2026 Investor Letter

Dear Investors, 

As we begin 2026, I want to personally thank you for your continued trust and partnership with Urban Asset Advisors (“UAA”). The past several years have tested the commercial real estate industry in ways few could have anticipated, and I am deeply grateful for the patience and confidence you have shown as we have navigated a difficult and unusually prolonged market cycle together.  This letter provides my personal perspective along with data on the Portland metro market, outlines UAA’s focus, offers an update on portfolio performance, and shares our outlook and strategy moving forward. 

State of the Portland Metro Market 

The Portland apartment market has experienced a long and uneven reset following one of the most aggressive interest-rate tightening cycles in modern history. Apartment transaction volume remains well below historical norms, running at roughly half of what would typically be expected in a balanced market. Elevated borrowing costs, constrained debt markets, and persistent bid-ask gaps have kept many buyers and sellers on the sidelines. Operating fundamentals have also shifted meaningfully. After more than three years of sustained inflation, expenses across multifamily and other commercial real estate assets are now structurally higher. This reality has placed greater emphasis on disciplined operations, realistic underwriting, and conservative capital structures. 

Rent trends have reflected these broader challenges. Rents declined across nearly all apartment types and locations within the City of Portland, with the most pressure felt by newer and recently delivered properties. These assets were disproportionately impacted by an overbuilt development pipeline that began forming in late 2019, combined with limited population growth these past six years to absorb new supply. Over time, however, the market has steadily worked through this excess inventory. Rents reached a cyclical low in 2024 in most submarkets, and 2025 marked the first year of modest rent growth across select unit types. Occupancy has improved alongside this trend, with average market occupancy now exceeding 90% and many stabilized properties returning to long-term target levels. 

Within this environment, UAA’s portfolio is currently operating at an average occupancy of 95%, reflecting our continued focus on asset quality, tenant retention, and hands-on management. As we look forward to a healthier sales market to exit properties that are targeted to sell, we have begun pushing rents more aggressively as the market will allow with a focus on higher face rents with increased concessions where necessary.  Capital markets have adjusted in parallel. Apartment capitalization rates across the Portland metro area have expanded by approximately 100 to 150 basis points over the past several years, following the Federal Reserve’s increase of benchmark interest rates by more than five percent in less than 24 months. 

On a personal note, this has been the toughest and most persistent commercial real estate downturn I have experienced in my 30 years in the industry. What makes this cycle particularly unusual is that it has occurred during a period of historically strong long-term growth in U.S. equity markets and employment—creating a sharp divergence between real estate and the broader economy. During this period, we have seen many investment sponsors across the industry face significant distress, often driven less by operational shortcomings (although these exist as well), but more typically by overly aggressive leverage entering the cycle. 

UAA’s Focus in 2025 – Looking Back 

Against this backdrop, UAA’s approach throughout 2025 was intentionally conservative and deliberate. Our priorities centered on protecting investor capital, strengthening the existing portfolio, and ensuring long-term durability rather than pursuing growth for its own sake. 

We are particularly grateful for UAA’s disciplined underwriting standards and conservative use of leverage. In an environment where higher debt loads have left many projects vulnerable, we have seen numerous assets across the industry marked down to levels that fully erased project equity. In some cases, sponsors similar to UAA were forced into involuntary sales at the market’s low point, while others ultimately closed their doors after sustaining unrecoverable losses. Throughout this cycle, our conviction has only strengthened that consistent, hands-on asset management is the most effective way to maximize net operating income—both on a property-by-property basis and across the portfolio as a whole. In an environment where revenue growth has been constrained and expenses elevated, attention to detail, active oversight, and day-to-day execution have mattered more than ever. 

UAA’s portfolio benefited from this approach, allowing us to remain focused on operations and long-term value creation rather than short-term survival. Our asset management efforts emphasized tenant retention, expense control, vendor accountability, and selective capital investments that enhance durability and competitiveness. This doesn’t mean some properties in the UAA portfolio haven’t faced headwinds and issues; they have and we continue to work diligently to solve those challenges and turn them around. We also remained proactive in our engagement with lenders, investors and partners, prioritizing balance sheet flexibility and thoughtful risk management. 

Portfolio Performance and Investor Update 

Portfolio performance in 2025 was generally in line with expectations given the operating environment. Occupancies improved modestly over the course of the year, leasing activity strengthened, and tenant retention remained a key contributor to overall stability. Expense management continued to be a central focus, particularly in areas such as insurance, utilities, and labor, where cost increases have proven persistent. Capital expenditures were approached carefully, with an emphasis on projects that enhance safety, efficiency, and long-term competitiveness. In several instances, we elected to defer non-essential improvements until market conditions and cash flow more clearly support value realization. 

Importantly, as operating fundamentals have stabilized and rents have begun to recover, we believe the portfolio is well positioned to benefit from improving valuations over time. While the broader market continues to recalibrate, we are increasingly confident in the long-term performance and underlying value of UAA’s assets. 

Looking Ahead 2026: Strategy and Outlook 

Looking forward, we are optimistic about the mid to longer term future and increasingly constructive on the opportunity set ahead. While we expect continued volatility in the near term, we believe the market is entering a phase where patience, experience, and discipline will be rewarded. 

UAA’s strategy at this stage of the cycle is to remain highly selective while actively monitoring the market for opportunities in areas and asset types we believe are poised for recovery and long-term growth. We continue to believe that apartments represent one of the most attractive risk-adjusted property types, supported by durable demand fundamentals and essential housing needs. Within multifamily, we see compelling opportunities emerging to acquire newer, well-located assets at significant discounts to replacement cost, particularly where capital constraints or transitional challenges have created motivated sellers. At the same time, we remain drawn to garden-style and workforce housing assets, where income durability, lower volatility, and long-term demand characteristics align well with our investment philosophy. 

While multifamily remains our core focus, we are also thoughtfully exploring select opportunities in other property types where risk-adjusted returns are compelling and where our operational approach can add meaningful value. 

Closing 

Periods like this test conviction and patience, but they also lay the foundation for future opportunity. I am deeply appreciative of your continued confidence in Urban Asset Advisors and proud of how the portfolio has been positioned through an exceptionally difficult cycle. We remain committed to transparency, disciplined execution, and long-term value creation, and we look forward to navigating the opportunities ahead together. 

Sincerely, 
Tim and our UAA team