Multifamily starts fell nearly 22% in August as CRE debt funds held record dry powder

Multifamily housing starts fell nearly 22 percent in August, while residential starts overall slipped 2.6 percent and completions dropped close to 12 percent to what Bloomberg called the slowest pace since the end of 2018. Those First American Financial Corporation figures, reported by Commercial Observer, arrived at the same moment commercial real estate debt funds were holding a record $56 billion of dry powder, roughly $16 billion of it raised in the first half of 2026, according to CRE Daily's reading of Green Street data.

Abundant capital meeting a shrinking count of projects that qualify for it is the market lenders describe. Jeffrey Rosenfeld, founder and principal of North River Partners, locates the constraint on the equity side rather than the debt side: with fewer sponsors able to raise what it takes to break ground, there is "an expanded pool of lenders chasing a smaller pool of deals." For a sponsor who can clear that check, the effect is straightforward — Rosenfeld calls the environment fiercely competitive, and underwriting standards for the right residential construction projects have been loosening, to an extent.

The competition is visible on the lending side. Eric Cohen, a managing director and co-head of debt origination at Affinius Capital, points to capital arriving from banks, private lenders and others who want construction exposure, including banks that had been on the sidelines. Affinius, which has $30.4 billion in regulatory assets, funded a $130.4 million construction loan on a Chicago West Loop tower in September, a wager on supply scarcity through a mid-2028 delivery. That decline is consistent with the supply constraint the loan assumes, though one month of data does not establish it.

The lenders are chasing a smaller pipeline. Private credit funds have grown their CRE books by roughly $104 billion since 2019, and PitchBook reported in early September that private debt is the only private capital strategy with year-to-date fundraising up year over year while overall fundraising tracks a fifth consecutive annual decline. That money has met a month of starts the coverage places among the weakest monthly performances since the pandemic.

We have argued that apartment capital is bifurcating between patient investors underwriting the 2028-29 supply gap and debt-stack buyers setting the clearing basis, and that development capital is returning through debt and entitlements rather than stabilized equity. August's numbers cut both ways for that position, since the lenders are present but the projects are not. Rosenfeld's equity point is the one that prices risk for a construction lender, because a loan is only as competitive as the equity stack behind it is credible, and where that stack is thin, $56 billion of dry powder has nowhere to go. The next First American print will show whether the starts decline persists into the fall; that will determine whether the borrower-friendly window stays open or the equity bottleneck starts holding the debt market back.