Residential Landlords Brace for Stagnant Rent Growth

• The rent stops here: Economic uncertainty and a boom in building are starting to put pressure on multifamily markets.

• COVID eviction payback: The U.S. Appeals Court has ruled to allow compensation claims for those harmed by the COVID eviction bans.

• No cash back: Starwood has stuck to its redemption cap which, though controversial, could prove to be a wise long-term strategy.

• City of yes, projects of no: New York City’s building boom is growing, but most projects are too small to ease the housing shortage.

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Multifamily

Residential Landlords Brace for Stagnant Rent Growth

The era of easy profit for residential landlords is drawing to a close. Imagine years of steady rent growth, now showing clear signs of stalling—and not just in one city, but in major markets like Austin and Phoenix where huge apartments rose overnight. As multifamily developments catch up and job growth slows, this pivot could redefine the rules for real estate owners.

Landlords are pivoting from expansion to experience. With construction costs surging, retaining current renters—through upgraded amenities, better services, and a stronger sense of community—is emerging as the smarter strategy. Tony Julianelle of Atlas Real Estate sums it up: avoiding turnover costs is now more profitable than breaking ground on new units. Yet, with consumer confidence sagging and worries over credit, even these efforts face new headwinds.

Still, opportunity remains—just in different places. Markets like Kansas City are thriving with steady, predictable growth; suburbs are drawing investor interest, although only those close enough to job centers to matter. And the sweet spot? Mid‑range rentals, where supply constraints and solid demand offer upside. But hesitation reigns—deferred maintenance and cautious capital spending may weigh on asset values. In this uncertain climate, owners who sharpen their focus on strong-performing segments and lean into tenant retention may be the ones to thrive.

Overheard

CDC’s COVID Eviction Ban Could Cost Government Billions, Court Says

A major legal decision may soon require the U.S. government to pay billions to landlords who claim the COVID-era eviction moratorium financially harmed them. On Friday, the U.S. Court of Appeals for the Federal Circuit ruled 7-3 to allow compensation claims against the federal government to proceed, rejecting the Biden administration’s bid to dismiss the case.

At the heart of the dispute is the CDC’s nationwide residential eviction ban, which was enacted in September 2020 and remained in effect until August 2021. While intended to prevent mass displacement during the pandemic, landlords argue the measure amounted to an uncompensated seizure of property under the Fifth Amendment’s “takings clause.”

The case, Darby Development Company, Inc. v. United States, could have sweeping implications for the extent to which government emergency powers can be exercised without triggering financial liability. Estimates suggest the potential damages could reach tens of billions of dollars.

Industry groups, such as the National Association of Realtors (which was not a party to the lawsuit), hailed the decision as a milestone for property rights. The Justice Department may now petition the Supreme Court, warning earlier that allowing these claims could “upend over a century of precedent.”  For landlords, the decision signals a rare legal tailwind and potentially long-awaited restitution.

Starwood's Controversial Redemption Limit Might Be Its Savior

A flood of redemption requests—roughly $850 million—has put Starwood Real Estate Income Trust (SREIT) under pressure. With its NAV down about 40% from its 2022 peak and share prices off ~24%, CEO Barry Sternlicht opted for the industry’s tightest redemption cap, now at just 1.5% of NAV per quarter, to avoid fire sales of distressed assets. This unpopular move is steering the fund away from forced property exits and toward strategic portfolio management.

To meet redemption demands without compromising long‑term value, SREIT offloaded approximately $1.6 billion in properties from December through May, highlighted by a modestly profitable sale of a West Palm Beach retail center. These sales have boosted liquidity to around $900 million, enabling the slight easing of withdrawal limits. Meanwhile, the shift of leadership—Barry Sternlicht stepping down in July, replaced by Goldman Sachs veteran Nora Creedon—signals a pivot from crisis control toward recovery and growth.

Starwood’s aggressive redemption strategy, though controversial, may emerge as its saving grace. By sidelining headline-making fire sales and preserving core assets, the fund is taking a measured route back to stability. Yet this approach has sent ripples through the non-traded REIT sector, dampening new investor interest and triggering debate over the liquidity risks of private real-estate vehicles. If interest rates ease and rental income rebounds, SREIT’s disciplined stance could be seen as a benefit of investing in a non-traded fund.

NYC Rezoning Spurs Growth But Housing Goals Still Lag

New York City is experiencing a building boom fueled by recent policy changes championed by Mayor Eric Adams. The “City of Yes” rezoning has unlocked new opportunities for businesses and developers, allowing the reopening of hundreds of long-shuttered storefronts and the launch of new ventures like arcades and entertainment centers in previously restricted areas. Office-to-residential conversions are accelerating as well, now extending beyond downtown into Midtown, thanks to tax incentives and updated zoning rules. High-profile projects such as the 1,600-unit redevelopment of the former Pfizer HQ and the 1,250-unit transformation of 5 Times Square underscore the scale and ambition of this trend.

Multifamily construction is also rebounding after a pause caused by the expiration of the 421-a tax break. The new 485-x program is encouraging residential development again, with nearly 7,000 units filed in the first quarter of the year. However, a key concern remains: most projects are under 100 units, allowing developers to bypass a $40/hour construction wage requirement but falling short of the scale needed to meet the city's goal of 500,000 new housing units over 10 years. While officials hail early results, real estate experts warn that without adjustments to encourage larger developments, the city's housing shortage will persist despite the current momentum.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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