GVP Insights: Past Wisdom, Present Data, Future Returns

In 2003, Warren Buffett cautioned investors not to expect 10% annual stock market returns forever, reminding us that long-term performance is driven by a simple formula: “Investment return = dividend yield + earnings growth ± change in valuation.”

Buffett’s point was simple: when valuations are stretched, and interest rates rise, the future math becomes less forgiving. And if those factors don’t support double-digit returns, investors should be prepared for something more muted, even if the broader narrative suggests otherwise.

Fast forward to 2025, and Berkadia’s latest multifamily forecast echoes a similar truth from a real estate lens: “2025 will mark a turning point — where demand begins to consistently outpace new supply, and capital resumes flowing back into multifamily.”

One message, two decades apart: when valuations reset, and fundamentals remain intact, long-term opportunity is born. In this month’s GVP Insights, we’re connecting the dots between Buffett’s timeless wisdom and today’s multifamily housing data to explain why we believe multifamily is entering one of its most compelling entry points in over a decade.

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Why Now? The Math Is Shifting

Buffett’s formula applies just as well to real estate: Return = Cash Flow Yield + Rent Growth ± Cap Rate Movement

Right now, the math is starting to favor multifamily:

• Cash flow yields are elevated as prices adjust to higher rates, especially compared to equities, where dividend yields remain under 2%
• Rent growth is stabilizing in many metros, following a period of normalization from pandemic-era highs
• Cap rates have already expanded, offering investors a reset basis, unlike public markets where valuations remain historically elevated

In contrast, the S&P 500’s recent gains have been driven by a handful of mega-cap tech stocks, and Buffett’s formula warns that further multiple expansion is unlikely from these levels. That divergence — between lofty expectations in equities and a repricing in real assets — creates a powerful moment for those looking to rebalance.

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What Berkadia Sees — and We Agree

Berkadia’s 2025 Multifamily Outlook highlights several reasons for optimism:

• New supply is peaking after years of aggressive building, particularly in Sun Belt and Mountain West markets, starts are falling sharply due to tighter lending and rising construction costs
• Demand is resilient with homeownership affordability at 40-year lows, rental housing remains a necessity, not a luxury
• Capital is returning. Institutional capital, which paused in 2023–24, is beginning to re-engage as clarity around pricing and debt costs improves

These tailwinds are creating a narrow window where investors can enter while uncertainty is keeping some capital on the sidelines — before transaction volume picks up and pricing pressure returns.

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Where We're Looking: Two Markets with Asymmetric Upside

We’re currently pursuing two multifamily opportunities that align directly with these market dynamics:

Salt Lake City — Growth Meets Dislocation

• A booming tech corridor with a growing population, educated workforce, and relatively low cost of living
• Absorption is catching up after a flood of new deliveries, with vacancy already declining in submarkets like Lehi, American Fork and South Jordan
• We're evaluating a newly built property priced well below replacement cost, with Class A finishes and modern layouts that align with local renter demand

Why it matters: This is a textbook case of short-term dislocation in a long-term growth story. As Buffett said — “Be fearful when others are greedy, and greedy when others are fearful.”

San Diego — Resilience in a Supply-Constrained Market

• A market where geographic and regulatory barriers have kept new apartment construction extremely limited
• Median household incomes are strong, and multifamily occupancy has consistently remained above 95%
• We’re targeting a newly constructed asset in a premier coastal submarket, well below replacement cost, completed lease-up, offering stabilized income with long-term upside in one of the most supply-constrained metros in the country

Why it matters: San Diego rarely trades at a discount — and when it does, long-term investors pay attention.

Closing Thought: The Buffett Lens Still Works

Buffett reminded us not to chase yesterday’s winners, but to focus on where the math works, and the fundamentals are sound. That’s exactly what we see in multifamily right now:

• Cap rates have adjusted
• Operating income remains stable
• Long-term demand drivers are intact (market specific)
• And capital is just beginning to re-enter the space

As Berkadia put it, “2025 is the year the market turns.” We believe that turn is already underway, and we're positioning ourselves (and our investors) to benefit from it. We’ll be sharing more soon about the specific deals we’re pursuing in Salt Lake City and San Diego. If you're exploring how to increase your allocation to high-quality, income-producing real assets, now may be the moment to take a closer look.

Should you have any questions, require further insights, or wish to discuss potential investment strategies tailored to your portfolio, please don’t hesitate to reach out to our team. We are committed to providing you with the expertise and support needed to make informed real estate investment decisions. We thank you for your continued trust in our analysis and guidance.

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Sources: “Warren Buffett on the Stock Market” – Fortune, 2003 (read here); “Multifamily Housing Market 2025 Outlook” – Berkadia (read here).

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