Forum's Q1 2025 Market Update

Market Commentary

Whew! The first quarter of 2025 brought with it a torrent of executive orders with the potential to bring radical change to the U.S. economy and in fact caused broad market volatility. “Potential” is the key word here. We believe the changes we see coming will be a net positive for multifamily investment. While we remain vigilant in monitoring economic shifts, we continue to take an offensive stance in our conviction around the strength of multifamily fundamentals and the opportunities emerging from today’s environment.

At Forum, our investment platform is purpose-built to provide investors with access to compelling property market opportunities. As mentioned in other communications, we continue to improve our development, equity, private credit, and debt platforms. We appreciate the opportunity to share our thoughts with you.

U.S. Macro Economy

Politics

The first quarter of 2025 was marked by a record-breaking flurry of Executive Branch action. As of March 26, 2025, President Trump has signed 104 executive orders in his second term breaking President Franklin D. Roosevelt’s previous record of 99 in his first 100 days and well above second-place President Biden at 37 executive orders at the same point in his term.¹

The President has expressed a vision of a comprehensive program driving towards a more self-sufficient U.S. economy, including a tariff rollout, but also tighter borders, lower taxes and less regulation.² These orders reflect the Trump Administration’s efforts to move quickly and assert executive power to promote this broader agenda.

But as investors, we are focusing on potential economic impacts. Potential short-term gains exist for certain sectors with the risk of longterm challenges such as global trade and U.S. global influence. For example, the Administration’s imposition of tariffs on imports from China, Canada, Mexico, and other countries will likely increase the costs for goods, including apartment building materials ³ Likewise, the Administration’s efforts to reduce government spending and cut the federal workforce could impact public services and potentially increase unemployment even as it leads to savings on spending.² Immigration policies may affect industries reliant on immigrant workers potentially creating more job opportunities but with increased costs for businesses.³

Bringing these initiatives home to multifamily investors, we see positive signs. The Federal Housing Finance Agency (FHFA), led by Director Bill Pulte, rescinded several Biden-era housing policies relating to rental payment grace periods and lease notices that are expected to reduce compliance burdens for multifamily lenders and property owners.⁴ Other actions could further limit new supply as the Administration moves to block a $1.4 billion program for green building retrofits which has halted projects dependent upon these federal funds.⁵ While the exact outcomes are uncertain, we believe there are potential positive impacts for multifamily investments.

The Fed

Administration actions could have an impact on Federal Reserve actions as well.  In its March meeting, the Federal Reserve held interest rates steady but indicated that reductions are likely later in the year, as was widely reported. Due to anticipated concerns over the impact of tariffs on a slowing economy, the Federal Open Market Committee kept its key borrowing rate targeted at a range between 4.25%-4.5%, where it has been since December 2024. Officials said they still see the potential for another half percentage point of rate cuts through 2025.⁶

Because inflation has been elevated in recent years and because the current round of tariffs is larger and perceived to be inflationary, the Central Bank could delay rate cuts until signs of economic weakness are more apparent. But if inflation does indeed rise and is accompanied by a slowdown in the job market, we could see material cuts when they begin.⁷

While Fed monetary policy and Administration economic policy dominate the headlines, we keep our eyes on the main driver of borrowing costs, the 10-year Treasury. Despite the Fed’s efforts to ease monetary policy, the 10-year yields surged by more than a percentage point in Q4 2024 and into Q1 2025 and remain at the end of the quarter well above its Q3 2024 low point.⁸

These dynamics reinforce our view that while near-term economic performance remains strong, persistent uncertainty around the pace of inflation reduction is driving higher 10-year Treasury yields. Investors can adapt to higher rates—after all, 10-year Treasury yields averaged around 5% in the decade leading up to 2007, well before the near-zero era that followed. And indeed, high rates might be here to stay as larger economic drivers hold sway over monetary policy. To add to the uncertainty, an opposite camp is forming based on the idea that Administration policies will materially slow the economy. Some market observers believe that a new tariff regime could slow the economy enough to reduce year-end forecasts for the 10-year yield to close December 2025 at 4%, from 4.35% previously.⁹

At Forum, we continue to hedge selectively and are actively evaluating fixed-rate financing and other tools to protect downside. We will continue to focus on real estate market fundamentals as the true driver of returns.

Real Estate

Turning to real estate, we see signs of stabilization with positive returns in most sectors, except for office properties, which continue to face challenges. Multifamily apartments are performing well, with ongoing improvements in rents and returns.¹⁰

It is important to remember that as yields were stabilizing, real estate fundamentals remained solid, outside of the office sector. This distinction is critical to understanding the strength of the growth phase we believe real estate is now entering – as compared to the Great Financial Crisis (GFC) when fundamentals sank and cash flows were dropping. Today’s real estate recovery begins from a position of cash flow strength.¹⁰

We believe today marks the beginning of a selective buying window — driven by valuation resets shown above, stabilizing fundamentals (especially multifamily rent growth returning) and capital markets potentially thawing just enough for transactions to happen. We believe this is why investor demand for U.S. real estate is growing among large global investors. Investors in Australia and Asia have launched large U.S. real estate ventures in recognition of the opportunity.¹¹

One observer notes that “it’s clear the main theme is that investors see an opportunity to take advantage of reset pricing” with nearly 75% listing multifamily as a preferred sector.¹²

Lackluster transactions volumes might present a challenge for taking advantage of this opportunity, but we see that changing as well. The slow pace of asset sales has resulted in more than $420 billion in unrealized value on assets held longer than five years which exceeds many fund lives.¹³ We expect that investors will turn to managers to help unlock this value, potentially leading to asset sales and increased transaction activity.

