How equity is structured in multifamily deals today

Equity capital for new multifamily transactions remains available, but it has become more selective and deliberate following interest rate increases in 2022 and 2023. There is still significant capital targeting the sector. Institutional investors, private capital and family offices remain active, and in many cases, allocations have increased compared to the past two years. That capital is not evenly distributed. It is concentrated in deals where pricing, structure and execution align with current market conditions.

A growing share of equity is also being deployed into recapitalizations, refinancings and capital stack adjustments. For many investors, today’s opportunity includes stepping into existing deals where structure and pricing have reset.

In many of these situations, preferred equity is playing a central role in addressing refinancing gaps and recapitalizations, while traditional common equity is less frequently used for those purposes.

For sponsors, this shift changes the conversation. Raising equity today comes down to structure and how clearly the deal reflects current risk, return expectations and market conditions.

Why deals require more equity today

Multifamily deals today often require more equity than they did just a few years ago. That shift is driven by a combination of factors that have changed how deals are capitalized.

Lower loan proceeds are a primary driver. Higher interest rates and tighter underwriting have reduced leverage, which increases the amount of equity needed to complete a transaction.

At the same time, equity investors are underwriting more conservatively. Assumptions around rent growth, expenses and exit pricing have adjusted, which impacts projected returns and requires more equity to support the same deal.

In many cases, the result is a gap between what sponsors expect to raise and what the capital stack actually requires. That gap is often addressed through structure, pricing adjustments or additional equity sources.

What equity investors are prioritizing in this market

Equity allocations are being made with more scrutiny and discipline. Investors are evaluating the asset, the structure and the sponsor’s ability to execute through changing conditions.

Execution track record

Investors are looking closely at how sponsors have performed in different environments. Experience navigating volatility carries more weight than transaction volume alone.

Basis and pricing alignment

Pricing is a frequent point of friction. Deals that do not reflect current debt costs, replacement costs and exit risk often struggle to attract interest. In practice, this often comes down to a cost basis that does not align with current market cap rates, which can quickly limit investor interest.

Cash flow durability

In-place income is carrying more weight in underwriting. Investors are focused on stable cash flow and realistic rent assumptions. Submarket and property-level concessions, loss-to-lease and forward projections are critical for underwriting stability and understanding upside and downside potential.

Capital stack discipline

The structure of the deal is part of the underwriting. Leverage, preferred returns and promote structures all influence how risk is allocated. Investors may have varied appetites for common equity versus preferred equity depending on how they are balancing risk and return.

Exit flexibility

Exit assumptions are being evaluated earlier, with more attention on timing and optionality. Few investors are underwriting meaningful cap rate compression.

Certainty of execution

Investors are prioritizing deals that can close with a high degree of certainty, supported by clear alignment and thorough diligence.

How preferred equity and common equity structures are used today

Preferred equity

Preferred equity is a structured investment that sits above common equity in the capital stack and receives priority in distributions.

In this market environment, preferred equity plays an increasing role in assembling an optimal capital stack. With debt proceeds often lower than in prior cycles, this tool is frequently used to bridge financing gaps. It also provides a structured return and priority in distributions, which appeals to investors focused on downside protection.

The tradeoff for sponsors incorporating preferred equity into their capital stack is less downside cushion, offset by greater upside potential. Because preferred equity typically has a capped return, common equity benefits from additional upside once that threshold is met. In some cases, sponsors also use preferred equity as positive leverage when the expected deal-level return exceeds the cost of that capital.

Common equity

Common equity represents ownership in the deal and participates directly in the upside of the investment.

Common equity is required in all transactions and takes different forms depending on the source of capital and how the partnership is structured. Whether through individual investors or institutional partners, common equity performance is directly tied to the outcome of the deal.

Equity syndications

Equity syndications are typically used by sponsors who have a network of high-net-worth investors that can capitalize individual transactions. These arrangements can offer flexibility in how deals are structured and how returns are shared.

At the same time, syndications can be limited in their ability to scale. Larger transactions or broader investment strategies may require more capital than a sponsor’s investor network can consistently provide.

Institutional joint ventures

Institutional joint ventures are more common when larger amounts of capital are required or when sponsors are pursuing programmatic investment strategies. In these structures, an institutional partner typically contributes a significant portion of the equity and takes a more active role in governance and decision-making.

These partners often bring additional discipline around underwriting, reporting and risk management, which can influence how deals are structured and executed.

Why raising equity feels more difficult right now

Many sponsors are finding that equity takes longer to secure, even when a deal appears fundamentally sound.
The challenge often comes down to cost basis and alignment.

Pricing expectations vary across the market

Investors are underwriting to current conditions. Some deals are still priced based on prior assumptions, which creates a gap that is difficult to close.

Capital is concentrated

There is meaningful equity in the market, but it is being deployed selectively. Investors are pursuing fewer opportunities and spending more time on each.

Assumptions are being tested early

Rent growth, expenses and exit cap rates are subject to greater scrutiny. Deals that rely on aggressive assumptions face more resistance.

Structure drives outcomes

Alignment between sponsor and investor is often where deals either move forward or stall. Preferred returns, promote structures and downside protections are central to that alignment.

Recapitalizations are competing for capital

Equity is increasingly being directed toward existing deals that require restructuring, which raises the bar for new acquisitions seeking capital.

In many cases, what feels like pressure from equity investors reflects a broader reset in how risk is being priced. Investors are requiring structures and returns that align with current market conditions, which can change how economics are shared across the capital stack.

How to structure a multifamily deal to attract equity today

There is no single approach that applies to every deal. There are, however, consistent patterns in what is gaining traction.

Align returns with current market conditions

Return expectations need to reflect today’s cost of capital, risk levels and exit uncertainty. Core strategies are generally targeting upper single-digit returns, while value-add and opportunistic strategies continue to underwrite to mid-teens and higher.

Keep structures clear and aligned

Transparent, well-defined structures make it easier for investors to evaluate risk and return. Clarity supports faster decision-making.

Use preferred equity with intention

Preferred equity can help address gaps and, in some cases, provide positive internal rate of return (IRR) leverage when deal-level returns exceed the cost of that capital.

Demonstrate downside resilience

Investors are focused on performance under conservative scenarios. Deals that hold up under pressure stand out.

Engage equity early

Early engagement allows for alignment on structure before key decisions are finalized, reducing the need for adjustments later in the process.

The advantages of institutional investment partners

As equity becomes more selective, alignment between sponsors and capital partners plays a larger role in execution.

For sponsors working with institutional capital, that alignment often extends beyond a single transaction. Access to discretionary capital and experience structuring across market cycles can support more consistent execution, inform deal structuring and provide greater certainty to lenders and sellers.

In a market where structure and pricing influence outcomes, those relationships can be a meaningful factor in how efficiently deals move forward.

Equity remains active in multifamily, but it is being deployed with greater discipline and selectivity. How a deal is structured and how clearly it reflects current market conditions are central to how investors make decisions.

Engaging early around capital stack decisions, return expectations and alignment can help position transactions more effectively in today’s market.