This marks the first in a series of reflections from Atlantic Bay Partners—a natural extension of the ongoing conversations we have with our developers and investors. Rather than another market update, this platform is meant to articulate how we think: how we interpret cycles, underwrite risk, and position capital inside one of the largest and most complex real estate markets in the world.
For many of the family offices we work with across Latin America, investing abroad is not tactical—it is structural. Preserving capital in strong currencies, diversifying political and regulatory exposure, and accessing transparent, rule-based markets have long been part of their strategy. These families understand macro risk. They hedge currency. They allocate patiently. In that dimension, they often execute exceptionally well—building resilient portfolios in U.S. assets designed to protect purchasing power over decades.
Yet in their home markets, particularly in real estate, many of these same families operate very differently.
They are not passive allocators. They are early-stage capital partners. They fund land acquisitions. They structure pre-development equity. They take entitlement and lease-up risk alongside seasoned local developers. They operate with proximity, influence, and trusted execution partners. In those environments, they are manufacturers of real estate—not simply buyers of finished product.
When investing in the United States, however, posture often changes. Capital shifts toward stabilized assets or institutional vehicles where diversification replaces proximity. These strategies serve preservation, but they also distance investors from the stage where value is actively created.
This shift is understandable. The U.S. market is geographically vast. Entitlement processes vary by municipality. Regulatory frameworks differ by state. Data is abundant but can be misinterpreted without local context. Without trusted on-the-ground relationships, early-stage investing can feel opaque.
Our objective at Atlantic Bay Partners is to reduce that opacity and bring our overseas partners closer to the U.S. market at the project level. These reflections are not about sharing data alone—they are about translating local dynamics, risk, and capital structure into a framework that makes early-stage investing more familiar, measurable, and disciplined.
To illustrate how we approach this, we begin with one of the primary sectors we follow closely: multifamily housing.
The Structural Logic of Multifamily
Multifamily—professionally managed apartment communities—represents one of the most institutionalized asset classes in the United States. From suburban garden-style properties to urban mid-rise and high-rise developments, the sector forms a core allocation for pension funds, sovereign wealth funds, private equity firms, and family offices globally.
Its structural appeal rests on fundamentals that are difficult to ignore.
Housing is a necessity. Demand is supported by household formation, employment growth, demographic trends, migration flows, and the relative cost of renting versus owning. In recent years, affordability constraints in the for-sale market have extended renter tenure in many metropolitan areas.
Multifamily also benefits from shorter lease durations compared to other commercial asset classes. With leases typically resetting annually, income can adjust more dynamically to inflation or changing market conditions. At the same time, supply is often constrained by zoning limitations, entitlement friction, infrastructure capacity, and rising construction costs. These factors create real barriers to entry over time.
But despite these structural strengths, multifamily is cyclical.
Development is highly sensitive to capital conditions and rent expectations. When liquidity is abundant and rent growth is strong, construction accelerates. When financing tightens and underwriting becomes more conservative, starts decline. Because projects require years to deliver, supply does not adjust immediately. It responds with a lag—and that lag drives cycles.
The Pandemic Acceleration
The pandemic period amplified this dynamic dramatically.
In early 2020, uncertainty froze the global economy. The policy response that followed—near-zero interest rates, fiscal stimulus, and extraordinary liquidity—created one of the most accommodative capital environments in modern history.
Debt costs fell to generational lows. Equity sought yield in real assets. Cap rates compressed.
Simultaneously, housing demand strengthened in many regions. Remote and hybrid work accelerated migration away from high-cost coastal gateways toward high-growth Sunbelt metros such as Austin, Phoenix, Nashville, Tampa, and Dallas. Household formation remained robust. In 2021, many of these markets experienced double-digit annual rent growth. In certain submarkets, effective rents rose 15% to 20% within a single year.
Developers responded rationally.
Higher projected rents and lower financing costs expanded feasibility. Land values increased. Development spreads appeared durable. Equity underwriting assumed continued absorption.
But development is not instantaneous. From land acquisition to delivery, multifamily projects often require two to five years. Capital moves quickly. Physical inventory arrives later.
The Supply Wave
To understand today’s environment, it is important to begin with the signals developers were seeing in 2020, 2021, and early 2022.
Demand was strong. Migration into high-growth Sunbelt metros accelerated. In markets like Austin, Phoenix, Nashville, Tampa, and Dallas, units leased within days. Concessions disappeared. In some submarkets, rents were adjusted upward between applications. Tenants competed for apartments. Landlords had clear pricing power.
At the same time, capital was inexpensive and abundant. Interest rates were near historic lows. Cap rates compressed. Development spreads looked wide and durable.
Developers responded rationally to those signals. And because most developers were seeing the same data—strong rent growth, rapid absorption, cheap debt—many reached similar conclusions at the same time. This is common in real estate cycles, particularly during easy-money environments: strong signals lead to synchronized building decisions.
But real estate supply does not adjust quickly.
