🏙️ $175B flows into CRE every year. Here's the map.

Good morning. It's Sunday, May 10th, and in this week's edition, we're covering CoStar's revised multifamily outlook and what the supply hangover means for rent growth through 2027, why today's mortgage rates aren't actually historically high, and a personal piece on the $175 billion flowing into CRE every year and the eight capital sources behind it.

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I came across an interesting opportunity this week: a 22K sq ft retail building being offered directly by the seller. It’s adjacent to other retail buildings in Mundelein, IL, in a shopping plaza that has been subdivided and sold to different owner-users. It currently has a month-to-month lease. At $44/SF, the price feels very attractive - especially for an owner-user. There are no column beams, and I can see it being perfect for a sports facility. If you’re an owner-user (or know one) looking for a space this size, here are the highlights:

If you're interested, reply to this email. I'll send the NDA and facilitate the introduction.

The U.S. multifamily market is still working through its supply hangover, and CoStar's updated outlook reflects it. National vacancy is now projected to climb to 8.8% by year-end before easing back to 8.4% in 2027, with rent growth expectations trimmed slightly for the back half of the year. The driver isn't demand collapsing, it's the multi-year wave of new deliveries (especially across the Sun Belt) finally meeting tenants in the leasing office, plus weaker employment assumptions tied to trade policy.

What it means for CRE: Multifamily underwriting has to assume rent growth crawls rather than runs through the next several quarters. The absorption story will look better in metros where the development pipeline is already largely delivered, and worse in markets that overbuilt during the boom.

🔗 "How to Buy an Apartment Complex Part 1": Ben Mallah sends a team to Tallahassee to evaluate a multi-family acquisition, walking through unit inspections, local market competition, and the capital improvements the deal would require. Watch here

🔗 "How to Turn $500K Into $7M in 3 years": Grant Cardone breaks down the exact formula he used to take a $500K investment to over $12 million in value and $300K in annual cash flow, including how he forced value through rent increases and structured the bank financing. Watch here

With mortgage rates parked in the low-to-mid 6% range as of May, Yahoo's historical rate breakdown is a useful gut check on where we actually are. Today's rates feel painful next to the sub-3% pandemic lows, but they're well below the 16.64% peak of 1981 and below the 7%-plus average that ran through most of the 1990s. The 2.65% record from 2021 was an emergency response, not a baseline.

CRE Impact: Borrowers waiting for "normal" rates to return are waiting for a number that didn't really exist. The 2010s 3-to-4% range was an anomaly produced by a decade of post-crisis Fed policy. Underwrite to a mid-6% world and refinance opportunistically if rates dip, but stop modeling cap rate compression off a return to free money.

Last week I sat down with Joe Fairless.

If you don't know Joe, he's one of the most recognized names in multifamily and commercial real estate investing, with 14,000 doors under his belt and a long track record in the space.

One of the things we got into was capital, specifically where he raises equity for his deals.

He walked me through six different sources. I took notes through the whole conversation, hung up, looked back at what I had written, and decided I needed to spend some real time digging into the full picture for myself.

What I found was bigger than I expected.

The annual equity flowing into U.S. commercial real estate sits somewhere between $165 billion and $185 billion.

Before the conversation with Joe, I had figured one or two sources were doing most of the heavy lifting in that pool.

Joe already had six on his stack, and when I went deeper I found two more.

The pool is bigger than I had been picturing, and most of us are only ever sourcing capital from one corner of it.

Here's the full stack from biggest to smallest:

The number that stopped me was direct investors and syndications sitting at only 5 to 7% of the market. I had assumed our slice was much larger than that.

The implication is that for the vast majority of CRE deals getting done in the country, the equity is coming from places most syndicators never think to look.

There is no single right answer for which source you should be tapping. The right source depends on where your business is in its lifecycle, what size of assets you're buying, and what kind of assets you're buying.

The source needs to match the stage.

I put together a full research breakdown of all eight capital sources, including cost of capital, deal size thresholds, and preferred asset classes for each.

The whole picture is there if you want to read it.

Click here to read the full deep-dive

Now I'm curious. What are your top one or two capital sources right now?

Hit reply and let me know, I read every response.

Until next Sunday.

Be well,

Saul

P.S. Missed my podcast with Cody Payne? Here is the full episode.

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Random Saul Fact: Last week, I took the family on some roller coaster rides at SeaWorld in San Diego. It was an absolute blast.