Embrey’s Garrett Karam Discusses Multifamily Investment Strategies

Garrett Karam is the chief investment officer at Embrey, a 52-year old vertically integrated multifamily developer that specializes in the Sun Belt and Mountain West regions. At Embrey, Karam oversees a portfolio of 16,000 multifamily units and since joining the firm 12 years ago has secured more than $5 billion in development capital, primarily from institutional partners. 

Karam sat down with Commercial Observer twice this summer to discuss his career, the state of the multifamily market today, where Treasury yields might go next, and why he’s bullish on real estate private credit. 

This conversation has been edited for length and clarity.

Commercial Observer: How did you get into commercial real estate? 

Garrett Karam: So, I’m a finance guy. I went to University of Texas, Austin, got a business degree in finance and became acclimated to the numbers side of the business. Coming out of undergrad, I really was drawn to development for a couple of big reasons. One, I wanted to work on the sort of real projects that had an impact on communities and, like a lot of people in real estate, have an asset that I could actually go feel and touch and see come out of the ground. I graduated in 2003 and had a good run going up to the GFC, working for a midsize developer in Nashville, where I saw all the growth in the Sun Belt, and I saw all sorts of opportunities that I thought were going to be in real estate going forward. 

Why did you join Embrey? 

I’m originally from San Antonio, and honestly, Embrey wasn’t on my radar, but it’s an incredible organization. It was started by Walter Embrey Jr. back in the 1970s — we’re going on 52 years now operating. Walter’s son, Trey, runs the business now, and I had met him a couple times while working for a competitor in Houston. He called me up with an opportunity to eventually become the chief investment officer, and I saw a great platform with a lot of opportunity to grow. But most importantly, we’re a company that does it the right way. We treat our team members really well, we treat our investors really well, and we operate with a high level of integrity, and all those things were very attractive to me.

How would you describe your investment strategy? 

First and foremost, we always put our investors first. We operate mostly in the Sun Belt and the Mountain West, and we try to create maximum value for ourselves and for our investors. Our strategy is very tactical. Multifamily supply is a perfect example. We went from delivering 500,000-plus units nationally for three years in a row in the rental housing industry, to now probably being around 300,000 for the next few years. And that’s important, but what’s more important is what street you’re on, what corner you’re on, what your supply and competitive set looks like in that sort of micro-environment. And I think that our organization does a very good job of selecting the right locations and doing it in a way where we can create value. What we’ve found over the course of the past 52 years is if you treat residents right, if you can create a community for people to live in with great amenities and great management, one that’s service oriented, where they can feel like it’s a home more than just an apartment, then you’re really able to maximize value just across the stakeholder spectrum. 

10-Year Treasury and 30-Year Treasury yields are at 52-week highs. What’s going on with the market today?

There’s no two ways to slice it. It’s been a tough industry since April 2022 when rates started popping hard on the short-term end of the spectrum. Our business can operate and create value and build great communities in any interest rate environment, but what makes it more challenging is quick movements of interest rates. So we saw that with short-term rates over the course of the past four years, though they’re obviously stabilizing now. But now we’re seeing these movements of long-term rates. But it’s really important to recognize that this is the third time in the past, call it three years, we’ve had a significant spike of the 10-Year Treasury rate. 

I fundamentally don’t believe that it’s a huge repricing based upon the fiscal concerns that you have in the United States or throughout the globe. I think it’s a short-term issue for the 10-Year Treasury. But it’s definitely affecting everybody’s business right now. You can’t go from a 3.95 percent in February, pre-Iran War, to nearly 5 percent today and not have an effect on values. But we view it as a moment in time, and we don’t view it as a fundamental shift in the long-term rate environment for the coming years. 

Where are the best opportunities in multifamily investment today? 

I go back to the fundamental idea that the No. 1 thing we have in our favor when it comes to pricing power is demand outstripping supply. And now we’ve seen it across the Sun Belt and Mountain West, where we’re really starting to see that switch flipped when it comes to demand outpacing supply. Therefore, both your in-place rents are growing as well as what you can ask for at the market rate. In addition to that, we are starting to see some concession burnoff through our submarkets, so we were very happy with where our portfolio operated this summer. Going into the winter leasing season, it always ebbs a little bit, but we do expect a very strong spring and summer next year. 

