Urban Land: Multifamily Reckoning: Repricing Risk Amid Higher Interest Rates

Urban Land: Multifamily Reckoning: Repricing Risk Amid Higher Interest Rates

The 2010s saw an unprecedented period of historically cheap debt and economic stimulus, which had a fundamental impact on the global macro economy and the way capital priced risk. Investor capital poured into real estate, which increased competition, spurred more aggressive underwriting, increased the use of leverage, and compressed yields.

By Sean Burton and Ryan Graf

June 30, 2023

But rapidly rising interest rates have caused a significant shake-up, exposing cracks in some investment strategies of the past decade.

As background, over the past decade, risk calculations began to change. Across the multifamily space, investors moved into riskier markets, strategies, and capital structures to increase returns and compete for deals. Firms were rewarded for volatile, high-leverage strategies but, until recently, were not negatively impacted for failing to hedge longer-term risks.

Managers who invested in riskier strategies or assets without sufficient mitigation measures didn’t always seek higher returns for that additional risk. Firms with maturing variable rate debt on high-leverage strategies simply refinanced or extended existing loans without liquidity concerns or much fear of rising rates and many hedged their risk with only short 2-year caps.

However, given the current economic climate of rapidly rising interest rates and lack of credit availability, investors are once again evaluating risk much more closely and demanding managers more accurately assess and price risk to deploy capital in opportunities with more attractive risk-adjusted returns.

Cap Rate Compression

Over the last 10-plus years, investment poured into primary and secondary markets alike. Multifamily saw cap rates drop below 4 percent for the first time. Historically, there was a significant cap rate spread between primary, supply-constrained markets and secondary ones where barriers to entry were lower.

In 2018, this spread began to narrow and disappeared completely in 2021. For the first time, investors largely ignored the additional risk of investing in a secondary market.  Similarly, purchasers were not requiring any additional yield for less desirable submarkets within a particular metro. The previously required risk premium for investing in secondary markets or traditionally less desirable submarkets largely evaporated without a corresponding underlying change in the market fundamentals, indicating that managers were no longer demanding to be compensated for that additional investment risk.

In addition to higher-leverage strategies and strategies with more geographic risk, over the past 10 years, firms were not required to actually add value to the real estate to generate strong returns even though the structural changes in the economy and monetary policy, the tailwinds that drove those returns were unlikely to continue. Many were beneficiaries of the “rising tide lifting all boats” phenomenon by taking advantage of cap rate compression and cheap debt. Many managers were simply buying at historically low cap rates and selling at historically lower ones . . . until the tide went out. 

Multifamily Fundamentals

Notwithstanding broader market-wide headwinds, multifamily fundamentals remain strong. Unlike other product types like office and retail, multifamily did not undergo a fundamental shift in the way people need and use housing. Renter demand remains strong driven by a fundamental supply/demand imbalance in many markets, leading to continued rent growth and high occupancy rates. Multifamily valuations have taken a hit—and will probably take a greater one—due primarily to capital market factors and high-interest rates as opposed to core fundamentals.

High-interest rates are a double-edged sword for multifamily because while they place downward pressure on valuations, they also boost demand by making it more difficult for renters to leave the renter pool to buy houses. Homeownership costs have risen as mortgage rates have increased by two and a half times from their low in 2021. In addition, for-sale housing inventory remains low as 99 percent of current mortgage holders have a rate lower than 6 percent and have limited incentive to sell only to rebuy a new home at a significantly higher rate.

With less inventory on the market and higher interest costs—and significantly higher monthly mortgage payments—associated with purchasing a home today, renters are more likely to remain renters for longer, increasing demand for multifamily.

These favorable supply/demand fundamentals in many markets remain as the United States still fails to produce and maintain a sufficient inventory to meet the country’s housing demand. The gap between household formation and housing units constructed between 2012 to 2022 was 2.3 million. Moreover, this imbalance will only grow with new construction permits dropping as developers struggle to make deals pencil with rising construction costs, higher interest rates, and the threat of a recession-dampening demand. However, that doesn’t mean that there are not areas at risk of oversupply, or that there won’t be winners and losers in the space.

The housing shortage does not apply equally across markets. New multifamily inventory—particularly in the Sunbelt where it is easier to build—is leading to oversupply in some markets and rents dropping for the first time in years. These markets are at risk of being overbuilt, at least in the short term, with negative projected absorption and a large inventory of product delivering over the next one to two years.

