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Midwest Multifamily Heats Up as Investors Shift Focus Inland
With gateway markets cooling off, institutional capital is shifting to the Midwest, where fundamentals remain strong and pricing remains in check.
Jordan B.
July 01, 2025
Together with
Good morning. Rent growth across Chicago and other Midwest metros is beating the national average, drawing renewed attention—and capital—from major multifamily investors.
Today’s issue is sponsored by LendingOne—the nation’s fastest-growing build-to-rent (BTR) and SFR portfolio lender for institutional investors.
🎙️ This week on No Cap podcast, Rich Hill, Global Head of Real Estate Strategy at Principal, breaks down what’s really driving CRE in 2025—from misunderstood office sentiment to where the smart money is heading next.
Market Snapshot
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MARKET REPORT
Midwest Multifamily Heats Up as Investors Shift Focus Inland
Forget the “flyover” label. Midwest cities are now prime targets in multifamily investing, outperforming national trends and attracting major capital.
Heating up: Chicago posted 4.2% YoY rent growth in May—third highest in the country—while Indianapolis (2.6%) and Madison, WI (2.3%) also outperformed the national average of 1%, per CoStar. Industry leaders cite demographic stability, job growth, and supply constraints in formerly red-hot Sun Belt cities as catalysts for renewed interest.
From underdog to darling: Long overlooked in favor of gateway and Sun Belt markets, the Midwest is now attracting major institutional capital. Investors like Morgan Properties ($500M) and Clear Investment Group ($300M) are betting on the region’s stability, job growth, and limited supply.
Shifting inland: Markets like Chicago, Minneapolis, and Indianapolis are emerging as core and core-plus plays, shifting from capital preservation to growth. In Q1, Chicago multifamily sales more than doubled, with Class-A prices up 33% over the 2022–2024 average.
Deals still pencil: Elevated rates, inflation, and labor shortages continue to pressure new construction. With just 1,200 Class-A units slated for delivery in Chicago over three years, developers like Focus are moving ahead, banking on tight supply and rising rents.
Distress without distress: Many acquisitions involve “broken capital stacks”—healthy assets strained by rising rates. Investors are targeting these deals, seeing long-term upside in rental demand over homeownership.
➥ THE TAKEAWAY
Midwest moment: As Sun Belt markets cool and construction hurdles limit supply, the Midwest is no longer real estate’s overlooked middle child—delivering both stability and upside in a capital-constrained environment.
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✍️ Editor’s Picks
Stable by design: Despite economic volatility, commercial real estate remains a stable choice thanks to tax perks and tech-powered deal sourcing. (sponsored)
Tenant retreat: High-end commercial properties are seeing sharp value declines as tenants return space faster than it can be filled.
Private turns positive: Private credit, private equity, and real assets all posted positive returns in Q125, with private credit leading the way at 2.0%.
Texas slips: Texas metros are losing momentum in job growth rankings, with Houston, Dallas, and Austin all falling behind.
Valuation shift: CRE may be entering a more stable phase as the price gap between sales and appraisals narrows.
Policy pivot: Congress has dropped the controversial “899 revenge tax” after warnings it could kill jobs, stall investment, and dry up capital for US CRE.
Tax windfall: A proposed bill could reinstate 100% first-year bonus depreciation, unlocking major tax savings for CRE owners, tenants, and investors.
Steady outlook: Despite policy headwinds and global uncertainty, Principal expects CRE to stabilize in 2025.
🏘️ MULTIFAMILY
Freeze fears: Zohran Mamdani’s likely NYC mayoral win and proposed rent freeze on stabilized units are stirring fears among landlords.
Southern sweep: Southern cities dominate RentCafe’s 2025 rankings for renters, with McKinney, TX, taking the top spot thanks to affordability, quality of life, and job growth.
Trouble in Texas: A new wave of multifamily distress is sweeping across Texas, with over $400M in CRE foreclosures heading to auction.
