Should You Buy Multifamily Now? Phoenix Rent Growth, Cap Rates & Interest Rate Risk Explained

Ben (00:00)
Starting 27 and 28, which would lead me to answer your question, the opportunities to buy now when valuations are suppressed. The next question for you is though, what are the cap rates going to be? Because if I can grow the net operating income by 20 % in the next three to four years,

that can be erased completely with 75 to 100 basis points of cap rates being higher.

Ben (00:28)
than where I assume they’re going to be. So I need to have better clarity on the bond market. And for that, I need to have better clarity on the inflation,

Michelle Tack (02:09)
Hi everyone, it’s Michelle Tack, your podcast leader for Real Estate Pros today. Here we go. Ben Leybovich is with us today and I’m really psyched to talk to Ben. Ben, say hi. Thanks, Ben. What I found particularly interesting about what Ben is doing when we prepare for this podcast is staying within a specific area, that being Phoenix.

Ben (02:22)
Hello.

Ben (03:12)
Michelle, thanks for the invite. Happy to be with you. Thank you. Yes, WhiteHaven currently owns about, I think about 720 units, but we’ve purchased and sold a lot more than that. We started buying in 2018. We focused first on 80s vintage, which in

Ben (03:33)
the Phoenix market is workforce housing. We sold that entire portfolio and we currently hold

Ben (03:42)
more Class A multifamily in Class A locations, newer advantages, so late 90s, mid 2000s, that kind ⁓ of thing. And that was a split political decision, which we can discuss if we would like later on.

Ben (04:03)
on. We are a value-ad buyer. We were a value-ad buyer. We still are a value-ad buyer. However, we don’t

do value add right now because this is the wrong cycle in which to do it. And again, that would be a good thing to discuss in case you’re taking notes, ⁓ a good aspect of things to discuss. ⁓ But we’ve always, in the 80s vintage, we added value ⁓

Ben (04:29)
maybe about 10, $15,000 per unit and ripped out all the cabinets and did it the right way.

Ben (05:27)
In Class A properties, we spend anywhere between $25,000 and $45,000 a unit ⁓ because all of your finishing textures are better, more high-end. Clients packages are high-end. Flooring is high-end and all those things. So it seems like you’re doing the same thing, but you’re doing more high-end ⁓

Michelle Tack (05:47)
Right.

Ben (05:48)
finishing surfaces, which ends up costing you more. Installing EV charging.

Ben (05:53)
You know doing things that you wouldn’t necessarily be able to get a payback in Older vintage workforce housing But we don’t do it now because now is not appropriate cycle in which do it which is a whole

Michelle Tack (06:12)
Another discussion. Yeah, we’ll

Ben (06:12)
up for your

Michelle Tack (06:15)
touch on a couple of those items you mentioned. What impressed me about when we were preparing for this is that, you know, you’ve got five different assets, again, 720 units, but you’re operating, you know, smoothly, it appears, and efficiently. Can you tell me how you’re able to do that? What you’re employing from either, you know, people, infrastructure?

you know, your business approach. Maybe you could talk a little bit about that for the folks that are listening.

Ben (06:47)
Right. Well, I don’t know about smoothly and efficiently because coming out of the pandemic, there was so much inflation. tell you to hire a property manager used to cost $45,000, it cost $70,000 today. So I don’t know how to look at those numbers and say, oh yeah, it’s efficient.

It’s a reality that we’re operating in. It is what it is. Okay. The same thing happened with renovation supplies and, and labor and all that.

Ben (07:17)
Our infrastructure is that we were not vertically integrated in terms of we don’t have property management in house. So currently we work exclusively with Greystar. Greystar is the largest property management in the United States. And the

Ben (07:36)
The ecosystem, so to speak, we have an asset director on our team in our office who’s essentially the liaison to Greystar.

Michelle Tack (07:47)
And she’s at the properties and she’s talking to the regional and the upper ops of Phoenix Greystar. But they place their personnel in office. And that’s generally what the infrastructure looks like in institutional property now.

Ben (07:47)
And she’s at the properties and she’s talking to the regional and the upper opposite, ⁓ Phoenix gray star. ⁓ but they place their personnel in the office and that’s generally what the infrastructure looks like in institutional property management.