Where  there’s opportunity today, and I firmly believe this, is starting new developments. The reason is operators will have more pricing power in the coming three years when it comes to top-line revenue numbers. But more importantly, and this something I talk about with our existing investors, is the fact we’re in this window right now where developers like ourselves can operate with a high level of certainty on the construction and execution side. Deals are coming in faster, we’re executing faster, and under budget, as compared to the post-COVID years. And that’s meaningful when it comes to returns. Once it’s obvious that there’ll be a lot more rental growth opportunities in the next couple years, then that window’s going to close quickly. 

But there’s a lot of distress. Can the multifamily markets absorb all those deals that were done in 2021, 2022 and 2023 under more frothy debt conditions? 

I think it’s a real story. When we look at the numbers in 2026, there’s about $300 billion of deals that need to be refinanced, give or take. When you look at what was actually issued, according to National Association of Mortgage Brokers’ numbers, it was close to $625 billion. We believe there’s ample space in the industry, in both private credit and the other lending institutions, to absorb that $300 billion of debt that’s coming to do this year. 

Now deals are not all created equal. There’s definitely going to be some distress in the market. There’s gonna be some foreclosures in the market. But we think they’re gonna be selective. We think they’re gonna be more in the value-add space, in deals that were done with very high leverage, probably with multiple layers in the capital stack, probably with syndication in there. And when you look at sort of institutional-grade developers and owners, we think that distress is going to be few and far between in deals that are actually in a forced sale provision or foreclosure position due to that high distress. 

What protects multifamily?

We just have this sort of underlying support from the government agencies. Fannie and Freddie alone last year did around $150 billion of business, probably about 25 percent of the multifamily originations. This year, they’re talking about $180 billion. So you have this sort of underlying support system in multifamily that gives lenders a little bit more comfort that there’s gonna be debt availability. 

So there’s just a lot of capacity in the lending world for multifamily deals. Going on a little bit here, but you layer in the fact that we’re emerging from this heavy supply environment to a low supply environment. It’s really giving all of our lending partners, and all of our institutional investors, confidence to underwrite a little bit more aggressively, really tighten up their terms, and offer very favorable loans to us on both the refinance side and on new construction deals. 

You’re very optimistic about private credit. What are the main misconceptions about private credit? 

So, that’s one of the challenges, just addressing the general population about what the issues are right now. People say private credit, and they lump everything in together. There’s a few nuances here, but just from our world there’s really a big separation between sort of corporate private credit when it comes to direct lending, when it comes to the BDCs [business development corporations], when it comes to asset back lending, and then real estate. And there was so much friction regarding Tricolor Holdings [car loan defaults and fraud], and all the pressure the BDCs felt from their heavy software lending when it came to the software and services companies and the AI threat. And that sort of dialogue or conversation really leaked into the private credit world when it comes to real estate. And those are two completely different worlds with a different risk profile, borrowers, collateral, and it’s different when it comes to how they’re repaid. 

They were suffering from a lot of valuation compression and redemption pressure, and that was all very real. But when I look at it, that is isolated to that BDC/direct lending world, and there’s no real risk of contagion into the private credit real estate world. Sitting in my seat as chief investment officer, there’s no contagion risk, there’s no risk of that sort of redemption pressure in the BDC world leaking into the private credit real estate world.

What makes you so sure?

One major sort of difference between the two is that business development corporations target retail investors, and retail investors, generally speaking, want higher liquidity, right? When something bad happens in that world, they immediately want to pull the rip cord. And that’s when you see Blue Owl Capital, or Apollo Global Management, or Blackstone, or any of their peers, which have these redemption cues of 10 or 15 percent, they have to gatekeep. And those vehicles are proposed as semi-liquid vehicles, but rightfully so. They have these 5 percent gate standards in them, and they have to hold those, because they don’t want to be forced to fire-sale on assets in down markets. 

The big difference in the private credit real estate world is most of those investors are institutional grade, and they’re not looking for liquidity. They understand they’re investing in real estate, and they understand that these real estate terms on these loans are gonna be three, four, five years, and the expectation isn’t that, at any given time, they can kind of raise their hand and ask for a significant amount of liquidity back. So, when we talk to our lenders, such as PCCP or Kayne Anderson, they just don’t have that same redemption pressure on them. 

Brian Pascus can be reached at bpascus@commercialobserver.com.