Elevated interest rates have waned on buying activity across CRE — but S2 Capital now sees an opportunity to strike in the multifamily sector after raising $373 million from a funding round.
S2 Real Estate Fund II LP received backing from a mix of multifamily offices, wealth managers, public pensions, global asset firms, as well as European and American investors.
Already, the pool has been 60 percent deployed across nine markets and 14 assets. The overall goal is to target distressed multifamily opportunities in states including Tennessee, Georgia, the Carolinas, Texas, Arizona, Colorado and Florida. S2 views these states as high-growth markets. But most importantly, the multifamily investor is looking to capitalize on what it calls "market dislocation."
"The current environment has created exceptional opportunities for disciplined, well-capitalized investors," Patrick Connell, head of capital formation and investor relations at S2, said in a statement.
"Higher interest rates and elevated supply have introduced stress into the multifamily sector, and we're leveraging our extensive relationships and operating capabilities to create value and drive performance."
After acquiring the assets, S2 will seek to reposition or upgrade them. This, according to the Dallas-based firm, aligns with its long-term value creation strategy.
Also, the capital in the latest pool of investor commitments exceeded the amount in S2's previous Multifamily Value-Add Fund I LP.
While overall CRE CMBS distress slipped by 20 basis points to 10.6 percent, multifamily remains one of the most distressed categories, according to a March report from CRED iQ. The rate for multifamily went from 13% in February 2025 to 12.9% in March. Only office was in at a higher rate, from 19.3% to 19.2% in the same period.
Source: GlobeSt/ALM