Most institutional owners, think very large, like weeks, like Blackstone, like State Street. They don’t operate their own property because that’s not their core business. They want.

Ben (08:16)
own that yield, but they don’t want to be paying payroll to the guy fixing the furnace and the guy fixing the water heater and the person signing the lease, right? So they work with large property management companies such as Greystar. ⁓

But the cost gets passed on to the property. So the infrastructure looks like this. ⁓ We hire Greystar. Within Greystar, there is a ladder.

Ben (08:46)
of people that are responsible for this thing. There’s a portfolio manager at the top. There’s a regional manager above them. There is a manager on site with other people that are required that’s unit specific.

Ben (09:03)
And the cost is broken down to here’s the 3 % or the 4 % of the two and a half percent that you pay for the property management service to Greystar.

Ben (09:15)
And then additionally, here’s payroll that the property pays for the people that are actually on site. Okay? So there’s two areas that cost you. And the reason we never really looked at bringing property management in-house is twofold. Number one, you have to be,

Ben (09:33)
you know, 5,000 units for that to start making sense. And secondly, ⁓ I’ve always seen that personally as a bit of

Ben (09:44)
conflict of interest in that now I’m running a secondary business and if I sell a bunch of properties in my portfolio now all of a sudden the income of that business goes down because the fee of portfolio pays to that income. So there are efficiencies in having it in-house.

There are also challenges. I like having a moat between myself and the tenants of the property, which is a third-party property manager.

I don’t like some of the efficiencies, but I think the hybrid that we’ve created where we have an on-site person that has direct access to everybody with the property management, it works okay. It doesn’t give us more 100 % visibility.

Ben (10:13)
I don’t like some of the efficiencies, but if you, I think the hybrid that we’ve created where we have an onsite person that has direct access to everybody with property management, it works okay. It doesn’t give us 100 % visibility

as if we owned the property management company. There’s also benefits to not owning that.

Michelle Tack (10:37)
that Yeah, Ben, I think what you’re hitting on that I hear often is that you’re staying in your lane. That doesn’t mean that you’re not going to expand and buy more multi-units, et cetera. It means to me that you’re very focused on your core competency, which is a multi-unit family acquisitions within the greater Phoenix area. And ⁓ I love Warren Buffett.

He’s going to retire soon, but he would only buy companies that he really understood what they did. Very simple concept, but not always easy to achieve. Right. So in that vein, when you look at opportunities for your business in the future, what does that look like to you? You know, when you go, geez, in a year from tomorrow, so May 23rd, 2027,

Where do I want to be in terms of the opportunities? And I don’t want to define what an opportunity is for you. You can define that for us. Could you answer that?

Ben (12:10)
Right. ⁓ So we’ve recently started another vertical. We used to simply be a multifamily owner. WhiteHaven was a multifamily owner with a value add component. So we did significant enough construction, but not ground up development or anything like that.

⁓ We’ve started another vertical, which has to do with QSR development. We formed another

Ben (12:38)
company, which is a completely different situation for a multi-family. So I see opportunities involved. I see opportunities in one family, see opportunities in growing the QSL. I’ll focus on the multi-family. It’s challenging right now as we sit in

Ben (12:58)
May 22nd, guess, I’m at the date at the bottom of my computer, May 22nd of 2026.

Michelle Tack (13:05)
Why is that? Why is that Ben?

Ben (13:05)
You know, I had, I felt like I had more clarity a month ago about what’s going to happen in May of 27 than I do today. It’s a macro economic thing. So what’s happened over the last month is we’ve had
several inflation reports that printed higher. And the

Ben (13:34)
The report that specifically gave me, and I think most of the bottom market, a moment of pause is the Core CPI. The Core CPI does not include oil, energy, or food. So what’s left? What’s left is all the services and widgets that don’t

have the component of energy. Well, that’s what gave the market a moment of pause because are we really seeing a resurgence of inflation which has an impact on treasury market? And you’ve seen that over the last month, literally, which is why I’m saying month, I have no clarity on what I’m doing today.

