Corner Insights – Rental Housing: Demographic Tailwinds and Preferred Equity Opportunities
October 2025
Welcome to CenterSquare’s Corner Insights Column, bringing you updates on what’s happening across the real estate landscape.
As new construction starts have slowed, signaling a return to more normal supply levels in the rental housing sector, demand has remained strong, creating a compelling entry point for investors. This demand is driven by several factors, including the convergence of generational demand patterns that the real estate market has not previously experienced.
Millennials, who make up one of the largest cohorts of renters, are entering the single-family lifestyle and family formation years, facing high home ownership costs coupled with limited supply of affordable housing options, resulting in a generation of renters for longer.
On the other end of the spectrum, the baby boomer generation is aging out of home ownership, seeking to relinquish the responsibility and high cost of owning a home and instead shift to the renter lifestyle.
This convergence has fueled demand for rental housing, even amid a period of oversupply in the last few years. While we expect supply to begin to return to more normal levels, demand remains strong, creating a compelling opportunity for real estate investors.
At CenterSquare, we concentrate on niche rental housing subsectors that we see offering the most potential: purpose-built rental communities (PBRC), manufactured housing communities (MHC), and differentiated suburban multifamily.
Aside from the strong fundamentals we find attractive in these subsectors, we’ve also seen the capital markets environment give rise to another trend: preferred equity opportunities.
CenterSquare made one of these investments recently, in the development of Ironwood Homes at Rosefield, a build-to-rent community in Phoenix, AZ. The 320-unit townhome and single-family detached home community is a unique asset in the Phoenix build-to-rent market, and the preferred equity investment presented a compelling risk-adjusted proposition for CenterSquare to invest in one of our high-conviction sectors.
So why is pref equity appealing to investors? One reason is the risk mitigation versus a traditional equity investment. By choosing a preferred equity position, we gain some insulation from shifting fundamentals (competitive supply, fluctuations in rent growth, tenant demand, etc). While we give up the potential for outsized returns to the upside, we are able to deliver compelling value-added returns with significant equity subordinated to our investment position. During periods of continued uncertainty, trading hopeful upside for downside protection and a more secure return in line with our targets feels like a compelling risk-adjusted proposition.
In light of a higher interest rate environment and lenders not pushing the envelope on senior financing proceeds, coupled with a still hesitant equity investor mindset, the window for attractive preferred equity investments is open today to fill this gap in the capital stack. Furthermore, as referenced earlier, with demand remaining firm and headwinds from new supply being reduced, developers and owners now see the opportunity to deliver new product or renovate and increase rents, respectively. However, with the capital markets limitations discussed, they are increasingly turning to preferred equity investments to complete the capital stack and proceed with project development, lease-up, or value-add renovations.
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