For example, Nashville’s rental unit inventory is projected to grow 7.9 percent this year, 4.9 times the pace of household growth in the four-year period between December 31, 2020, and December 31, 2024. Compare that to a market like Los Angeles, where inventory is projected to grow just 1 percent, which is only 20 percent of the growth needed to replace obsolete housing stock and satisfy household growth.

Near-term oversupply in several markets is already negatively impacting rental rates, rent growth, and creating the need for outsized concessions to win renters. While a U.S. housing shortage still exists in the aggregate, a deeper look shows that the level of this shortage will vary wildly by market. Some markets that have seen large development booms over the past 3 to 5 years may have short-term difficulty absorbing such a high level of new product, while others (often high-barrier-to-entry markets) continue to be significantly undersupplied.

The Return of Alpha 

The next era of multifamily real estate will be led by managers that have the ability to produce alpha. The 2010s were defined by a seemingly never-ending bull market. The next cycle will remind investors of the importance of partnering with managers that apply an appropriate risk-reward analysis and have the skill and experience to add value at the real estate level to generate alpha. 

Successful managers will be those who return to (or never strayed from) the fundamentals—excellent locations and a focused execution on a strong, value-creating business plan. Staying close to the real estate is going to become even more critical than it has been in the past. Managers with their own in-house development and construction management teams should be able to control costs better, build faster and turn units more quickly. Managers with their own in-house property management firms should be able to understand their customer—the renter—better and will have deeper levels of insight into on-the-ground operations.

In theory, these insights and access to on-the-ground data will give vertically integrated managers an advantage in assessing and underwriting future investments. Experienced managers with local market knowledge also have an edge. Their ability to source, evaluate, and execute projects on a block-by-block basis is likely to lead to outperformance going forward.

In addition to a specialty mindset, resilient strategies that favor maximum optionality for managers coupled with strong business plans, capable operating teams, and contingency plans to account for as many potential risks as possible will be critical to creating alpha through tumultuous or unpredictable economic times.

We have entered a market environment where increasing beta exposure is no longer the avenue to generate outsized returns. Managers’ ability to both recognize the opportunities and challenges going forward as well as execute high-conviction investment strategies with appropriate risk-adjusted returns will be the determining factor as we move forward though more uncertain times.  

The next era of private real estate will look very different from the last. The end of cheap debt for the foreseeable future will continue to cause disruption across the real estate space. This is especially true in multifamily, where strong performance over an extended period has increased competition and, subsequently, compressed yields.

SEAN BURTON is CEO of Cityview. RYAN GRAF is an associate of capital raising and investor relations at Cityview.

Read more:  https://urbanland.uli.org/public/multifamily-reckoning-repricing-risk-amid-higher-interest-rates/

Sarah Hunt

Senior Associate, Business Development & Capital Relations

Ms. Hunt joined Cityview in 2021 and is a Senior Associate on the Business Development & Capital Relations team.  She is primarily responsible for relationship management, investor communications, and marketing collateral.  Additionally, she works closely with internal functional teams on due diligence efforts and supports investor reporting and special projects.  She is also a member of Cityview’s Sustainability Committee focused on communication of ESG initiatives to investors.

Ms. Hunt has over six years of real estate investment, capital formation, and investor relations experience.  Prior to joining Cityview, she was an Associate with Chicago-based Magnolia Capital.  During her tenure, she worked on equity capital raises for numerous real estate investment vehicles.  Prior to Magnolia, Ms. Hunt was a Financial Analyst with LaSalle Investment Management where she oversaw the financial performance of assets with over $1 billion in value.

Ms. Hunt received her Bachelor of Business Administration degree in Finance, Investment, and Banking from the University of Wisconsin-Madison.

Ramtin Esfandiari

Director, Acquisitions

Ramtin Esfandiari joined Cityview in 2018 and is responsible for managing acquisitions, including sourcing, underwriting and closing multifamily development deals. Prior to joining Cityview, Ramtin was on the Acquisitions team at The Bascom Group where he underwrote over $9 billion in multifamily acquisitions across the U.S. and supported all aspects of the acquisition process. Ramtin holds a Bachelor’s Degree in Business Economics from the University of California, Irvine, and is an active member of Urban Land Institute.