Ben (14:03)
because are we really seeing a resurgence of inflation which has an impact on Treasury market and you’ve seen that over the last month literally which is why I’m saying month ago I have more clarity than I do today. So

you’ve seen an impact from Treasury market the 10-year bond is probably 20 basis points higher and whatever it is. It went from 4.4 to 4.1. I just almost I like it was then last week. So, that’s 30-base points. That impacts the capitalists on multifamily. That impacts valuation. Yes, absolutely. So, when you are asking me what’s the opportunity, well,

Ben (14:32)
was done last week. So ⁓ impacts the capital on multifamily. That impacts valuation on multifamily. So when you are asking me what’s the opportunity? Well,

Ben (14:53)
The market dysfunction over the last three years, just a little history left.

Ben (15:01)
In Phoenix in 2019 and 2020, we had rent growth of seven or eight percent. That was not healthy each year. That, we were a hot market. We were number one market in the country, but it wasn’t healthy. People couldn’t keep up with

Ben (15:20)
that much rent growth. So there was a lot of pressure to build more product to alleviate that rent growth. And we did that. We put

Ben (15:30)
cumulative way. don’t mean white hate, I mean developers and feed, but about 65,000 units into the pipeline. This story is very similar to VFW. It’s very similar to places in Florida. It’s very similar to the smile stage all over where people were moving and still are moving. That’s what’s happened.

Well, then what happened is you had a pandemic. Coming out of the pandemic, we had a supply chain. That meant

Ben (16:38)
that units couldn’t be completed. They couldn’t receive significant amount. So that 65,000 unit pipeline in Phoenix, instead of delivering it 12 to 15,000 units per year that the market can absorb without crashing rents,

Ben (16:57)
what you ended up with in 2024 is about 25,000 in one year. That crash, that concessions won’t pull the roof.

Ben (17:08)
rent, know, buying the market just throws up in 2025 following year yet another 21,000 years. That’s because the delays coming out of the pandemic pushed completions back and

you ended up with two years just jam packed with units that needed to be delivered and absorbed into a market. We have

Ben (17:36)
staggering population growth in Phoenix, but it almost doesn’t matter how much population growth is when you’re trying to absorb this new unit. In fact, now we know that Phoenix can absorb about 16,000 units. Anything over 16,000 crashes rents and puts pressure on concessions.

Ben (17:55)
Anything under 16,000 causes rent growth. Okay? So today in 2026, we’re expecting about 50,000 deliveries.

Ben (18:06)
We’re halfway through that. In 2027, we’re expecting half a million. And then by 2028, there’s almost nothing left. So we’re right now in a trough at the binary market. As far as operations are concerned with rents, they’ve stopped going down. Concessions

Ben (18:25)
are trying to get off the bottom. Not quite there yet. So it seems like we’re going to have a lot of rent growth.

Ben (18:35)
27 and 28, which would lead me to answer your question, the opportunities to buy now when valuations are suppressed. The next question for you is though, what are the cap rates going to be? Because if I can grow the net operating income by 20 % in the next three to four years,

that can be erased completely with 75 to 100 basis points of cap rates being higher.

Michelle Tack (18:55)
That can be erased completely with 75 to 100 basis points of cap rates being higher

Ben (19:03)
than where I assume they’re going to be. So I need to have better clarity on the bond market. And for that, I need to have better clarity on the inflation,

Ben (19:12)
which takes us back and makes a complete circle

Michelle Tack (19:13)
back to the beginning. It makes sense.

Ben (19:17)
with why I’m saying there’s a reason institutional capital has been and continues to be on the sidelines, because this is the kind of dynamics they’re tracking. So in some ways,

Ben (19:33)
Yes, if you buy today with a 10 year fixed rate loan, you’ll do great. Because in the short run, it doesn’t matter what happens. And you know there’s going to be rent growth.

Ben (19:47)
And it’s just a matter of time, even if cap rates decompress somewhat, it’s just a matter of time before your NOI goes due to rent growth. Because it takes about three years to deliver a new project.

