Quick Take: The multifamily market is entering a new cycle that favors ground-up development over value-add strategies. After years of rising costs and record supply, construction starts have fallen sharply, setting up a shortage by 2026-28. With the cost of homeownership outpacing rent, demand for apartments remains strong. Value-add strategies offer near-term stability. But ground-up multifamily development provides the potential for comparatively greater upside through higher yields on cost and stronger long-term rent growth.
The past few years of higher interest rates, climbing construction and insurance costs, record supply and tight financing have been a challenge for multifamily real estate investing. In 2025, market conditions are shifting, and thoughtful investors are asking: Is now the right time to invest in multifamily?
The New Cycle for Multifamily Development and Investment
At Origin, we like to say that smart money invests ahead of growth. We believe the tide is turning and revealing new potential opportunities for investors ready to seize them. Here’s why: Multifamily construction starts have fallen off a cliff—down roughly 30% from their peak of about 518,000 starts in Q1 2022, according to the Federal Reserve Bank of St. Louis. This is setting up a pronounced supply shortage that will emerge between 2026 and 2028. Our data shows us these post-downturn vintages—like those following 2009—have delivered strong returns for those willing to act early.
Meanwhile, the cost to own a home has soared. It’s roughly 64% higher than renting, according to Newmark Research and others—pushing even affluent households to keep renting. Wage growth has improved affordability just as new construction slows, creating powerful demand tailwinds.
However, there’s more than one way to invest in multifamily real estate. Some investors focus on value-add properties—existing buildings that can be renovated, rebranded or better managed to improve cash flow and appreciation potential. Others participate earlier in the process through ground-up development, funding the construction of new properties designed to meet future demand. As the market enters a new phase, the question becomes which strategy is better positioned for success in the years ahead.
Comparing Ground-Up Development and Value-Add Multifamily Strategies
Is it better to invest in development deals, or does value-add make more sense? We believe there are several reasons why developing in today’s market offers higher potential rewards to investors. Value-add plays remain a safe harbor for risk-averse portfolios. But ground-up development is poised to deliver superior risk-adjusted returns in this environment.
Ground-up multifamily development starts from the foundation. Developers must identify and assemble land, secure entitlements and re-zonings, and oversee construction. New Class A apartment communities, in particular, are typically designed with efficient floor plans, smart-home technology, and resort-style amenities that appeal to today’s renter. The timeline from pre-development, construction and lease-up typically takes 36 to 48 months, although some can take longer. Because developments can include a wide array of product types, costs per unit can range from $250,000 to up to $450,000 or more (an ultraluxury building may top out at about $1 million per unit).
By contrast, value-add multifamily investing focuses on existing but underperforming properties. Often, those are aging Class B or C assets with outdated interiors or weak management. Investors purchase these buildings and invest in targeted renovations—upgrading units, modernizing amenities and improving operations—to raise rents and boost net operating income (NOI). This approach is faster and less capital-intensive. It typically requires 12 to 18 months depending on scope and typically $20,000 to $50,000 per unit depending on the repositioning required and the upgrades installed. You can think of it as fine-tuning a proven engine rather than building one from scratch.
Risks and Rewards: Ground-Up vs. Value-Add Multifamily
Ground-up development is considered the riskiest form of real estate investing because projects can face delays, increased construction costs or entitlement challenges. But investors take that risk because of the compensation they expect. That compensation can come in the form of stronger yields, better margins and more attractive properties designed for future demand.
With value-add projects, vintage matters. Many older multifamily buildings, especially those from the 1980s and earlier, are functionally obsolete by modern renter standards. How high are the ceilings? How many windows do the units have? Are the amenities in demand? These are just some of the limitations of value-add products that only expensive renovations can change. That leaves them at a disadvantage compared to newer buildings with modern layouts and technology. Older properties typically carry higher operating expenses in the form of repairs, utilities and capital expenditures. That can mean thinner margins.
