Value-add apartment investors are entering a new phase in which future returns will depend far more on property-level performance than on market-driven valuation tailwinds.
Trepp's latest analysis focuses on 1970s-vintage apartment communities, a cohort long favored by value-add investors because the properties typically offer renovation potential without requiring full redevelopment. It found that while owners generated substantial increases in property values over the past several years, much of that appreciation was driven by rising net operating income and falling capitalization rates—a dynamic that has weakened considerably since 2022.
Trepp analyzed more than 1,400 refinancing events involving nearly 1,300 apartment communities built between 1970 and 1979, comparing lender valuations as the same properties returned to the securitized lending market. Across the sample, median property values increased 63.1%, or roughly $9 million, over a median holding period of 59 months. Median net operating income rose 39.4%, while capitalization rates compressed by 81 basis points, and only 6.1% of refinancing pairs recorded a decline in value.
The findings suggest investors benefited from both improved property performance and an exceptionally favorable capital markets environment. Higher rents and renovations increased income, while declining cap rates boosted the value investors and lenders placed on those cash flows, magnifying gains when properties were refinanced.
That tailwind was strongest in 2021 and 2022, when refinanced properties posted median value gains of 69% and 76%, respectively. Trepp also found the largest valuation increases occurred among properties that transitioned from conduit loans into CRE CLO or agency CMBS financing, transactions that generally reflected years of renovations, income growth and refinancing into a much stronger lending environment.
The picture changed after 2022. Median value gains moderated to 57% in 2023, 44% in 2024 and 50% in 2025 as cap rate compression largely disappeared. At the same time, the share of refinancing pairs experiencing value declines increased, indicating investors can no longer rely on broader market appreciation to generate the same level of value growth.
The report concludes that the value-add strategy itself remains intact, but the drivers of future returns have changed. Rather than benefiting from market-wide valuation expansion, investors are likely to depend more heavily on increasing net operating income through renovations, disciplined operations and careful market selection.
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