Multifamily

Demand

The “Sector Returns” chart on the previous page shows that 2024 brought positive returns for multifamily, in what we believe was an inflection point in the industry. The U.S. economy continues to produce more renters, with more money to spend. Job growth averaged around 2% up to Covid-19 and performed better since. Wage growth performed even better with retail sales as a manifestation of a healthy consumer.¹⁴

Additionally, improving rent-to-income ratios suggests renters have the capacity to form new households as they shed roommates and pay the higher rents we expect the market to require.¹⁵

Even the Wall Street Journal is recognizing a dynamic that unaffordable homeownership has more people renting longer, which is driving apartment absorption to its highest quarterly total in 40 years.¹⁶ By the end of this year, the article notes that every major metropolitan market is expected to see positive rent growth.

Supply

Supply is falling. Apartment completions peaked a year ago, with the bulk of the remaining pipeline to be delivered in the next 12 months.¹⁷

Current events look to exacerbate this trend as tariffs could push already increased construction costs by an estimated 4% to 6% over the next year as well as complicate supply chains, slowing production.¹⁸ Likewise, returning to a robust delivery pipeline is expected to take time as long-term rates remain high.¹⁹

Markets

But where to invest? Over the long haul, we believe markets with the strongest job growth have the potential to provide the strongest returns. As such, we favor the Southeast Sun Belt markets and the Southwest. Our view is supported by others who believe in the demographic trends and housing affordability in these markets.²⁰ In the near-term, investor sentiment favors the Midwest due to its relative affordability.¹⁸

The Opportunity

At Forum, we are positioned to meet this opportunity through investments up and down the capital stack. Despite the Fed lowering its benchmark rate by 100 basis points in 2024, elevated treasury yields have kept borrowing costs high.²¹ According to TREPP data, over $40 billion in loans is set to mature between December 2024 and November 2025.²¹ We believe these maturities could create opportunities as some owners may be compelled to recapitalize or offload underperforming assets amid a prolonged high-interest rate environment. But we believe the wave of real distress hasn’t fully hit yet — we expect it in late 2025 / 2026.

Interestingly, we believe opportunities are most likely to emerge in states with higher concentrations of debt service coverage ratios (DSCRs) below one, including our target markets of Texas, Florida, and Georgia.²¹ It is our view that investors positioned with capital and investment expertise in both lending and equity may find attractive prospects, as these markets navigate elevated borrowing costs and operational pressures. We expect to make equity investments in these high job growth markets for recent vintage assets at below replacement costs. Buying at a low basis creates the opportunity to grow income and create value through appreciation.

And just as yield outshined fundamentals as a valuation driver, we believe borrowing costs could likewise shape future multifamily dynamics. Last year opened with several portfolio sales, and some one-off transaction activity and shrinking cap rates, but activity then slowed as borrowing costs rose late in the year.²² If borrowing costs remain elevated, as we believe they will, we expect resurgent transaction activity will require a more realistic approach to value, and better pricing for buyers.²³ As JLL puts it, “[with] the 10-Y Treasury going up and variable rates not coming down meaningfully, I think everyone has got to just deal with whatever they’ve got and just move on.”²⁴

We believe Forum’s private credit strategies offer the potential to unlock attractive, risk-adjusted opportunities—especially as elevated borrowing costs continue to pressure balance sheets. Our focus is on identifying situations where we can help restructure capital stacks by backing quality assets with strong sponsors.

Looking Ahead

Our views here on the market opportunities are formed through our years of experience and our view of the market as Hans and Frans say, “listen to me now but believe me later.” But indeed private real estate has become an increasingly popular investment option among financial advisors, with 85% of advisors including it in their client portfolios. A quarter of those allocate more than 5% to private real estate, and nearly half plan to increase that allocation, up from a third last year.²⁵ Real estate operates in cycles, and we seem to have reached a bottom, with the potential for opportunities to come.²⁶

We believe that now is not the time to be passive. We are focusing on property and market fundamentals for deals where we can control the outcome through strong management and market selection. While we are proceeding carefully, waiting for the “all-clear” may mean missing the moment when price dislocation creates the best relative return. In the meantime, we appreciate the confidence investors have shown in Forum and look forward to our continued partnership.