Jonathan Anderson


Jonathan Anderson is the Controller of Cityview and provides leadership and oversight over the finance, accounting, and shared services departments.  Prior to joining the Cityview team, Jonathan worked at CIM Group where he held several finance and accounting roles during his tenure, most recently as head of private fund reporting and prior to that as director of SEC reporting for one of CIM Group’s publicly traded REITs.  Jonathan began his career in Ernst & Young’s assurance practice where he served both public and private clients in the real estate and asset management industries.  Jonathan graduated from the University of Southern California with both a bachelor’s degree in accounting and a bachelor’s degree in business administration with an emphasis in real estate finance.

Tina O’ Brien

HR Director

Tina O’Brien, HR Director, is a senior national and state-certified HR Professional (SPHR, SHRM-SCP, PHRca), managing the HR team overseeing all aspects of Human Resources for both Cityview and its affiliate, Westhome. Her experience spans the spectrum of the HR field, including recruitment, employee relations, performance management, benefits, compliance and employee development. She joined Cityview in summer 2021 from a telecom technology firm in Van Nuys, and previously worked for a private real estate investment and property management company in Beverly Hills. Tina is an LA native and she’s committed to helping grow our vibrant, healthy corporate culture here at Cityview.

Noah Watts-Russell

Director Asset Management
Noah Watts-Russell is Director, Asset Management of Cityview. As Director of Asset Management, he oversees Cityview’s value-add portfolio and is responsible for establishing and driving the portfolio business plans to maximize performance and value. Prior to joining Cityview, Noah was an Associate in the Real Estate division at The Blackstone Group where he oversaw over $15bn in multifamily real estate (>70,000 units, covering market rate, affordable and rent-controlled) and worked on over $2bn in total sales and $1bn in refinancing. Prior to Blackstone, Noah managed the FP&A team at LivCor, Blackstone’s multifamily asset management company. Noah holds a Bachelor’s degree in Finance and Economics from Washington University in St. Louis.

Denise Katz

Director Asset Management

Denise Katz manages Cityview’s core and development assets across multiple investment vehicles and is responsible for maximizing the operational and financial performance of the assets.  Denise has over twelve years of experience in real estate. Prior to joining Cityview, Denise was Regional Vice President at CIM Group of a $2.4 billion portfolio in the Western US and Latin American markets. During her time at CIM, she managed end-to-end transitions of development projects, acquisitions, and dispositions of office, multifamily, retail, parking, condominium, and mixed-use projects. She holds a double major Bachelor of Arts degree in International Studies and Psychology from Wilkes University in Wilkes-Barre, PA.

Steve Roberts

Director, Development and Construction
Steve Roberts is responsible for the development of several of Cityview’s ground-up multi-family assets, including due diligence, design, entitlement, permitting, construction, and market delivery. Prior to joining Cityview, Steve managed several nationally award-winning projects as Vice President of Development for Community Dynamics, a Santa Monica based developer of residential and mixed-use communities. Steve has built his career on creating exceptional communities that deliver high-quality housing to residents, first-rate design for neighbors and municipalities, as well as strong financial returns to investors. Steve holds a BA in Urban Studies and Planning from UCSD and earned an MBA and Master of Real Estate Development from the University of Southern California.

Anh Le

Director, Development

After 8 years in the construction industry managed complex multi-use development projects, Anh Le joined Cityview in 2018 as Director of Development. Le manages ground-up developments in Northern and Southern California and leads consultant teams through entitlement, design, permitting, budgeting, contracting, construction management and project turnover. She works closely with designers, neighborhood groups and Cityview’s in-house Asset Management team to deliver best-in-class multifamily projects. Prior to Cityview, Le worked as a project engineer and project manager at Cobalt Construction. Le holds a Bachelor’s of Science in Civil Engineering from the University of California, Irvine.

Kyle Naye

Senior Director, Acquisitions

Kyle Naye is Senior Director, Acquisitions of Cityview.  As Senior Director of Acquisitions, he is responsible for managing acquisitions, including sourcing, underwriting, closing and developing comprehensive business plans for investors.  Naye primarily focuses on non-California markets across the Western U.S., including Seattle, Portland, Denver, Phoenix, Salt Lake City, Dallas, and Austin.  In his role, Naye works closely with the Cityview team to manage and expand strategic acquisitions across the firm’s vertically integrated platform.

