StarPoint's Higher Hurdle for Multifamily

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A newer multifamily property in Arizona checked several boxes for StarPoint Properties: it was available below replacement cost, offered a roughly 6% cap rate and projected cash-on-cash returns of 6% to 7%. In another market cycle, those facts might have been enough.

The company walked away.

The issue was not the asset itself. It was the supply surrounding it. Paul Daneshrad, StarPoint's chief executive officer, concluded that new construction in the submarket could suppress future rent growth and limit appreciation. In his view, a respectable current yield was not enough to compensate for those risks.

That decision captures the central premise guiding StarPoint's multifamily strategy. Daneshrad is not betting that lower interest rates or broad-based rent growth will quickly restore the returns investors once expected. Instead, the firm is seeking deals with an unusually favorable spread between risk and potential reward—what he calls asymmetrical returns.

"We're looking at literally probably 1,000 investments before we buy one," Daneshrad told GlobeSt.com.

That high bar reflects a wider reset in multifamily investing. Rising interest rates, a large wave of new supply in several markets and declines in property values have weakened the assumptions that supported many acquisitions earlier in the cycle. For Daneshrad, the response is not to retreat from apartments. It is to become far more selective about where the firm deploys capital.

Daneshrad is among the speakers at GlobeSt.com's Multifamily Fall Owners Forum, where the shifting calculus behind apartment investment will be a central topic.

Cash Flow Is Not Enough

StarPoint's focus is currently narrow: multifamily value-add investments and opportunity zones. Both strategies, Daneshrad said, are designed to create returns that do not depend heavily on a favorable market backdrop.

That marks a meaningful change in how he views real estate returns. Traditionally, investors could expect a combination of current cash flow, operational upside through value-add work and broader appreciation driven by inflation, rent growth or declining cap rates. Daneshrad sees less support from each of those sources now.

Cash flow remains important, but it cannot carry a deal by itself when a property faces elevated supply risk or limited prospects for value growth. Meanwhile, he does not expect either a dramatic fall in interest rates or a broad surge in rents to provide the next leg of appreciation.

"The investment thesis into real estate when you're looking at just the cash flow doesn't make sense anymore," Daneshrad said.

His view is shaped by the pressure that higher financing costs have put on real estate values. In the interview, Daneshrad estimated that property prices broadly had declined about 20%, though the impact varies by geography and asset class. Investors with adjustable-rate debt have been especially exposed, he said, as declining values and rising borrowing costs have eroded equity.

The lesson, as he sees it, is that investors can no longer underwrite to a generalized recovery. They need a specific reason why a property can create value despite a more difficult operating and capital-markets environment.

A Deal With An Edge

StarPoint's recent acquisition on Wilshire Boulevard in Brentwood illustrates the kind of opportunity Daneshrad is willing to pursue. The firm bought the Class A property off market at what he described as a 7% cap rate, substantially below market value.

The intended return is not based simply on holding the property and collecting income. Daneshrad said StarPoint believes it can sell the asset at a 5.5% cap rate within a relatively short time frame, creating a gain through its basis and exit pricing.

Whether that outcome materializes will depend on market conditions and execution. But the acquisition shows the distinction Daneshrad is drawing. The firm wants a deal with a built-in advantage, not one that requires the broader market to bail out an ordinary entry price.

That is also why StarPoint passed on the Arizona property. A 6% to 7% cash-on-cash return may be appealing in isolation, but it was not enough for a market where anticipated supply could pressure revenue and valuations. Daneshrad's approach suggests that a higher cap rate is not automatically a bargain if the asset's future income is vulnerable.

The shift began about two years ago, he said, as new supply was building, interest rates were rising and pricing was beginning to fall. Those forces have made underwriting more defensive. Investors have to be more deliberate about debt, market selection and the assumptions embedded in their exit strategies.

Opportunity Zones On Hold

Opportunity zones remain part of StarPoint's investment strategy because their tax benefits can materially improve after-tax yields, Daneshrad said. For a firm looking for asymmetrical returns, those benefits can provide an advantage that is separate from a property's operating performance.

But the strategy is in a waiting period.

Daneshrad said the updated opportunity zone framework, often referred to as "OZ 2.0," would make the program permanent and address shortcomings in the original legislation. The potential permanence is important because it gives investors a longer horizon for planning and assembling development or investment strategies.

Still, uncertainty around the new zone maps has limited activity. The geographies have not yet been finalized, Daneshrad said, making it difficult for investors to know where they can deploy capital under the revised program.

StarPoint is waiting alongside the rest of the market. The firm continues to view opportunity zones as a core strategy, but it cannot fully act until the map designations are released.

That pause is consistent with Daneshrad's broader posture. In both multifamily acquisitions and opportunity-zone investing, StarPoint is choosing patience over momentum. The firm is prepared to invest, but only when pricing, location and structure create a clear advantage.

Discipline Over Forecasts

Daneshrad's outlook is less a prediction that multifamily will struggle than a warning against relying on the old sources of return. Apartments still offer opportunities, particularly where an investor can buy below market value, improve operations or benefit from structural tax advantages. But the market no longer appears to reward loose underwriting.

For StarPoint, that means turning down properties that once might have cleared the investment committee and concentrating on situations where the basis does much of the work.

The firm's strategy also underscores a division likely to become more pronounced across multifamily: between owners hoping market conditions improve and buyers who can find opportunities that work even if they do not.

Daneshrad is positioning StarPoint in the latter camp. In a market defined by uncertainty, his message is that selectivity is not caution for its own sake. It is the investment strategy.