¹ Source: CBS News.com; “Trump issues record 100th executive order within first 100 days of term.”, Laura Doan & Julia Ingram, March 26, 2025.
² Source: Wall Street Journal; “A Market-Rattling Attempt to Make the American Economy Trump Always Wanted,” April 5, 2025.
³ Source: Bloomberg News; “Trump’s Executive Orders, Explained,” February 20, 2025, Updated March 28, 2025.
⁴ Source: Scotsman Guide; “FHFA’s Pulte rescinds a series of Biden-era housing policies,” Jeff Bond, March 26, 2025.
⁵ Source: Bloomberg; “Affordable Housing Developers Stalled by Blocked Federal Funds,” Kriston Capps and Sarah Holder, March 25, 2025.
⁶ Source: Federal Open Market Committee; “Summary of Economic Projections,” March 19, 2025.
⁷ Source: Wall Street Journal; “Powell Warns of Higher Prices, Weaker Growth AfterTariff Plan,” April 5, 2025.
⁸ Source: Bloomberg; “Global Bond Tantrum Is a Wrenching and Worrisome Start to New Year,” Michael Mackenzie and Ye Xie, January 12, 2025.
⁹ Source: MarketWatch; “No need to wait: Goldman slashes 10-year yield forecast” – April 2, 2025.
¹⁰ Source: AltusGroup; “Altus Analysis of NCREIF ODCE Index” Q4 2024 Results.
¹¹ Source: PERE News; “Australian Retirement Trust forms $1B fund with Almanac,” February 25, 2025.
¹² Source: GreenStreet Real Estate Alert “ CBRE: Investors Still Upbeat on Acquisitions,” January 21, 2025.
¹³ Source: PREA.org; “No One Else to Blame: Without Distributions, Funds Can’t Raise Capital,” Margaret McKnight, Liz Ptacek, Laura Zhang – StepStone Group, Winter 2025.
¹⁴ Source: RealPage; “Market Intelligence: 2025 U.S. Apartment Outlook, January 2025.
¹⁵ Source: PREA.org; “No One Else to Blame: Without Distributions, Funds Can’t Raise Capital,” Margaret McKnight, Liz Ptacek, Laura Zhang – StepStone Group, Winter 2025.
¹⁶ Source: Wall Street Journal; “We’re Headed Toward a Landlord-Friendly Era. Expect Higher Rent Prices,” February 14, 2025.
¹⁷ Source: RealPage; “Market Intelligence: 2025 U.S. Apartment Outlook, January 2025.
¹⁸ Source: Construction Today; “Construction Industry Braces for Higher Material Costs Amid Tariff Hike,” February 18, 2025.
¹⁹ Source: Institutional Property Advisors – Institutional Insights: Multifamily Market Intelligence; “A Sharp Pullback in U.S. Apartment Deliveries is on the Way; Most Metros Will Add Manageable Blocks of New Supply,” December 2024.
²⁰ Source: MMG Real Estate Advisors; “2025 Multifamily Pulse Survey,” February 2025.
²¹ Source: Institutional Property Advisors – Institutional Insights: Multifamily Market Intelligence; “A Sharp Pullback in U.S. Apartment Deliveries is on the Way; Most Metros Will Add Manageable Blocks of New Supply,” December 2024.
²² Source: GreenStreet; “U.S. Apartment Outlook,” January 27, 2025.
²³ Source: MMG Real Estate Advisors; “2025 Multifamily Pulse Survey,” February 2025.
²⁴Source: Multifamily Dive; “3 reasons deal flow will increase in 2025,” January 13, 2025.
²⁵ Source: CAIS | Mercer; “2025 Report: Alternative Investment Survey – The State of Alternative Investments in Wealth Management,” January 29, 2025.
²⁶ Source: RealPage; “Market Intelligence: 2025 U.S. Apartment Outlook,” January 2025.

IMPORTANT DISCLOSURES

This market update is intended for informational purposes only, does not constitute investment advice or a recommendation, and should not provide the basis for any investment decision. Investments in such transactions noted within this newsletter will be made solely by means of offering materials provided to the recipient by Forum or its affiliates. This material does not constitute a part of the offering materials.

Investment in any transaction involves a high degree of risk, and investors should not invest in such transaction unless they can afford to lose their entire investment.

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TRANSACTION AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE TRANSACTIONS HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THESE AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS NEWSLETTER. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR SELLING LITERATURE.

INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS. AN INTEREST SHOULD BE PURCHASED ONLY BY INDIVIDUALS FAMILIAR WITH THE CONTENT OF ANY TRANSACTION AND WHO ARE ABLE TO BEAR THE RISKS ASSOCIATED WITH SUCH TRANSACTION.

FORWARD-LOOKING STATEMENTS

This newsletter contains certain forward-looking statements that are based on current expectations (but which are not based on any prior operating history). In light of the numerous factors that can materially affect results, including those set forth in this newsletter, the inclusion of any such forward looking information herein should not be regarded as a representation by Forum, its manager or any other person that the Forum objectives will be achieved. Forward-looking statements contained herein, or other statements made for or on behalf of Forum or their affiliates, from time to time, are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

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