Prior to joining Cityview, Naye was a vice president of originations at PGIM Real Estate, where he provided transactions and underwriting oversight for core-plus and high-yield debt vehicles. He also held a prior role at PGIM managing the underwriting, investment committee preparation and closing of $992 million in multifamily, retail and office assets across the Bay Area and Pacific Northwest. At earlier stages of his career, Naye was a senior associate of acquisitions at Clarion Partners, senior real estate analyst at Northmarq and an officer in the United States Navy.

Zory Grigoryan

Director, Development

As Director of Development, Zory Grigoryan is responsible for the full cycle development of several of Cityview’s projects, which includes managing the due diligence, underwriting, entitlement, design engineering, construction processes and turnover to asset management. Prior to joining Cityview, Grigoryan worked for Oakmont Capital as a Project Manager overseeing the development and construction of several multifamily projects. Prior to that, he worked at Cobalt Construction as a Project Manager on the construction of numerous mixed use and multifamily projects. During his career, Grigoryan has been responsible for the development, preconstruction and construction of over 1,500 units.

Grigoryan holds a Bachelor’s of Science Degree in Construction Management from the California State University of Northridge, where he was the top ranked graduate of his year. During his time at Cobalt Construction, Grigoryan was also selected as distinguished alumni by the CSUN department faculty and appointed as ambassador for alumni recruitment by CSUN construction management department’s board of governors committee.

Chris Brown

Director, Capital Relations

Chris Brown is responsible for capital raising and investor relations at Cityview. Chris has over seven years of real estate investment and capital raising experience. Prior to joining Cityview, he was a member of the Fund Advisory team at JLL working on equity capital raises for private real estate investment vehicles. Prior to JLL, Chris worked on the Portfolio Management team at Clarion Partners and the Asset Management team at LaSalle Investment Management. Chris graduated from Florida State University with a Bachelor’s Degrees in Finance and Real Estate. He is a general securities representative.

Dana Gomez-Gayne

Vice President and Associate General Counsel

Dana Gomez-Gayne manages the legal aspects of all project-related matters, including acquisition, development, management and disposition, and advises Cityview on corporate formation and maintenance, insurance, risk management and other legal matters. She was previously an Associate at O’Melveny & Myers LLP and Manatt, Phelps & Phillips, LLP where she represented a variety of clients in real estate, project development and finance transactions. Gomez-Gayne also has a background in fundraising development and worked at Teach For America raising philanthropic funds from regional and national corporations and foundations. She is a graduate of Pomona College and Pepperdine University School of Law.

Rob Lester

Managing Director, Business Development & Capital Relations
Rob Lester is responsible for business development and capital formation efforts for the Firm’s investment platforms, developing strategic growth initiatives, and creating long-term relationships with investors and partners. He has nearly 25 years of investment banking and private capital formation experience. Prior to joining Cityview, he was Managing Director with Macquarie Capital, and a Managing Principal with Blackstone. ​

Con Howe

Managing Director

Con Howe leads Cityview’s partnerships to finance, assemble and entitle land for development in the greater Los Angeles area. With over 40 years of experience in planning, entitlements and development, he assists all Cityview funds with acquisitions and development strategies. Prior to coming to Cityview he was the Director of Planning for the City of Los Angeles responsible for the Adaptive Reuse Ordinance and zoning to encourage infill housing. Previously he was the Executive Director of the New York City Planning Department.

Shane Robinson


Shane Robinson is responsible for managing all aspects of Cityview’s stabilized, value add and new development assets. With more than 22 years of experience managing multifamily assets, he is a seasoned real estate professional experienced in a range of investment strategies that drive growth and efficiency for investors.

Prior to this role, Shane held pivotal positions at various organizations in the real estate industry. As Vice President of Property Management at Westhome, Robinson played a vital role in implementing the operational infrastructure that facilitated market expansion.

During his tenure at Sunrise Management, his leadership established and solidified the company’s operational foothold in new markets, contributing to the growth and success of the firm. His early asset management career was at GHP Management, where he specialized in lease-ups and effectively managed a substantial core portfolio of over 5,000 units.

