As economic uncertainty, elevated interest rates, and housing affordability pressures weigh on the broader real estate market, the multifamily sector continues to stand out for its resilience and long-term potential.  

In a conversation with Connect Money, Keith Lampi, CEO and President, Inland Real Estate Investment Corporation, and Phil McAlister, SVP, Head of Research, Inland Private Capital Corporation, share why demographic forces and shifting lifestyle preferences are reinforcing multifamily’s appeal—particularly in growing subsectors like build-to-rent (BTR) and manufactured housing communities (MHCs).  

They discuss how investor strategies are adapting to cap rate recalibrations, where opportunity lies amid supply-demand shifts, and how Inland is positioning itself for sustained success in a changing market landscape.  

CM: The multifamily sector has shown remarkable strength despite economic headwinds. What macroeconomic factors are supporting its resilience in 2025? 

PM: The multifamily sector’s stable historical performance is underpinned by compelling macroeconomic drivers. The millennial cohort, now in its prime household formation years, is fueling sustained demand for rental housing. 

Despite aspirations for homeownership, affordability constraints—exacerbated by elevated interest rates and soaring home prices—have tilted the rent-versus-own calculus decisively toward renting. This dynamic makes leasing a far more financially viable option for many. Bolstering this trend, a resilient labor market and rising household incomes further solidify rental demand, forecasting the sector’s strength through 2025 and beyond. 

CM: How do demographic shifts contribute to the long-term success of multifamily investments, particularly in subsectors like build-to-rent and manufactured housing communities?  

PM: Demographic trends are aligning to create a powerful demand tailwind for multifamily investments, particularly in BTR and MHC subsectors. Millennials, entering their family-forming years, are increasingly prioritizing rental options that emulate the benefits of homeownership. Shifting preferences—driven by remote work and family growth—favor BTR communities, which offer detached homes with private yards, ample space for home offices, and robust amenities, all without the burdens of maintenance or down payments.  

Meanwhile, baby boomers, seeking to downsize and shed the responsibilities of homeownership, are also drawn to BTR for its flexibility and lifestyle advantages. MHCs, in particular, appeal to retirees due to their affordability and community-oriented environments tailored to similar life stages. Across generations, MHCs stand out for their unmatched affordability, providing a consistent demand driver that insulates the sector from economic volatility. 

CM: Why is the multifamily sector still considered a strong investment option despite rising interest rates?  

KL: Despite the headwinds of rising interest rates affecting commercial real estate, the multifamily sector continues to attract significant investment interest. Its resilience stems from strong absorption rates and a proven track record of performance across economic cycles, making it attractive to both investors and lenders.  

Following a temporary dip in valuations due to higher rates, multifamily values have resumed their upward trajectory, signaling a potentially attractive entry point for investors. The sector’s fundamentals remain compelling: moderating new unit deliveries and improving supply-demand dynamics underpin its appeal, even in a higher-rate environment. 

CM: What has been the impact of rising interest rates on cap rates in the multifamily sector? 

KL: The multifamily sector has experienced a recalibration of cap rates in response to rising interest rates. During the pandemic-era low-rate environment, cap rates compressed to historic lows, often dipping into the low 4% range for premium assets in top markets. As interest rates have climbed, cap rates have adjusted upward, now stabilizing in the low to mid-5% range, depending on market conditions and asset quality. This shift reflects a return to pre-2020 norms, indicating a balanced and healthy market environment that aligns with historical valuation trends. 

CM: What types of deals are investors focusing on in this market?  

KL: We are seeing robust investment demand across the multifamily space. Certain markets that saw significant overbuilding have taken a hit, while markets in the Midwest and Northeast have been leading the country in rent growth, largely due to the lower level of new supply that has come online. We are continuing to see aggressive pricing for assets in top-tier markets with strong population and job growth. Buyers seem to be particularly aggressive on deals where occupancy may be temporarily impacted by new supply, seeing an opportunity for strong upside as the market normalizes. 

CM: How is Inland Investments positioning itself to capitalize on multifamily strength, particularly in BTR and MHCs?  

PM: Inland Investments has strategically positioned itself as a leader in the BTR and MHC subsectors, leveraging a forward-thinking approach rooted in demographic-driven demand. As an early entrant into the BTR market, Inland has built a substantial portfolio in high-growth regions like the Southwest. By employing rigorous research and a disciplined investment framework, the firm targets markets poised for expansion among key demographic groups favoring BTR and MHC housing. Inland’s strategy emphasizes long-term outperformance through conservative leverage, prudent asset management, and a focus on high-demand markets, ensuring sustained success in these dynamic subsectors. 

CM: With recession risks and housing affordability constraints on the rise, how does multifamily maintain its attractiveness to investors?  

PM: The multifamily sector’s appeal endures despite rising recession risks and affordability challenges, as renting remains a compelling alternative to homeownership. While rents have increased, homeownership costs—driven by high mortgage rates and escalating home prices—have surged even faster, making renting the more affordable choice.  

Historically, multifamily properties have demonstrated resilience during economic downturns, maintaining strong cash flows as consumers delay home purchases in favor of renting until financial stability improves. This inherent stability, coupled with persistent housing shortages, reinforces the sector’s attractiveness to investors seeking reliable returns. 

CM: Given current trends, how do you see multifamily investments evolving over the next few years?  

KL: Looking ahead, the multifamily sector is poised to evolve in response to shifting consumer preferences and demographic trends. Demand is expected to increasingly favor rental products that offer homeownership-like experiences, such as BTR communities with family-friendly features like quality schools, pet-friendly spaces, and private yards. Simultaneously, the aging baby boomer population is projected to drive demand for flexible, low maintenance housing options, including MHCs and downsized rental formats.  

Domestic migration patterns, particularly toward high-growth regions like the Southeast and Texas, are expected to shape investment opportunities, with markets benefiting from population inflows poised for sustained demand. Investors and operators who align their strategies with these evolving preferences and demographic shifts should be well-positioned to capitalize on the multifamily sector’s enduring strength.