Why this apartment developer is deploying $1 billion of new capital toward older buildings – CNBC
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox. In a world where it’s difficult to develop new commercial real estate — from the costs of capital and materials to jurisdictional requirements, among other hurdles — one major developer is making a big bet that older is better. Bozzuto Group is partnering with Invesco in a $1 billion venture to buy existing multifamily assets on the East Coast. The focus is on properties that have lost significant value but can be renovated and repackaged to compete with newer, high-amenity buildings. The strategy is “to capitalize on recovering market fundamentals” by focusing on assets that have the capacity to gain value, said Greg Kraus, managing director and head of U.S. transactions at Invesco Real Estate, in a news release. The new fund launches against a backdrop of oversupply in the market. Multifamily saw a huge construction boom in the last five years, thanks to lower interest rates at the start of the pandemic and demographic drivers. Much of that supply is still making its way through the pipeline, now in a higher interest rate environment. Toby Bozzuto, CEO of Bozzuto Group, called the oversupply a “temporary phenomenon.” “Where supply is currently the problem, supply is also the solution in the future for affordability,” he told Property Play . “So it’s a very interesting dynamic, because what we’re doing now is absorbing the overhang of the units in the market. … The vacancy will dissipate over ’26 and, in worst cases, early ’27, but there’s nothing behind it.” Purchasing older buildings today can be done at prices below the cost to build from the ground up, which Bozzuto traditionally and still does. Existing buildings are often priced at 10% to 20% below replacement costs. “Secondly, there’s speed to market. If you buy a building, you’re not going through the regulatory morass that, candidly, has exacerbated some of this problem, the supply problem,” Bozzuto said. Most experts anticipate the current oversupply situation to reverse itself in just a few years, given demographic demand and the simple fact that the for-sale housing market is so expensive, meaning more renters are waiting to become buyers. “A sharp drop in apartment starts provides hope that the robust delivery pipeline will slow and alleviate some pressure on lease-ups in rapidly growing markets,” according to a recent report from Yardi, which forecasts 450,000 units to be delivered in 2026, a drop from recent years. Still, that shift is “not enough of a decline to push rents to robust levels,” it said. Despite weaker rents and a weaker consumer, investors are increasingly interested in deploying capital into the multifamily sector. Berkadia’s 2026 Multifamily Investor Sentiment Survey, which surveyed 249 investors to assess anticipated transaction activity and opportunities within the sector, found that 87% of investors plan to moderately or aggressively expand their multifamily portfolios this year, “demonstrating cautious optimism despite ongoing challenges.” Some of those challenges are in multifamily loans, where delinquencies are rising and weighing on property valuations. Bozzuto, however, seems less concerned. “I think the distress will be relatively de minimis, particularly compared to some of the other asset classes,” he said. “There are some buildings where developers really pushed on leverage or on floating rate, and when they price into a permanent loan — perhaps they were on a four- or five-year construction loan — when they flip to a perm loan, we may see some issues.” The distress, he said, will be short-lived and provides ample opportunity. “We will go up and down the East Coast, maybe all the way to Chicago, and buy multifamily assets that we can — ‘value add,’ the idea being that they’re either under-managed or haven’t been renovated, or there’s something that can be done better with these assets,” said Bozzuto. “And over time, rents will grow.” Ultimately, he said he hopes that the fundamentals will pivot to allow for new development to also pencil and succeed.
