What will happen to the price of multifamily market in the Bay Area preium location like Palo Alto, Menlo Park, Cupertino, etc.? In these area, rent is increasing quickly and vacancy rate is low. So it looks like NOI is improving.
Accountant · San Francisco, CA · Member since 2026 · 40 posts · 19 votes
14h
Hi Zhenyang, fellow Bay Area person here.
I am a CPA with CRE background, not an investors or brokers, so I will not try to call Bay Area prices. But the article mostly answers your question once you see what the distress really is.
It is a debt problem, not a fundamentals one. The loans blowing up are 2021 floating rate CRE CLO deals, and the examples are all Sunbelt, Austin and Texas, where new supply crushed rents. One Austin building is covering 15 percent of its mortgage. That is a cheap debt and oversupply story, not a coastal one.
The Peninsula is the opposite, low vacancy, supply constrained, rents rising, so it sits on the strong side of that same divide, the side that can still refinance. Just keep in mind that value is NOI over cap rate. Higher rates push cap rates up and value down, rising NOI pushes it back up, so the question is which one wins. In a tight market like ours NOI growth offsets more of it, so we hold up better, but they pull against each other, so stronger NOI does not automatically mean a higher price.
The one way it hits us locally is if some over levered owner on 2021 paper cannot refinance at 7 percent and gets forced to sell cheap, dragging a comp even here. Distress sales already jumped from 1.5 to 4.7 percent of deals in a year. But that is about who is stuck with bad debt, not about Palo Alto rents.
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
5h
Zhenyang, I think the Bay Area is a good example of why higher rates do not automatically translate into lower multifamily prices in a straight line.
The pressure is real on owners who have to refinance older low-rate debt at today’s much higher borrowing costs. Nationally, multifamily distress has been increasing, especially for loans originated around the 2021 peak.
But the Bay Area’s operating fundamentals are currently much stronger than many of the Sunbelt markets getting the most distressed headlines. CBRE reported Bay Area multifamily rent growth of 7.7% year over year in Q2 2026, vacancy around 2.8%, and the SF/Peninsula submarket leading rent growth at 11.4%. Cushman & Wakefield also reported very limited new deliveries relative to demand.
So for places like Palo Alto, Menlo Park, and Cupertino, I'd expect two forces to work against each other: higher cap rates and refinancing costs put downward pressure on values, while improving NOI and tight vacancy support values.
The deals I’d watch most closely are properties with good operations but bad capital structures. If an owner bought with aggressive leverage or short-term debt and now has to refinance at a much higher rate, they may have to sell even though the underlying property is performing well. That can create opportunities without requiring the whole submarket to collapse.
I would underwrite using today’s debt costs and a conservative exit cap, then treat future rent growth as upside rather than something the deal needs in order to work.
From the tax side, distressed acquisitions can also create a fresh depreciable basis for the new buyer, and cost segregation may be worth evaluating depending on the asset and whether the resulting losses are actually usable.
Feel free to DM me, I’d be happy to send over a few resources that might help with multifamily underwriting, refinance-risk analysis, and the tax side of distressed acquisitions.
INVESTOR FRIENDLY CPA®5241 Reviews