Hope Certificates and Hidden Distress

Calm on the Surface, Distress Below: Joe Blackbourn on the State of Sunbelt Multifamily

 

The Eye of the Storm?

When my podcast guest this week, Joe Blackbourn, president and founder of Everest Holdings, stepped in front of a room of ULI members in late 2024, he titled his multifamily market forecast “An Underdressed Weatherman Gets Sent Into a Hurricane.”

 

The image was evocative – and accurate. Multifamily investors, developers, and lenders had been navigating gale-force winds of rising rates, inflation shocks, and structural cost resets. And yet, as Blackbourn noted in my conversation with him, today the industry still appears eerily calm.

 

“There’s a lot of stormy weather on the horizon, and, like a hurricane, we don’t know quite where it’s going to land or how bad it’s going to be.”

 

The Invisible Cost of ‘Calm’

Core inflation may be retreating, but the real story, Blackbourn argues, is not about the rate of change. It’s about the baseline shift.

 

“Even if we’re at just over 2% now, it’s still a 30% increase in a very short period of time,” he said, referring to food prices, but with implications for housing as well. Home prices in many U.S. markets, particularly across the Sunbelt, have surged by 30–50% since 2020. That repricing is likely to stick.

 

“It’s really difficult to give that pricing back,” he added. “Short of some real economic calamity, the best we can manage is slower growth, not a decline in consumer pricing.”

 

That same principle is locking up real estate deals. Rent growth has slowed, but operating expenses have not. The result is compressed margins, sluggish NOI, and a widespread inability to transact or refinance.

 

Multifamily: Where Distress Hides Quietly

On paper, the multifamily sector looks surprisingly stable. Cap rates for high-quality assets remain in the 5.0%–5.25% range, and transaction volume is beginning to pick up in select markets. But beneath the surface, stress is mounting.

 

“There’s a lot of stress at the balance sheet level,” said Blackbourn. “And it’s not being helped by property-level performance.”

 

In many Sunbelt markets, especially those with pandemic-era construction booms, organic NOI growth is flat or negative. Rent collection is delayed, staffing is inconsistent, and delinquencies are rising.

 

“We’re seeing situations where it’s taking all month to get the rents collected,” he noted. “You’d be at the 15th of the month with less than 50% of rents in the door.”

 

Yet distress sales remain rare. Why? Blackbourn offers two reasons:

1. Lender tactics: Debt funds are “hope-certificating” properties, granting extensions, persuading sponsors to inject capital, and delaying the inevitable.
2. Human psychology: “There’s a survival instinct at work,” he observed. “People will do whatever they can to stay in the game.”

What Keeps Deals Frozen?

Everyone is waiting. Borrowers, lenders, and investors are all betting on falling interest rates to solve their problems. But Blackbourn remains skeptical.

 

“I don’t think it’s inevitable that rates come down,” he said. “And yet, it’s within the debt fund’s interest to persuade borrowers that they will.”

 

Many current valuations are premised on that hope. But even if rates do drop, the bid-ask spread remains wide. In his words, “It feels like this really taut balloon; fragile.”

 

Why Aren’t Cap Rates Rising Faster?

One of the stranger dynamics in today’s market is that cap rates haven’t risen much, despite the Fed holding policy rates above 5%. High-quality assets are still trading at 5%–5.25% caps. How is that possible?

 

“If you have the right basis, you can sell into that,” Blackbourn explained. “The pricing for high-quality assets hasn’t jumped that much.”

 

But for vintage assets, pricing capitulation is coming. Lenders are forcing assets to market when no other solutions are viable. And while buyers are circling, few are pouncing.

 

Supply, Demand, and the Surprise of Absorption

Another surprise: absorption is holding up remarkably well.

 

“We’re seeing absorption that’s about keeping up with supply,” Blackbourn noted. “In some markets, we’re about to hit the point where we’re absorbing more units than we’re adding.”

 

This matters. Historically, once net absorption overtakes new deliveries, rents begin to recover, often before occupancy hits 95%. And that could happen sooner than expected in markets like Phoenix.

 

“We’re modeling that inflection point this year,” he said.

 

But again, bifurcation matters. New Class A developments are attracting high-income renters,  people who once would have bought homes. Meanwhile, vintage B and C properties are seeing tenants who are increasingly rent-burdened.

 

“In new projects, we’re seeing a higher-income demographic than we’ve ever seen,” said Blackbourn. “But in older assets, collections are way down. Rents are up 30%, but incomes aren’t.”

 

The Forecast: Q3 and Q4 2025

Looking ahead to the rest of the year, Blackbourn sees a mixed bag.

• More volume is expected from both opportunistic buyers and forced sellers.
• Permits are collapsing, setting up an eventual rebound in pricing power.
• Selective outperformers will emerge in submarkets with favorable rent-to-income ratios.

“We could see surprising outperformance in the asset class sooner than people think,” he said. “But it will be bifurcated by quality, by tenant income, and by geography.”

 

In short, the underdressed weatherman may not be in the eye of the storm just yet – but the wind is shifting.