Industries Capital Investment Thesis

            Most multifamily deals in coastal Southern California fail under current debt conditions. The opportunity is in identifying the few that don’t and understanding why. That is why Industries Capital is targeting San Diego and the Pendleton corridor as an acquisition-focused partner, identifying, underwriting, and structuring multifamily investments before selectively participating alongside operators.

The Market

The saying goes that you can’t build more land and this is a real constraint in the Southern California geographic area.  Zoning restrictions and permit costs are real constraints here and the high cost of living creates a mismatch in the market.  According to a recent study by the California Association of Realtors the average monthly mortgage payment in San Diego is $5,360, the minimum qualifying income is just over $160k a year, and the median home price is nearly $850k.  The estimates say only about 20% of the area can afford this.  The cost to buy vs. the cost to rent remains wide and doesn’t look like its closing in the near term.  Concurrently the area has a rental floor driven by one of the largest military footprints in the country, a massive health care system, and a large bio-tech industry.

The Current Cycle

Immediate aftermath of the COVID era allowed builders and buyers to enjoy historically low rates and now those debts are maturing and coming due.  Rents climbed 15.7% from 2021 – 2024 before seeing their first dip in 2025.  Due to a recent surge in deliveries of new supply vacancies rose to a historically high 5.8% (still below the national average of 7.3%) Q1 2026.  This is creating a phase where new deliveries are slowing, builders need to recycle capital or extend at significantly higher rates, sellers are seeing cap rates expand, and the cost of buying new debt is breaking what actually pencils. Builders need an exit price that doesn’t work at current rates and buyers can’t underwrite at current rates without a structured advantage on the debt side.  This is why most deals fail today and where we find the leverage. 

The Opportunity

In the current cycle there are three deal types to target: Assumable low-rate debt, debt maturity pressure, below market stabilized class B/C rentals.  Seller finance deals or assumable debt below the market rate create one of the best opportunities for newly constructed properties or existing stabilized properties to be acquired.  These structures allow us to reduce debt cost and maintain cash flow under current rate conditions.  The second type of deal we are looking for is sellers who are facing debt maturity pressure.  Flat rents combined with climbing rates compared to five years ago are pressuring owners who can’t refinance at today’s rates without injecting more capital.  This creates a motivated seller without necessarily a distressed asset. We use this to acquire the property at a lower basis and therefore avoid relying on climbing rents or cap rate compression to create value.  The third is still the classic value add play.  A solid class B/C asset with good occupancy but rents that are trailing the market. 

Our Conditions

The property must first and foremost survive on in place rents – not pro forma or projected income.  Industries Capital frames downside, not potential upside, in underwriting.  With in place rents and estimated expenses DSCR becomes the primary filter.  If a property can’t support debt at current levels, it is a fail in this market at this phase of the cycle.  Rent growth is currently looked at as an upside bonus not a requirement for the deal to work.  It is Industries Capital’s job to manage properties and raise rents accordingly but, with the current market condition, large increases in rent are not a forgone conclusion.  Instead, modest increases are framed, and the deal must have a stronger acquisition value to create the best opportunity. 

The Exit

With a targeted hold period of 5-7 years, we aim to absorb lease turnover and capture a new normalization on the asset into a new phase of the cycle.  When projecting asset returns at the refi gate, we are underwriting flat cap rates to a modest compression as the rate environment improves.  This means our returns are based on cash flow during the holding period and on the assets’ income potential upon the exit.  We are not underwriting at large compression of cap rates upon exit, and we are not projecting large rent increases in the midterm.  We do not guarantee specific outcomes, and we cannot promise any specific multiples. 

Industries Capital Investing Strategy (Q2 2026)

Thomas Tyrrell

Last revised: April 25, 2026

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