Pacific Northwest multifamily investor values have dropped so far in some submarkets that timing the exact bottom no longer matters as the bottom is near and fundamentals matter.
By Aaron Kirk Douglas
HFO Investment Real Estate Market Research
Pacific Northwest multifamily values have dropped so far in some submarkets that timing the exact bottom no longer matters, said Arie van Gemeren, founder of Lombard Equities, in a recent interview on HFO Multifamily Marketwatch with HFO Investment Real Estate partner Greg Frick.
Van Gemeren, whose firm invests in Seattle, Tacoma, Portland, and Northern California, said that cap rates on pre-World War II and mid-century buildings have widened sharply since 2022. Seattle assets that traded at sub-five caps now pencil at the high sixes to low sevens. Portland deals are clearing in the seven- to nine-cap range. Prices on some buildings are down as much as 50 percent from the peak.
“If you think the market has good legs under it, does it matter if it goes down 10 percent more today?” van Gemeren said. “If you’re locking in seven-to-10-year debt on a deal with a good basis and a good management team, it’s a pretty good bet that you’re going to be okay in seven to 10 years.”
Why vintage product fell hardest
Van Gemeren said the steepest drawdown landed on older urban buildings, and several forces drove it at once. Insurance premiums climbed three to four times over five years. Seismic retrofit concerns weighed on underwriting. Expenses on aging assets jumped across the board. Tenant demographics in those properties also shifted, with more service and gig economy workers feeling pressure on rent.
The result, he said, is a thin bidder pool on the very assets that built much of the region’s rental housing stock. “Lately, we’re one of the only parties bidding on them,” he said. “That’s where we think the opportunity is.”
Insurance market starts to soften
Insurance, one of the sharpest pain points for owners over the past five years, is showing early signs of relief. Van Gemeren said his own portfolio is starting to see premiums come down, and a recent LinkedIn survey of more than 100 real estate and insurance professionals in his network found the majority believed conditions were improving.
He pointed to a familiar pattern. Carriers paid out far less than they collected during the hard cycle, and that profitability tends to attract new entrants. “Insurance is like any market. It goes through hard cycles and soft cycles,” he said. “We just were coming out of one of the hardest cycles imaginable.”
Smaller owners moving to self-management
Van Gemeren said Lombard recently launched its own in-house management company and maintenance team. He said leasing performance, delinquency control, and operating costs have all improved. Several other operators with portfolios of fewer than 1,000 units have called him to ask how they did it.
He said the move reflects a broader shift. When rents were rising at double-digit rates, operations took care of themselves. In a flat or choppy market, expense control becomes the difference between a good year and a bad one, and the management company controls most of those expense lines.
Van Gemeren also said the shift changed how he underwrites. He is now wary of studio-heavy projects, where higher rent per square foot once looked attractive, but the tenant base proved more prone to turnover and more management-intensive.
Service business, not a hands-off business
Asked what smaller owners should demand of third-party managers, van Gemeren said the first step is to learn the work itself. He suggested owners spend a week embedded with their management company to see how leasing flows from Zillow or Facebook Marketplace into the property software, how work orders move, and how the eviction process unfolds.
He cited one simple metric. “What’s the speed with which you respond to guests that want to look at your unit?” he said. “You have, I would argue, five hours to get back to them. If you miss it, you miss it.”
He cautioned against leaning on artificial intelligence to paper over weak fundamentals in property management. “If you don’t have the right people, you can’t just throw AI at the problem,” he said. “You need to hire the right people, then layer AI and technology to support them.”
The owner in the arena
Van Gemeren said meeting residents in person changed his perspective. At a pizza event at one of his properties, tenants told him they had never met anyone from management. company. Some pushed back on rent increases. He explained how insurance and labor costs had moved, and said the residents were receptive.
He described another moment that captured the shift. Driving home one evening, he spotted graffiti on the front of a building he had recently acquired, drove to a hardware store, and cleaned it off himself. A resident pulling into the lot mistook him for the tagger before realizing what he was doing. “That’s a tenant you want to keep,” Frick said.
Back to fundamentals
Van Gemeren said the current market is the moment to relearn the basics of the business. “The management company is not an outsourced vendor for you to just hand it off to,” he said. “It is the most important part of your business.”
His message to investors waiting for a perfect entry point was simpler. Most of the price corrections have already happened. Buyers with a good basis, the right debt structure, and a real operations plan can buy now, and the next cycle can do the rest.
About the author:
Aaron Kirk Douglas is Director of Market Intelligence for HFO which produces Multifamily Marketwatch®, the firm’s ongoing market intelligence series. Contact HFO at 503-241-5541 or HFORE.com. YouTube video link: https://youtu.be/ygsPQb3lzLc?si=3ZdC-BuUqmM0T6ec
