Ken McElroy: 2008 Prices Return for These Properties

TL;DR

Distressed multifamily properties are hitting 2008-era prices due to loan maturities and poor operators, creating rare buying opportunities for experienced teams.

Key Points

• 1.Multifamily distress is now mirroring 2008 price levels. Ken McElroy, who owns 10,000+ units, is seeing deep discounts on distressed assets — including a 278-unit Texas property that was worth $45M in 2021 now being offered at $8M.
• 2.The 2025 cycle differs fundamentally from 2008. In 2008 it was a single-family crash with 3–4M MLS listings; today the US is 3–5 million housing units short, so no comparable residential price collapse is expected.
• 3.Loan maturities and floating-rate debt are the core forcing mechanism. Properties with 95%+ occupancy are still failing because debt service alone turns positive NOI negative, forcing lenders to eventually take assets back.
• 4.Ken's risk management formula has kept him out of trouble. He uses fixed-rate debt exclusively, keeps portfolio-wide LTV under 60%, and requires day-one cash flow — refusing to underwrite on the assumption rates will fall.
• 5.Buying distressed deals requires operational credibility, not just capital. Lenders selling troubled assets want buyers who can execute a $30–40M renovation and manage their way out — a weekend syndication course won't qualify you.
• 6.Small multifamily distress is also emerging and accessible to smaller investors. Ken sees operators who renovated at peak prices now facing adjusted cap rates above 6% (bought in the 4s), creating penny-on-the-dollar entry points without requiring full rehab.
• 7.Denil McElroy 1031-exchanged two condos into single-family homes. HOA fees of $400/month and downward rent pressure from new Class A apartments cut cash flow to $700/month on the condos; she now cash flows $1,600/month on the replacement single-family property.
• 8.Return on equity, not just cash flow, should drive portfolio decisions. A paid-off condo with a 2.8% mortgage showed lower ROE than a leveraged one at 8% — measuring imputed equity efficiency prompted the strategic 1031 exchanges.
• 9.Hyper-local market knowledge and path-of-progress targeting are essential. Denil focuses within specific blocks near a redeveloped mall anchored by Whole Foods and Lifetime Fitness in North Phoenix/Scottsdale, achieving near-zero vacancy and stable rents even as broader Phoenix softens.