Buying Over Building: Why Developers Are Shifting to Acquisitions

The multifamily landscape is undergoing a fundamental shift. Developers known for large-scale, ground-up construction are putting their shovels aside and redirecting capital toward acquiring existing apartment communities. What began as a response to rising development challenges is rapidly becoming a long-term investment strategy—and it’s reshaping how multifamily growth will look over the next decade.

Why Developers Are Moving from Building to Buying

Across the mid-Atlantic and nationwide, developers are finding that acquiring an existing property is—plain and simple—more economical than starting from scratch.

Ground-up multifamily construction now comes with cap rates hovering around 6.5%, while acquisition opportunities often sit between 5.75% and 6.25%. The spread may seem small, but in a high-cost, high-rate environment, that difference can dramatically shift returns.

This financial reality is pushing even development-focused firms to redirect resources into acquisition pipelines. The reasoning is straightforward: buying existing assets often delivers stronger returns than building new ones in today’s market.

Rising Development Barriers Are Fueling the Shift

Several forces have converged to make new development increasingly difficult:

• Tariffs and material inflation
• Labor shortages and rising construction wages
• Higher insurance costs
• Elevated interest rates
• Longer approval and permitting timelines

Developers describe the environment as “death by a thousand cuts”—a series of small but compounding pressures that erode project feasibility. As a result, many firms are moving into acquisition mode to maintain deal flow and investor returns.

Developers at the Forefront

Several major developers have already restructured their pipelines. Bozzuto Group, for example, partnered with Invesco on a $330M fund targeting up to $1B in acquisitions, focusing on post-2000 apartment communities. Others, like Shoreham Capital, Jefferson Apartment Group, and Menkiti Group are dramatically expanding their acquisition volume—often with a value-add strategy to enhance returns.

A Looming Supply Shortage Is Driving the Trend

According to Avison Young, multifamily starts are down 47.4% year-over-year. After record production in 2022, developers are now facing dramatically fewer viable ground-up opportunities.

Fewer new projects today will likely lead to a shortage of apartments in the future. Experts say investors who buy properties in 2025–2026 will be in a strong position when demand rises and supply tightens.

Why Buying Existing Properties Makes Strategic Sense

1. Faster Scaling: Acquisitions allow developers to grow portfolios immediately, without the multi-year timeline of ground-up builds.

2. Lower Risk: Existing properties offer clearer performance data, stabilized rents, and fewer unknowns—reducing development and financial risk.

3. Value-Add Opportunities:Light renovations, operational improvements, and amenity upgrades can significantly increase NOI and property value.

4. Better Positioning for Tight Market Cycles:With new supply dwindling, owners of well-located existing assets will benefit from increased renter demand and pricing power.

The New Blueprint for Multifamily Growth

While development isn’t disappearing, acquisitions are becoming the dominant strategy for many firms. Even companies rooted in building expertise acknowledge the benefits of diversification, stability, and speed that acquisitions provide.

Despite the required adjustments, most experts agree that buying multifamily properties now positions investors and developers for strong returns in the years ahead.

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Written by the Digital Marketing Team at Creative Programs & Systems: https://www.cpsmi.com/.