expect originations to rise on improving clarity—$370–$380B for 2025—yet lenders are rewarding clean stories: resilient submarkets, realistic business plans, and strong operating histories. CBRE similarly calls for multifamily to lead investor preference in 2025 as fundamentals strengthen into 2026.
Underwriting checklist, 2025 edition:
Rent & Vacancy: Use conservative rent growth (~2%) and hold vacancy above LT averages where supply lingers.
Expenses: Track insurance and utilities line by line; national operators report decelerating expense growth vs. 2022–2023—good news, but validate submarket realities.
Debt: Price scenarios with and without proceeds constraints; test refi at agency coupons in today’s spread regime.