Eviction immunity: The Supreme Court declined to hear a challenge to LA’s Covid-era eviction moratorium, effectively ending landlords’ $20M compensation bid.
Split market: Rent growth remains uneven as smaller Southern markets rise and major Sun Belt metros slump.
Green rush: Okemah property values have doubled post-legalization, driven by a land rush from marijuana growers and outside investors.
🏭 Industrial
Industrial hold: Q125 industrial net lease sales hit $4.6B as cap rates tick up and investor momentum slows despite solid long-term fundamentals.
Atomic vision: Rick Perry’s Fermi America is pushing a politically charged plan to build a massive nuclear-powered data center campus in Texas, dubbed the “Trump Energy Campus.”
Micro refi: WareSpace and Jadian Capital locked in a $94M refinance loan from Bank of America for a 20-property portfolio of small-bay industrial assets.
Phoenix deal: Cohen Asset Management has acquired the fully leased, 168K SF Desert Cove Industrial Center in the Phoenix MSA for $36M.
🏬 RETAIL
Strategic default: Retail bankruptcies are surging, with Chapter 11 becoming a tactical move for struggling chains facing rising costs and thin margins.
Changing habits: Retail faces pressure from rising tariffs and shifting consumer habits, with e-commerce surging while physical stores see slowing demand.
Grocer showdown: Walmart is building three new Supercenters in North Texas for the first time in over a decade, directly challenging H-E-B’s rapid regional expansion.
Luxury lifeline: Saks Global secured a $600M lifeline from select bondholders, forcing minority creditors to take losses and accept weaker repayment terms.
Mixed-use makeover: CrowdStrike founder George Kurtz’s FalconEye Ventures has acquired Scottsdale Quarter and plans to invest $100M to upgrade the luxury mixed-use center.
🏢 OFFICE
Conversion catch: Office-to-resi conversions are booming in NYC, but a potential rent freeze tied to tax incentives could dampen investor enthusiasm.
Waterfront wins: In Minneapolis-St. Paul, waterfront office properties are outperforming their Class B peers, with lower vacancy rates and higher asking rents.
Conversion capital: A record-setting $720M loan for Metro Loft’s office-to-resi conversion of the former Pfizer HQ topped NYC’s financing deals in May.
Loan trouble: CP Group’s Atlanta office portfolio faces special servicing as high vacancies and floating-rate debt strain its ability to stabilize.
Public push: Cities are stepping in with subsidies, tax breaks, and even direct property acquisitions to jumpstart office-to-resi conversions.
Tenant transition: In a shift from its tech and entertainment roots, LA’s office market is now being driven by law, finance, and professional service firms.
🏨 HOSPITALITY
Hotel pivot: Developer J Street is transforming San Diego’s vacant Tower 180 office tower into a $250M dual-brand Hyatt hotel.
Casino frenzy: Eight high-powered developer teams have submitted bids to land one of three downstate New York casino licenses.
Deal fallout: Benefit Street scrapped a $300M NYC hotel acquisition just days before closing, blaming investor fears triggered by Zohran Mamdani.
Dining divide: Fine dining and coffee shops are experiencing the strongest traffic growth this year, while casual chains and fast-casual spots are stabilizing.
A MESSAGE FROM JBREC & CRE DAILY
On Demand: Fear and Greed Q2 25 Survey Results
Missed the live session? The Q2 2025 Fear & Greed Webinar replay is now available. Watch as we break down the most timely trends across Multifamily, Industrial, Retail, and Office sectors, including:
How CRE investors expect tariffs to impact their businesses
CRE investors’ outlook for US manufacturing
Shifts in foreign direct investment in commercial real estate
Capital market conditions
*This is a paid advertisement. Please see the full disclosure at the bottom of the newsletter.
📈 CHART OF THE DAY
Nearly half of all US consumer spending now comes from the top 10% of earners, making the economy increasingly reliant on wealthy households while widening the gap between asset-rich Americans and everyone else.
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