Hello Measured Investors,

Welcome to The Measured Memo – a concise note that shares our perspective on private investing and income-producing assets. We aim to make this the most value-packed investing email of your quarter…let’s go!

Market

We’ll start with a quick history lesson, because the recent past sets the stage for where multifamily and private investing are heading next. The chart below makes the story clear: for well over a decade leading up to 2022, the sector was on a steady rise (ironically shown with the long downward trend of this chart, which highlights marketwide cap rates). During this period, valuations grew dramatically. As COVID hit in 2020, new household formations exploded, causing a further increase in asset values.

Then came the shock. Between March 2022 and August 2023, the Federal Reserve launched its historic rate-hike cycle, moving the risk-free interest rate from 0.20% to 5.33%, a 25x spike in just 18 months. The impact on commercial real estate was immediate. Since then, rents fell, vacancies rose, and cap rates expanded sharply – cutting values by a third.

For Measured Capital, this cycle and its quick turn is personal. We launched our firm exactly three years ago, at the very peak of the run-up. Our first few years in business have coincided with one of the most challenging periods multifamily has seen in a generation..

Strategy

With the benefit of hindsight, we can now analyze our initial strategy and response to the macro environment. We started Measured Capital on a core thesis: purchase strategically located assets at a low cost basis, use conservative leverage and hold for the long-term. Accordingly, our projects are not three-year plays. We got into this business with the intention to play it out over decades.

In practice, that means staying solvent and profitable through the cycle, preserving cash, and focusing relentlessly on execution. It certainly hasn’t been easy, but the challenges of today’s market do present great opportunities.

First – it’s a chance to get better. When times are good, operational excellence is a nice-to-have. But the current conditions require a different approach. We’ve created a new standard for ourselves internally: become world-class asset managers. This means improving the day-to-day operations of our properties and enhancing the resident experience. We’ve implemented new tools for data analysis, created fresh renewal strategies, and added specialized resources to our team.

Second – it presents opportunities to buy assets at materially discounted valuations compared to just a few years ago. “Distress” is now an everyday word when discussing multifamily investments and the loans that finance them. To capitalize on this, we are tracking every potential asset in our core markets and constantly communicating with the brokers, owners and banks that control them. It’s true that very few deals are trading, but some owners have no choice but to offload deals at big discounts.

A final note regarding the market and our strategy – history shows cycles always turn. Excess supply burns off, populations grow, and macro conditions improve. And when the market’s tailwinds return, it’s the disciplined operators who endured that will be in position to reap great rewards.

Portfolio

Our newest acquisition, Tidewater at Atlantic Beach, is a great illustration of the dynamics described above. The property sold at a 30% discount to its last trade, even though the previous owner had meaningfully improved income and physical quality. Why? Because they purchased at peak pricing and financed with a capital stack that proved too aggressive for the current challenges.

And the business plan for this deal is painfully simple: maintain occupancy and cut costs while the Jacksonville MSA resets due to the overbuilding of new multifamily units. There is no need for heavy capital improvements or ‘repositioning’ of the renter base. Just keep a good thing going and wait for demand to overtake supply – which seems to be a mathematical certainty over the next 24 months.

Across our other nine assets – we’ve seen lower top-line income and NOI, despite our aggressive management. We’ve had to make some bold decisions such as replacing our property managers at certain assets, reducing rents and spending heavily on new marketing channels.

However, we are now starting to see the fruits of our efforts. And we’ll keep fighting the good fight, focusing on the fundamentals and continuing to make the right decisions for the long-term health of our communities and the residents we serve.

Looking ahead, we strongly believe this period won’t be remembered for the challenges, it will be remembered for the groundwork it laid. Accordingly, our path forward is clear: operate with discipline, hold with conviction, and take advantage of today’s rare buying opportunities to build enduring value.

 References

• Multifamily Underwriting Metrics Improve in Q2 – a detailed and data-centric report by CBRE on recent changes to investor sentiment and underwriting assumptions as the market shows improved fundamentals.
• Apartment Construction in Jacksonville Halves as Market Rebalances – a local story from Jacksonville reporting that new supply is expected to drop by 50% while long-term economic growth remains robust, supporting a return to rent growth over time.
• Benchmarking the Squeeze – Trepp Research’s deep dive into the operational costs of managing commercial real estate and the impact of inflation over the past decade.

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Thanks for reading. At Measured Capital, we are committed to always putting ourselves in the place of highest potential – which for us, often means connecting with like-minded investors like you.

Please forward this note to any trusted friend you feel could benefit as well. We welcome your feedback and are grateful for your trust.

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Best,

Dan & Greg