Intelligent Investment
Multifamily Underwriting Metrics Improve in Q2
July 17, 2025 3 Minute Read
Underwriting assumptions for core and value-add multifamily assets improved slightly in Q2. Buyer and seller sentiment for core assets weakened slightly, while value-add buyer and seller sentiment improved. Even as the Federal Reserve held interest rates steady, cap rates continued to show incremental compression.
Figure 1: Quarter-over-Quarter Change in IRR Target & Cap Rates for Core Assets
The average core multifamily going-in cap rate fell by 6 basis points (bps) to 4.75% in Q2, while the average exit cap rate fell by 4 bps to 4.96%. Core unlevered IRR targets increased by 3 bps to 7.70%, largely due to a 100-bp increase in Denver because of short-term oversupply conditions. Core underwriting metrics are now in line with where they were in early 2023. The spread between going-in and exit cap rates for core assets increased to 20 bps in Q2. The spread is expected to increase over the next two years, with going-in cap rates compressing more than exit cap rates as the Fed cuts rates.
Fourteen of the 19 markets tracked by CBRE had stable IRR targets for core assets in Q2. Four markets (Denver, Los Angeles, Miami and Philadelphia) saw an increase in their core-asset IRR targets, while only Chicago saw a decrease.
Figure 2: Buyer & Seller Sentiment for Core & Value-Add Assets
Source: CBRE Research, Q2 2025.
Core-asset buyer sentiment became more neutral overall, as survey respondents expressing positive sentiment declined to 56% from 65% in Q1. Core buyers appeared more positive than they were at the end of 2024. Value-add buyers saw the biggest improvement, jumping to 61% positive from 48% in Q1. Value-add sellers exhibited largely neutral sentiment. Overall buyer and seller sentiment improved most in coastal markets such as Boston, Los Angeles, San Francisco and Seattle, as well as Houston.
Figure 3: Buyer Valuation Underwriting Assumptions for Core & Value-Add Multifamily Assets
Underwriting assumptions of annual asking rent growth for core and value-add assets over the next three years improved slightly to 2.8% and 3.3%, respectively. This aligns with the current recovery in rent growth following a generational wave of new supply in many markets.
Going-in cap rates for core assets decreased by 6 bps to 4.75% and exit cap rates decreased by 4 bps to 4.96%. For value-add assets, going-in cap rates decreased by 8 bps to 5.20% and exit cap rates fell by 1 bp to 5.38%. Both asset classes saw the spread between going-in and exit cap rates widen in Q2. The spread for core assets increased to 21 from 19 bps, while that of value-add assets expanded to 18 from 11 bps. This was a reversal from the prior two quarters when the spread had compressed for value-add assets. Unlevered IRR targets for value-add assets compressed slightly to 9.58%.
Figure 4: Underwriting Assumptions for Core & Value-Add Multifamily Assets by Market, Q2 2025
Note: Estimates are based on the expert opinion of local CBRE investment professionals.
Source: CBRE Research, Q2 2025.
Five markets saw going-in cap rate compression for core assets (Austin, Chicago, Dallas, Los Angeles and Tampa), while Denver saw a slight increase. No markets saw more than a 25-bp movement either way. For value-add assets, five markets (Austin, Dallas, Los Angeles, Philadelphia and Washington, D.C.) had lower going-in cap rates in Q2 than in Q1, while Denver had a 63-bp increase.
While overall core and value-add underwriting metrics improved slightly, buyer and seller sentiment for core assets weakened slightly in Q2. Many investors remain reluctant to sell, even with high demand for such assets causing more aggressive bids in a high-interest-rate environment. However, we expect more multifamily investors to monetize their assets later this year, particularly in the core segment, capitalizing on improved market fundamentals.
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