A version of this article first appeared in the CNBC Property Play newsletter with Diana Orrick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large publicly traded companies. Sign up to receive future editions directly to your inbox. In a world where developing new commercial real estate is difficult, from the cost of capital and materials to jurisdictional requirements and other hurdles, one major developer is making a big bet that old is better. The Bozzuto Group is partnering with Invesco in a $1 billion venture to purchase 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, more amenity buildings. Greg Krause, managing director and head of U.S. trading at Invesco Real Estate, said in a news release that the strategy is to “take advantage of the recovery in market fundamentals” by focusing on assets with the ability to increase in value. This new fund is being launched against the backdrop of market oversupply. Multifamily housing has experienced a massive construction boom over the past five years, driven by lower interest rates at the start of the pandemic and demographic trends. Much of that supply is still going through the pipeline, and interest rates are now higher. Bozzuto Group CEO Toby Bozzuto said the oversupply was a “temporary phenomenon”. “While supply is currently an issue, supply will also be an affordable solution in the future,” he told Property Play. “It’s a very interesting move, because what we’re doing now is absorbing the overhang of units in the market. …The vacancies will be eliminated over 26 years, and in the worst case scenario they’ll be eliminated by the beginning of 27 years, but there’s nothing behind it.”You can now buy older buildings for less than the cost of building them from scratch. Bozzuto traditionally did and still does. Existing buildings often cost 10% to 20% less than the replacement cost. “Secondly, speed to market. If you buy a building, you don’t have to go through the regulatory quagmire that frankly exacerbated part of this problem, the supply problem,” Bozzuto said. Most experts expect the current oversupply situation to reverse in just a few years, given demographic demand and the simple fact that the condominium market is very expensive, meaning more renters are waiting to become buyers. “The sharp decline in apartment starts provides hope that a strong delivery pipeline will ease and ease lease-up pressure in fast-growing markets,” according to a recent report from Yardi, which forecasts 2026 deliveries to be 450,000, lower than in recent years. Still, the company said the change “is not enough of a decline to push rents to a solid level.” Investors are increasingly looking to put money into the multifamily sector despite falling rents and weak consumer demand. Berkadia’s 2026 Multifamily Investor Sentiment Study, which surveyed 249 investors to assess expected transaction activity and opportunities within the sector, found that 87% of investors plan to moderately or aggressively expand their multifamily portfolios this year, “exhibiting cautious optimism despite continued challenges.” Part of the challenge lies in multifamily mortgages, where delinquencies are increasing and weighing on real estate valuations. But Bozzuto doesn’t seem too worried. “The crisis will be relatively minor, especially compared to some of the other asset classes,” he said. “There are some buildings where developers have really pushed hard on leverage and variable rates, and when they factored into permanent loans, they may have had maybe a four-year or five-year construction loan, but when they switch to permanent loans, they may find some problems.” He said the woes won’t last long and there will be plenty of opportunity. “We’re going to go up and down the East Coast, maybe as far as Chicago, and buy multifamily assets where we can get ‘value-add,’ meaning the idea is that they’re poorly managed or unrenovated or there’s something we can do better with these properties,” Bozzuto said. “And over time, rents will go up.” Eventually, he said, he hopes the fundamentals will turn around and new developments will take off and be successful.