Melissa B. Delgado

VP, Asset Management
Melissa Delgado is responsible for overseeing Cityview’s asset management and portfolio operations. Prior to joining Cityview, Melissa was a Senior Director at TruAmerica Multifamily LLC where she was responsible for achieving the investment objectives of an $800 million portfolio. Earlier in her career, Melissa was an asset manager for Kennedy Wilson’s Southern California portfolio. Prior to that, she was a Vice President and Head of Marketing at Kepler Capital Markets, an investment bank in New York. ​

Devang Shah

Managing Director, Acquisitions

Devang Shah is co-head of Cityview’s acquisitions activities on the West Coast. He has 25 years of experience in real estate investment, development, design, construction and asset management. Previously, Devang was the principal of Marketcents Inc., an independent project management firm, serving as an owner’s representative to investment firms, builders and developers. Prior to that, he worked was Vice-President at RCLCo, LLC, a national independent real estate consulting firm. ​

Adam Perry

Senior Vice President, Development and Construction

Adam Perry oversees all aspects of the commercial real estate development process from acquisition due diligence and entitlement processing through design budgeting, contracting, construction management, closeout and turnover. Prior to joining Cityview, Adam worked at CIM group as an Associate Vice President of Development overseeing ground up retail, office and mixed-use developments. ​

Adam holds a BA Degree in Political Science and History from UCLA and an MBA from the UCLA Anderson School of Management.

Matthew Falley

General Counsel & Chief Compliance Officer
Matt Falley oversees and directs the company’s legal affairs and is the firm’s Chief Compliance Officer. Matt was previously a partner at Greenberg Glusker Fields Claman & Machtinger LLP, where he represented numerous clients in the real estate industry, including Cityview. Matt holds a B.A. from the University of California, Santa Barbara and a JD from the University of California, Berkeley School of Law (Boalt Hall), where he was a member of “California Law Review” and Order of the Coif.​

Tony Cardoza

Managing Director, Acquisitions
Tony Cardoza is responsible for Cityview’s acquisition activities throughout the West Coast. He has 21 years of experience in real estate investment and management. Previously, Tony ran the investment group for Real Estate Capital Partners in the Western U.S., which developed and acquired over 5,000 multifamily units. Prior to that, he worked for Prometheus Real Estate Group in a land and multifamily acquisitions role on the West Coast. Tony holds a B.A. in Economics from Middlebury College and an MBA from the Haas School of Business at UC Berkeley.​

Jennifer Halvas

Managing Director, Investor Relations
Jennifer Halvas leads the firm’s investor relations team, where she is responsible for maintaining relationships with the investor community, bolstering infrastructure for new and existing investors and helping to develop investment strategies and initiatives. She has been instrumental in securing capital needs for several Cityview funds across a broad base of institutional investors, insurance companies, foundations and endowments, family offices and high-net-worth investors. A 12-year veteran of Cityview, she uses her deep institutional knowledge to create value for investors and the communities in which Cityview works.
She was previously at O’Melveny & Myers LLP, where she represented a variety of clients in real estate, project development and finance transactions. Jennifer holds a B.A. with honors from the University of Southern California and a JD from Vanderbilt Law School.

Damian Gancman

Chief Operating Officer and Chief Financial Officer

Damian Gancman oversees the operations of Cityview and its investments while supporting the strategic growth of its finance, acquisition, asset management and property management functions. An 18-year veteran of the firm, Damian is also a partner at Cityview and a member of its investment committee. As CFO, he helped build out Cityview’s best-in-class finance department, including the implementation of strategic process, accounting, reporting and technology improvements that enhance the investor experience.

In addition to his role at Cityview, Damian is a guest lecturer for the University of Southern California’s Master of Real Estate Development program and is a key contributor to the Cityview Leadership Academy. Damian earned a master’s degree in real estate development from the University of Southern California and a dual bachelor’s degree in business administration and psychology from the University of California, Berkeley.

Sean Burton

Chief Executive Officer

Sean Burton has been with Cityview since 2003. Prior to joining Cityview, Sean was vice president of corporate business development and strategy at Warner Bros. Before that, he was an attorney in the real estate and corporate groups at O’Melveny & Myers, LLP and also served in the White House during the Clinton Administration. In 2022, Burton was appointed by President Biden and confirmed by the U.S. Senate as the federal nominee on the Metropolitan Washington Airports Authority Board of Directors, which oversees Washington Dulles and Reagan National airports. He also serves as co-chair of the Los Angeles Coalition, a coalition of business leaders for the economy and jobs in LA. From 2013 to 2021, Sean served as President of the Board of Airport Commissioners which oversees the LAX and Van Nuys airports. Sean holds a B.A. from the University of California, Irvine and a JD from New York University School of Law.