Class A Strength and Rent Growth Trends in Multifamily Housing
Another factor to consider is rent growth. Economist and multifamily housing analyst Jay Parsons has interesting research that shows the softness in Class B and C rents. (I even exchanged a comment on this topic with him on LinkedIn.) He recently pointed out that Class B and C rentals have lower occupancy in a recession. Owners of a value-add property are unlikely to take a Class B or C asset and upgrade it to Class A, despite a deep renovation scope. Operators usually take a Class B property and turn it into a Class B plus, which is still harder to grow rents with than a Class A building. As Parsons notes, Class B and C rents have declined more sharply than Class A in highly supplied markets.
At Origin, we focus exclusively on Sun Belt multifamily markets, where population and job growth continue to fuel long-term rental demand. The Origin Select Asset Fund is built to capitalize on this moment. The intended portfolio of ground-up multifamily developments is timed to deliver as excess supply is absorbed between 2026 and 2028.
Why the Multifamily Development Outlook Favors Builders Over Buyers
In today’s market, the horizon is optimistic for developers. Newmark’s 2Q25 report shows construction starts down 31.9% from their peak and projected to slow an additional 24.9% over the next year. Completions are peaking with little new supply behind them, setting the stage for rising rents, according to Multilytics®️, and lower vacancy rates through 2026.
High-growth markets such as Nashville, Phoenix, and Austin reflect improving sentiment, moderating supply growth and increasing rent growth. This typically means that valuations are higher, lowering the yields on new acquisitions. On development projects, yields typically compress less because developers demand a premium over stabilized cap rates to compensate for the risk in construction. Developers typically build to a yield on cost, which is calculated as stabilized net operating income divided by the total construction cost. For example, pipeline deals in the Select Asset Fund target an untrended return on cost of 6.4%, generating a 30% margin over existing cap rates of 4.6% to 4.9%.
Value-add investing is the defensive play with near-term favorability and fewer variables to consider. However, this strategy relies on an older asset pool whose returns are eroding as cap rates stabilize. Development is an offensive strategy that takes more risk upfront but is a decent bet for those in a place to withstand more risk for the possibility of a greater return.
Timing the Next Multifamily Development Opportunity
At Origin, we expect construction starts today to capture the positive rent growth and limited supply accelerating beyond 2027. As the Fed has lowered rates, debt costs are falling and construction financing is loosening—creating a short window for developers to build before land prices and competition rebound.
Not all developments offer the same return potential. At Origin, we’ve found that developers aren’t being rewarded for high-rise construction in the current market. Instead, we’re targeting the greatest pricing dislocation in four-story, surface-parked projects, where we believe value creation is strongest.
Key Takeaways: The Case for Ground-Up Multifamily Development
- Multifamily development is entering a new cycle. Construction starts are down sharply. This is creating a supply gap that is expected to drive rent growth and occupancy gains through 2028.
- Ground-up development offers stronger upside than value-add buildings. Developers can build to a premium yield on cost while delivering Class A properties that meet today’s renter expectations; however, ground-up developments are higher risk.
- Value-add remains defensive but limited. Older assets face higher expenses, functional obsolescence, and slower rent growth compared with new construction.
- Timing matters. With borrowing costs easing and land prices yet to rebound, we believe that now is a favorable entry point for new multifamily projects.
- At Origin, we target the widest pricing dislocations in efficient four-story, surface-parked developments positioned for the next multifamily upswing.
Frequently Asked Questions: Multifamily Development
Why is now a favorable time to invest in multifamily development?
After several years of elevated interest rates and record construction, new multifamily starts have fallen roughly 30% from their peak. This slowdown is expected to create a supply shortage by 2026-28, positioning current projects to benefit from stronger rent growth and occupancy in the years ahead.
How does ground-up development compare to value-add investing?
Value-add strategies focus on improving older properties and can offer near-term stability. Ground-up development, however, builds new Class A communities designed for modern renters—offering higher long-term returns and better alignment with future demand as older assets become less competitive.
What are the biggest risks in multifamily development today?
Development projects face risks such as construction delays, cost overruns and entitlement challenges. However, disciplined managers mitigate these through conservative underwriting, fixed-price contracts and careful site selection.
How are rising homeownership costs impacting multifamily demand?
The cost to own a home is roughly 64% higher than renting, according to data from Newmark, RealPage and the Atlanta Federal Reserve. This affordability gap is driving demand for rental housing, especially in high-growth Sun Belt markets.
