Heading into 2024 and 2025, apartment executives expected the next 12 months to bring signs of a rental recovery. Then, as months passed, they realized they needed to wait just a little bit longer.

“It has been kind of Groundhog Day for the last couple of years,” Sean Rae, senior managing director in the Capital Markets Group at Crow Holdings Development, told Multifamily Dive.

But Rae thinks this time may actually be different, with suburban Boston, the West Coast and Sun Belt markets “starting to see some green shoots.” But that’s not universal. In the Sun Belt, it’s still a little challenging. 

“In some of the Sun Belt markets, maybe you have to dig through to the very base layer of dirt to see the green shoot,” Rae said. “It's early, but you are starting to see concessions burn off.”

Rae is well positioned to see where recovery is sprouting around the country in his role overseeing the capital markets platform for Crow Holdings Development, which includes Crow Holdings Industrial, Crow Holdings Office and multifamily powerhouse Trammell Crow Residential.

“As we work back towards equilibrium, each submarket is going to be different, and of course, each market in the U.S. is going to be different,” Rae said. “As far as where they are in the recovery, it's not going to snap your fingers, and everything's rosy.”

The 20-year company veteran expects a moderate increase in starts next year with things continuing to “ratchet up” in 2028 and beyond. But all real estate is local, and timelines vary by geography.

“In California, it could be seven or eight years, and in Texas, it's three in most cases,” Rae said. “So we're playing for a pretty far-out place in the future.”

Here, Rae talks with Multifamily Dive about the best markets for construction, development equity, and the market where he’s seeing green shoots.

This interview has been edited for brevity and clarity.

MULTIFAMILY DIVE: What are the major roadblocks in getting deals out of the ground?

SEAN RAE: As far as apartment development, the deals are hard to underwrite. Capital is constrained. Debt is certainly available, but equity capital is very tough. 

As we look at the fundamental supply-demand, demand has actually stayed quite strong. Supply has been the issue. 

What kind of wind is there for developers who can start projects in the next year or so?

We may be underwriting in this market, and that adds to the challenge because your investors aren't going to underwrite significant rent-growth projections. The reality is, if you're delivering into a very supply constrained market in 2030, 2031 — or let's just back it up in 2029 — the results could be quite strong. Our general mindset is that for assets we can start on now, we're very excited about the prospects for when they’re delivering and leasing up.

What markets do you like?

We develop across the U.S. You'll typically find us in the Tier 1 markets — call it the top 20. We don't develop in Manhattan. We don't develop in Chicago, but everywhere else, you'll generally find us. 

In the markets that got beat up the most and have been the longest to recover — think of a Phoenix, think of an Austin, think of a Nashville — we think there are some very solid opportunities there. The job-growth markets in the Sun Belt continue to be very attractive. We love Northern Virginia. We love the suburban Boston plays. Then you go out to California, and the fact is, people want to be in California.

Some big names have moved out of California. What do you like about developing in the state?

If you look at the numbers, and just the overall sentiment, you can't change the fact that California is a great place to live, lifestyle-wise, and we're big believers in that. The difficulty and long timetables to develop there just continue to put pressure on supply. So until that changes, it will continue to be a target for us. It's been a great market for us.

Do you need different capital partners in California?

Traditional capital sources are a challenge. It's challenging to make the longer-duration California multifamily deals work for traditional capital partners. A lot of what we do in California is with long-term-oriented capital, both sourced in California or elsewhere. They share a sentiment for the longer duration. They understand that and are able to do that. They have a long-term commitment to those markets versus a three- or three-to-five-year underwritten hold. You know, these are much longer underwritten holds.

Is it getting easier to find development equity generally?

It's been a slow and gradual return for the larger players. If they had an allocation for multifamily in 2022 and 2023, that probably got clipped down to a complete pause. Then they’re kind of slowly ratcheting back up.

You've had capital allocators deploying into data centers. Retail's back in favor. Offices back in favor to some extent. It's not as bad a word as it was. When you look at overall allocations, allocations to multi are not what they were three to five years ago. In general that may vary by capital source. But you have a reduced allocation for multi in general. You have some groups that are overallocated in particular markets or submarkets. 

The new development that we're talking about or our competitor is talking about can make all the sense in the world — the cost basis is right and the rents feel good. But if a particular investor has three developments in that submarket that are not performing or have been a struggle, they probably don't even want to talk to us. 

So for money to flow to multifamily development, the project has to be exceptional?

Capital is out there at a different level than it has been before — more so than 18 months ago and less so than four or five years ago. But the underwriting has to make sense. The location has to be a plus and what we're building has to be top-notch. All the boxes have to check out because if it gets too complicated or everything is great but for this, that investor is just going to focus on another option.

Have costs like labor, land and materials improved over the last couple of years?

We've seen very significant decreases in aggregate across the U.S. Each market is going to be slightly different, depending on where it is and what we're building exactly.

Compared to three or four years ago, costs have moderated. It's not as unpredictable every 30 days with what’s going to spike up. So we feel like we're at a plateau on costs, at least for the short term. What does short term mean into the second half of next year? Is there a lot of room for costs to continue decreasing? We think the answer is probably not. 

It's a tough one to predict, particularly with all the tariff noise going on. So overall costs — labor included, materials included, profit margins to contractors included — are relatively flat for the next six to 12 months. It gets difficult to predict beyond that. 

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