Now that we are through Q1 of 2026, how are things looking for KC multifamily absorption and deliveries? The relationship between absorption and deliveries is a key one, along with "new starts." Absorption refers to the number of units that became occupied or vacant relative to the previous measurement. It is the net change in occupied units. If Kansas City had 100,000 occupied apartments as measured at the end of 2024 and 105,000 occupied apartments at the end of 2025, absorption would be 5,000 net units over that time frame. You can have negative absorption when the total occupied units goes down; 100,000 units occupied to 95,000 units occupied. In general, it is a reference point for demand in a market and can tell one side of the "what can we expect for occupancy in this MSA, county, or suburban district?" story. The other side of that story is told by deliveries. Deliveries refers to the number of completed new construction units that are ready to begin being leased and occupied over a given time frame. If there are 110,000 rentable apartments in a city at the end of 2024, and there are 117,000 rentable units at the end of 2025, this would mean that 7,000 new units have been added to that available supply over that 12-month time frame. Deliveries equal 7,000, or 6.4% of existing inventory (Deliveries % = Delivered Units / Initial Inventory). Absorption and deliveries are the supply and demand markers (along with many other variables that serve as leading and lagging indicators, but are still part of the same story) for multifamily in an MSA. If 5,000 units are delivered across a 12-month period and 5,000 units are absorbed, then occupancy rates will remain relatively stable for that time frame, all things being equal. If 10,000 units are delivered and only 5,000 are absorbed, then occupancy will trend down on average for that area because there was more new product added than there was immediate demand for. Usually when this happens, especially multiple quarters in a row, average rents will begin to stagnate or even decrease to facilitate more demand. Cheaper apartments means more people can afford them, which means more people will move into them instead of getting a mortgage or living in another city, which means occupancy rates will climb.

Recourse vs non-recourse debt is a crucial concept for multifamily investors and newer syndicators to understand. If you buy a 50-unit deal with a recourse loan and it goes sideways, you could lose the property and still owe the bank money. If you buy that same deal with a non-recourse loan and it fails, you lose the property, but the lender generally cannot come after your personal assets. That one distinction has massive implications for overall risk mitigation (or lack there of it) across your investment portfolio. Recourse Loans A recourse loan means you personally guarantee the debt. If the property cannot cover the loan balance, the lender can pursue your personal assets to make up the difference. Why lenders like it: • Lower risk to them • Often easier approval for smaller or newer sponsors • Sometimes slightly better pricing Why it is risky for you: • Your personal balance sheet is exposed • Higher psychological pressure • One bad deal can affect everything Non-Recourse Loans A non-recourse loan limits the lender’s recovery to the property itself, assuming no fraud or “bad boy” carveouts. Why sponsors prefer it: • Your personal assets are protected • Cleaner risk separation • More scalable for syndicators Why it can be harder: • Stronger deal metrics required • Experienced sponsorship often expected • May carry slightly stricter structure When each is typically used: Recourse is common in: • Smaller multifamily deals • Community bank financing • First or second deals for new operators • Bridge loans where lenders want extra security Non-recourse is common in: • Agency debt through Fannie Mae or Freddie Mac • Larger stabilized multifamily • Institutional or repeat sponsors • Deals with strong DSCR and occupancy For syndicators, this decision is not just about gunning for lower rates or closing the deal, it's about risk allocation. Are you comfortable tying your personal net worth to the outcome? Or are you building a structure where risk is primarily contained within the asset?

Cost Segregation in Multifamily: When It Makes Sense and When It Doesn’t If you buy a $10M apartment building, how much depreciation should you get in year one? For many investors, the answer depends on cost segregation and bonus depreciation. You’ll often hear people say cost segregation creates massive tax savings in real estate. And in the right situations, it absolutely can. But it’s also frequently misunderstood. Cost segregation doesn’t create new deductions. It simply changes when the IRS allows you to take them. What Cost Segregation Actually Is By default, residential real estate depreciates over 27.5 years. A cost segregation study analyzes the property and separates parts of the building that the IRS allows to depreciate faster. For example: 5-year property • Appliances • Certain fixtures • Carpeting 7-year property • Some equipment and removable property 15-year property • Land improvements like parking lots, sidewalks, and landscaping Instead of treating the entire building as one asset, the study identifies pieces of the property that can be depreciated on shorter schedules. Cost segregation essentially separates portions of the property that the IRS allows to depreciate faster than the standard 27.5-year schedule. Many investors confuse cost segregation with bonus depreciation, but they serve different roles. Cost segregation identifies and qualifies the components. Bonus depreciation determines how quickly those qualified components can be deducted. The study itself doesn’t create deductions. It simply allows investors to take more depreciation earlier in the ownership period. With 100% bonus depreciation active, those components can often be fully expensed in year one. Even without bonus depreciation, these shorter-life assets still depreciate faster because they use accelerated methods like the 200% declining balance for 5- and 7-year property and 150% declining balance for 15-year property, which front-loads depreciation into the early years.

After three years in multifamily operations and underwriting over $250M in potential acquisitions, I wanted to share some of my observations and perspectives. I am not claiming to know everything about this stuff, because I certainly do not. I’m still learning every day, but I hope these insights prove useful and spark conversation about important topics in the multifamily world. Here is the thought I will be unpacking today: There is often a noticeable pricing and cap rate gap between 1970s vintage product and late 80s / early 90s vintage assets, even when they sit in the same submarket. For seasoned investors this may seem obvious, but I think it’s worth breaking down the underlying reasons. If you feel I missed anything feel free to comment and let me know. Below are some of the biggest reasons I believe this gap exists, along with a few things I personally look for when underwriting and touring these types of assets. TLDR: 1970s multifamily properties often trade at higher cap rates because they carry more operational and capital risk. Aging/out-dated plumbing, environmental considerations, insurance friction, and dated layouts all contribute to the discount compared to late-80s or early-90s product. But with careful diligence and the right business plan, that discount can also create opportunity. --- Why the market discounts 1970s product 1. Major systems are closer to the end of their life Many 1970s properties are approaching replacement cycles on multiple systems at once: Roofs Plumbing Electrical panels Parking lots HVAC systems When several of these items hit their replacement window at the same time, buyers must underwrite meaningful near-term CapEx. That risk gets priced directly into the purchase price. This can be the case with 80’s and 90’s product as well, but you may be going on even ANOTHER replacement cycle for some of these systems. 2. Plumbing systems and repipe risk One of the biggest dividing lines between vintages is plumbing materials.

We just closed on a 121-unit in Fort Worth. Here are some things that a spreadsheet doesn’t tell you. Lender requirements can shift late in the process. We were initially expecting agency debt, but last minute requirements changed and the proceeds no longer worked for the deal. So we pivoted to bridge. Good thing we had already modeled bridge from the start. You may have to restructure entities to align with lender expectations. We formed a new borrower entity late in the process and updated the org chart to match what the lender required. That meant new documents, new approvals, and making sure everything flowed correctly from a legal and ownership standpoint before we could close. Multiple legal teams get involved. Lender counsel, borrower counsel, title, everyone reviewing language and redlining documents. A lot of back and forth. Signature pages get revised. Loan agreements get updated. You think you are done, then another comment comes in. Title items can surface that have to be cleared before anyone wires money. In our case, there were legacy items that had to be resolved before we could get clean title. That meant coordination and making sure everything was cleared so funding could happen. None of that shows up on a spreadsheet. Getting this deal to closing was a different animal. Glad we got it done. Now the real work begins.