Ben (20:00)
And we have total visibility, know, post our yard, they track the stars. So we know what’s happening with that construction pipeline, but there’s nothing being added to it, which means in 2028, until 2030,

Ben (20:17)
there’s probably not going to be meaningful additional supply. So by buying now, you’ve got five, six years of solid rent growth and you’re going to do just fine.

Ben (20:30)
with the right kind debt on the property. On the other hand, it’s difficult to pull the trigger without knowing for sure what’s happening with the inflation. a guy

Ben (20:44)
like me, I look at tips, inflation-protected treasuries. those don’t see that. I think those are pricing in a oil shock, but not necessarily an inflation.
shock, right? So they’re not pricing in long-term inflation. But who knows? This is what I’m saying.

Michelle Tack (21:01)
we don’t know, right? Yeah. So let me ask you a question. It seems…

that I could draw the conclusion from what you said, that a threat that you articulated, you articulated this to me in preparation to the business is, you know, we don’t know where the interest rates are gonna, we don’t know really what’s going on with inflation. There’s conflicting data, but now we’re getting more data that actually is clear that there is the capacity for that inflation to continue to grow. Now, what’s the timing for me, you, Ben, to now

purchase and making sure I have enough as possible mitigation of that risk by defining that buy box for you over the course with knowing that in knowing this the information that you have that in you know the 2028 period of time certainly would be opportune for you in terms of you had assets in place to take advantage of that. I know that’s a long sentence but would that be accurate?

Ben (22:14)
Yes and no, because opportunity is defined in real estate. The equation has two parts. One part is what’s happening with the income because the value is based on the income. The other side is the capitalization rate, which is a coefficient that upon the income that determines people’s perspective on value. Okay.

Ben (22:42)
That cap rate is a function of where the interest rates are because there’s, right? So in Phoenix, historically, because we’re such a fast growth market, obviously we’ve had a period last three years that’s been a deflationary period, but I think I outlined why operations are going to grow in 27, 28. They’re starting to. We’re seeing it on our books.

Ben (23:09)
We’re starting to, we’re starting at a lower level because of where we’ve come from, where we’ve fallen. So it’ll take a few years to catch up to where we were and then to grow from there. Now, what I don’t know about is coefficient. So let me take you back to the treasury’s conversation. There are two groups of people. There’s, there’s, there’s a commentary that said that because course TTI is

Ben (23:38)
indicating inflation and because that doesn’t necessarily involve the oil or food components, that this is tariffs, that the tariffs are bleeding. Well, by definition, tariff is a one-time reset of pricing. Inflation is a rate of change. So how fast does grow over periods of time?

Ben (24:07)
A tariff is a one-time increase based on the tariff that’s taken place, and then you’re done growing unless there’s more tariffs. So on the one hand, that would indicate the 12 months from now, or CPI should be much lower because it’s not growing anymore because there’s no more tariffs. Or are there? Yes. Okay, so that’s my first point.

Ben (24:34)
when looking into the first point

Ben (24:36)
12, 15 months, okay? The second point is, and this is the more troubling point, is that there’s a group of people that are saying,

Michelle Tack (24:44)
are saying,

Ben (24:46)
4.7 % 10-year treasury is not a problem because 10-year treasury measures nominal growth, which is GDP plus inflation. So if you have 4.7 % treasury, all that means is 2.5 % GDP, which, you know, plus 2.2 % inflation. So if the treasury market is pricing in 4.7 % 10-year treasury,

Ben (25:15)
They’re actually pricing inflation coming down really close back to 2 % over the long term. And they’re simply pricing out higher GDP, more productivity, AI, the tax refunds. They’re pricing in the current administration’s policies being more pro-growth. They’re thinking there’s going to be more growth. Okay? If the 10-year, which is a no.

Michelle Tack (25:15)
They’re actually pricing inflation coming down really close back to 2 % over the long term. And they’re simply trying to knock higher GDP, productivity, AI, the tax refunds. They’re pricing in the current administration’s policies being more pro-growth. They’re thinking there’s going be more growth. Understood. If the 10-year, which is a,

oh, yeah.

