“We’re just at the beginning of a major wave of capital moving toward commercial real estate and apartments in particular,” Marcus & Millichap CEO Hessam Nadji told attendees at Connect Apartments 2025 in Los Angeles. “Why? Because institutions today only have about 11% of their total assets allocated to commercial real estate. Pension funds with $38 trillion under management have 4% of assets allocated to commercial real estate.”
With the pandemic now in the rearview mirror, “even the office market is recovering,” Nadji said during the CRE Investment Strategies for 2026 & Beyond session that opened the conference. “Apartments have been fairly steady, even with our ups and downs. And retail, now the new darling of the industry, is going to capture a huge amount of this attention and capital flow.”
He pointed to the potential base of private investors in apartments and other commercial property sectors: 39 million households with a net worth of $500,000 or more, 81% of whom are not invested in real estate other than their own primary residences.
“Think about the education we can bring to that private network of capital, investing into commercial real estate, particularly apartments,” said Nadji.
The supply-demand balance in Southern California multifamily is favorable, Nadji said. Currently, there are 20,000 apartment units in the delivery pipeline across the region, whereas elsewhere in the U.S., some individual metro areas have more supply in the offing than that.
At the moment, the big question mark is valuations. “The spread between interest rates and cap rates has compressed to the lowest level since 2005 because of interest rates spiking,” Nadji said. “Cap rates have been adjusting up. And I think we’ve seen the worst of this disconnect between interest rates and cap rates.”
Here again, Southern California compares favorably to the U.S. at large. Nadji cited upward movement in cap rates of 70 basis points for Los Angeles, Orange County and San Diego and 50 bps for the Inland Empire, compared to 110 bps at the national level.
“I would consider Southern California and the Bay Area two diamonds in the rough in the greater scheme of where you can get true value going into the next five years, versus many other growth markets that have not seen as much fluctuation in pricing and cap rates,” Nadji told the audience gathered at the Fairmont Century Plaza.
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