Cap Rates Are Up, Values Are Down, So Where Are the Deals?

After years of aggressive compression, multifamily cap rates have quietly returned to their most attractive levels in over a decade. And while that shift comes on the heels of market volatility, it's setting the stage for one of the best buyer environments we've seen in years.

So where are all the For Sale signs on all these distressed assets? Shouldn’t this be an easy market where buyers hold all the cards? 

Let’s explore this.

Cap Rates Are Up (prices are down)

Multifamily cap rates are now averaging around 6%, the highest level since 2013. That shift means:

• Lower prices relative to income

• Improved cash-on-cash returns

• Less reliance on optimistic, speculative underwriting

In 2021–2022, cap rates fell to unsustainable lows:

For example:

• Houston: Class A cap rates dropped as low as 4.0%, Class B around 4.9%

• Dallas-Fort Worth: Prime assets traded at 3.5%–4.0%

By Q1 2025:

• Houston cap rates have climbed to ~5.9%

• DFW cap rates are hovering around 5.7%

That translates to 15–25%+ price reductions on many assets, even before factoring in upside potential.

What's Driving the Change?

Several macro and local factors have reshaped the investment landscape:

✅Higher Interest Rates

As borrowing costs rose, so did investor return expectations, pushing cap rates up.

✅ Elevated Supply

A wave of construction in 2021–2023 increased inventory, especially in Sunbelt markets, creating short-term competition.

✅ Operating Cost Pressure

Rising insurance premiums, property taxes, and payroll costs have compressed net operating income (NOI).

✅ Market Caution

Uncertainty around the economy and interest rate policy has tempered institutional demand, shifting momentum to more disciplined, fundamentals-driven investors.

Why Buyers Are in a Strong Position

Let's be honest in our assessment—some owners are in trouble. The same low-rate, high-leverage environment that drove 2021's frenzy is now straining deals:

• Floating-rate loans are resetting.

• Rate cap protections are expiring.

• Distributions are being cut or eliminated.

• Expenses are rising

These pressures lead to forced sales, recaps, and below-replacement-cost pricing on quality assets.

Meanwhile, permitting has slowed to its lowest pace in years. After this cycle, new supply will dwindle, supporting future rent growth.

Why It’s Still Competitive—And How to Win

Yes, prices are down. But don’t mistake that for an easy market.

• Not all distress = fire sale. Many sellers are holding out, hoping for a rebound or refinancing.

• Dry powder is everywhere. When quality assets do hit the market at a discount, competition from serious buyers is fierce.

So how do you actually land deals at these new price levels?

 ✅ Build relationships for off-market or early access ✅ Be fast, credible, and ready to close ✅ Focus on sellers with maturing debt, rate cap issues, or paused distributions

 ✅ Underwrite for today, not tomorrow—and don’t chase ✅ Be willing to walk away until the right deal pencils

This isn’t about timing the bottom. It’s about showing up prepared while others hesitate.

The Long Game: Buy Right, Hold Smart

Buying today isn't about trying to time the absolute bottom. It's about:

• Acquiring real income at a discount

• Locking in favorable terms

• Waiting for cap rate compression and rent growth to do their work

This is how long-term wealth is built—not in boom years, but in quieter periods when fewer people are paying attention.

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