Unlike many industries, you cannot increase production overnight. Land cannot be moved. Entitlements take time. Construction requires years. From capital commitment to delivery, multifamily projects often require two to five years. Supply responds slowly—and when it responds, it often does so in waves.
That is what the data now shows.
According to Cushman & Wakefield’s Multifamily MarketBeat & Forecasts, annual U.S. completions rose from 354,710 units in 2021 to 365,491 in 2022, then accelerated to 447,243 in 2023. Deliveries peaked in 2024 at approximately 578,000 units before declining to 424,000 in 2025. Projections suggest normalization toward roughly 290,000 units in 2026 and potentially below 220,000 in 2027.
Those 2023 and 2024 deliveries largely reflect projects capitalized during the 2020–2022 expansion phase.
In several high-growth metros, supply did not arrive gradually—it arrived in clusters. Thousands of units entered submarkets within compressed timeframes.
The dynamic flipped.
Where tenants once competed for apartments, owners began competing for tenants. Concessions reappeared. Lease-up timelines extended. Effective rent growth slowed or turned negative in certain submarkets.
Throughout 2024 and into 2025, several previously high-performing markets experienced measurable rent moderation. Austin recorded periods of negative year-over-year effective rent growth in 2024. Phoenix and Nashville saw sharp deceleration relative to 2021 levels. These were not collapsing cities—they were growing metros digesting concentrated pipelines.
This is the essential distinction: oversupply is not the absence of demand. It is supply growing faster than absorption.
At the same time, interest rates moved materially higher. Higher borrowing costs and expanded required yields affected asset valuations. Owners faced a dual adjustment: moderating income growth and expanding exit cap rates.
That combination drives repricing.
Projects underwritten in 2021 assumed sustained rent growth and relatively tight exit yields. When rent growth flattens—even temporarily—and exit yields widen, projected returns compress quickly.
This is not structural collapse.
It is the classic real estate cycle: strong signals, synchronized development, lagged delivery, absorption, and repricing—driven by the unique characteristic that real estate supply is slow, immobile, and capital-intensive.
Measuring Absorption, Not Narratives
The debate is often framed around whether a market is “oversupplied.” In certain submarkets, it is. But that label alone is not very useful. The more relevant question is practical: how long will it take for new supply to be absorbed, and at what rent level does equilibrium return?
Answering that requires perspective.
If a submarket with roughly 25,000 apartments delivers 5,000 units over a two-year period, inventory expands meaningfully in a short window. If that same area has historically absorbed around 1,200 units per year, it will take time for vacancy to normalize—unless demand accelerates beyond its recent pace. That is not a forecast. It is arithmetic.
So we look at relationships rather than headlines. How large is the new pipeline relative to existing stock? How does it compare to the market’s historical absorption rate? Is vacancy temporarily elevated? How much product is still in lease-up? Are additional projects likely to move forward under current financing conditions?
We also examine the renter base. Who is the new supply targeting? Are those income levels expanding? What share of income is already allocated to rent? Concessions are treated as what they are—real reductions in effective rent, not temporary noise.
From there, we evaluate how resilient the capital structure is under more conservative timing and pricing assumptions. If lease-up takes longer than expected, how does that affect carrying costs? If exit yields are higher than they were two years ago, how does that change projected value? If leverage is reduced, how much additional equity is required?
The objective is not to predict the exact moment when rent growth reaccelerates. It is to understand the range of likely outcomes given current supply conditions—and to invest only when those probabilities are acceptable.
The Recalibration Phase
We tend to view moments like this with perspective rather than discomfort.
In markets with durable demand drivers—such as much of the Sun Belt and particularly Florida—the long-term fundamentals remain intact: population inflows, employment growth, business formation, and structural housing needs. What has changed is not the trajectory of these markets, but the immediate balance between new supply and absorption.
When rent growth moderates and the cost of capital rises, development becomes more selective. Projects require stronger fundamentals, clearer differentiation, and more thoughtful structuring to move forward. Fewer new starts advance under these conditions.
That discipline today often means less crowding tomorrow.
If a project is underwritten conservatively—assuming realistic absorption timelines and measured rent growth—it may ultimately deliver into a market with a thinner forward pipeline than during peak construction periods. In fundamentally strong regions, positioning during this transitional phase can be constructive for investors and developers willing to look beyond near-term volatility.
This is also where capital alignment becomes critical.
Development in an absorption phase requires the right time horizon. Short-term capital expecting immediate acceleration may struggle in this environment. Capital structured with a realistic timeline—aligned with lease-up, stabilization, and forward supply moderation—can engage more effectively. The right capital is not simply patient; it is structurally aligned with the cycle.
This phase does not eliminate risk. It requires clarity and discipline.
For that reason, absorption periods in strong markets are not phases we avoid. They are phases where thoughtful partnerships, conservative underwriting, and aligned capital structures can position projects responsibly for the next stage of the cycle.