Ben (25:42)
Having a 2.5 % GDP, 2.7, we haven’t had that for 20 years in this country. It’ll be good for the country and it’ll be good for Americans to have higher growth. Now, part of that higher growth is probably due to AI, which is going to cause additional unemployment. If you look at the ⁓ work population in this country, we’ve lost about a million people in the workforce in the last year. And you got to ask yourself like,

Michelle Tack (25:42)
the country. It’ll be good, yeah, it will be good.

Ben (26:11)
is that’s a statement. Like how many more people can we lose? Yes, the unemployment percentage is low because the denominator came down, but we know there’s something brewing underneath it, which is a separate conversation. But what I’m saying is, in 10 years at 4.7, where’s the low going to be in terms of the interest? When I closed on a property

Ben (26:36)
Eight months ago, I got a fixed rate five year loan from Fannie Mae at 4.8%. Today, that loan is going to run about 5.5. And that’s a direct response in both Fannie and Freddie to what’s happening in the bond market. So if the bond market is going to stay where it is, and Fannie Mae is going to stay where it is, what’s going to happen to the cap rates? Phoenix,

Ben (27:05)
has always been a par to 50 basis point negative leverage market, meaning that if your loan is at 5%, you will buy at 4.5 cap because you’re expecting a lot of wind growth over the coming years, which I think we’re not seeing now, but when we stabilize, think we’re going to go back there. But if cost of debt remains at 5.5%, best case scenario, you’re talking

Ben (27:34)
about a 5 cap.

Michelle Tack (27:36)
And Ben, you have provided some amazing information, which I’m thrilled about.

Ben (27:36)
Well, we just came from a forecast. That’s a 20 % haircut on valuations stabilized if that’s what happens. I don’t know if that’s what’s going to happen. Nobody knows if that’s what’s going to happen, which is why this is such an involved conversation and difficult to answer.

Michelle Tack (28:04)
because one, it all makes sense and it’s very detailed oriented, but it’s not that detailed oriented. What I mean by that is there’s layers to it, but we can understand it. So I appreciate you doing that. Before we wrap up for the day, can you talk about your network at all? the top end of your network, who they are, it doesn’t have to be by name, what have you, or whatever you think is contributing to your success in your network itself.

Ben (28:33)
Well, on the acquisition side, Phoenix is a very institutional market. So the brokers over here control the market. You’ve got IPA, you’ve got CBRE, you’ve got other large brokerages, and there’s about four or five of them. They essentially control the entire market. Now, that doesn’t mean you can’t get something off market, but it’s still going through that. So on the acquisitions and dispositions side, ⁓ this is all about having

Ben (29:00)
good relationships with these guys, thankfully we do. And in terms of fundraising, it’s family and friends and people we meet and people that hear about us and reach out to us. We have a CRM of about 600 and

Ben (29:02)
good relationship with these guys, thankfully we do. And in terms of fundraising, it’s family and friends and people we meet and people that hear about us and reach out to us. We have a CRM of about 600 investors

Michelle Tack (29:21)
⁓ wow, that’s great.

Ben (29:21)
and that’s worked for us. Not that we don’t want to grow and not that I wouldn’t…

like to explore like a family office situation, which we’ve never actually used family offices to this point yet. But I’ve

Ben (29:41)
been doing this a long time. Let’s put it this way. I’ve been doing this a long

Michelle Tack (29:41)
I’ve been doing this a long time. Yeah, I understand.
Ben, would you mind providing your contact information? You’ve done an amazing job. There may be a variety of people who are doing great today in different aspects. I may want to reach out to you to invest or learn. you mind providing Sure. My email at WhiteHaven is ben.levovich.

Ben (29:51)
Sure.

Sure, sure. So my email at WhiteHaven is ben.leybovich, W-H-I-T-E-H-A-V-E-N.com. ⁓

Michelle Tack (30:11)
V-O-V-I-C-H at WhiteHaven, W-H-I-T-E, H-A-V-E-N.com.

Thank you. You’ve been a great guest. For those that are listening today that may not have subscribed and feel value out of this podcast, we encourage you to do so. And to our subscribers that continue to subscribe, we hope you found value as well. Thanks again, Ben, and continued success in your operations. Thank you so much, Brazil

Ben (30:47)
you so much, Michelle, pleasure.