Risky Buildings

The pitch: rotate out of the overbuilt Sunbelt and into Columbus, Indianapolis and Kansas City, where cap rates never got bid up and occupancy held. The Fed’s latest Beige Book just complicated the timing.

Investors are being asked to underwrite a Midwest multifamily thesis on migration and delinquency data that predates a fresh U.S.-Iran flare-up, right as the broader CRE recovery the Fed just described was still fragile enough to depend on stable energy prices. 

The July Beige Book showed activity increasing at a slight to moderate pace in 11 of 12 Fed districts, the broadest gain since January 2025. Oxford Economics called the economy solid footing heading into July, then flagged that the read predates renewed hostilities with Iran and what that could do to energy prices, trade and inflation.

Zoom in on the Midwest districts specifically:

• Cleveland: demand growth “modest.” Industrial up, helped by M&A. Everything else stable to soft.
• Chicago: construction flat, contractor quoting down. Data center and power generation projects the one bright spot.
• Kansas City: capital moved more freely into property sales, but credit for new development got harder to find, a mix that favors buying existing buildings over breaking ground.
• St. Louis: mixed. Some developers called conditions healthy, others held projects for uncertainty.
• Minneapolis: thin construction pipeline pushed vacancy up anyway, landlords facing softer leasing.

None of that reads like a region running away from the Sunbelt’s problems. It reads like a region also waiting to see what happens next.

The bull case:

• Austin vacancy: 14%.
• Phoenix concessions: 3.5 months free rent.
• Dallas-Fort Worth 2024 deliveries: 38,640 units.
• Columbus rent growth: 3 to 4%.
• Milwaukee occupancy: 95%.

Yes, but Dallas’ own Beige Book entry undercuts the clean Sunbelt-bad, Midwest-good split. Multifamily absorption there was “solid,” per the Fed, but landlords are still leaning hard on concessions to get it. Solid demand and heavy concessions are not opposites. They’re what a market looks like when it’s absorbing supply and still fighting for renters at the same time, which is closer to Milwaukee’s actual position than the pitch admits.

The delinquency problem doesn’t respect the map. Trepp’s multifamily CMBS delinquency rate has climbed from about 4.5% a year ago to north of 7%, a decade high. That deterioration has broadened across regions and vintages. If the Midwest were genuinely insulated by cleaner underwriting, the numbers should show it splitting off from the Sunbelt. They haven’t yet.

The migration story is real, but check the receipts. Census data show Ohio’s net domestic migration flipping from -32,482 in 2021 to +11,926 in 2025. Michigan went from -28,290 to +1,796, its first positive domestic migration in decades. The Midwest as a whole posted positive net domestic migration for the first time this decade.

The intrigue: a chunk of that inflow looks like pandemic movers drifting home plus temporary labor tied to data center construction, the same construction the Beige Book flagged as “robust” in Chicago and ongoing in Philadelphia. Temporary labor building temporary projects is not the same as durable population growth, and the thesis needs it to be.

Case in point: Blackstone’s QTS spent years and real money chasing a 2,100-acre Digital Gateway data center campus in Prince William County, Virginia. Early July, it walked away entirely, withdrawing its last appeal after local opposition and a zoning defect outlasted the company’s patience. The pipeline underwriting Midwest migration numbers is not fixed infrastructure. It’s a set of live projects that can die on a single filing.

Also in the fine print: much of the Midwest stock on offer is 1970s and 1980s vintage, pitched at 5.5% going-in yields. That’s not a discount, it’s a down payment on deferred capex that “value-add” language is about to paper over.

Watch whether the August Beige Book shows Kansas City’s capital-versus-credit split widening, whether Dallas concessions ease or deepen, and whether inventory in Indianapolis, Kansas City, Cleveland, Columbus and Cincinnati keeps climbing the way it has been. That last one is the tell.