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Multifamily Owners Feeling Sting of High Interest Rates

As interest rates continue to rise, the impact is being felt from all corners of the real estate industry, including the multifamily sector. In the latest sign that the segment is feeling the heat, an apartment owner in Houston lost four rental properties totaling 3,200 apartment units in Houston to foreclosure. The owner, Applesway Investment Group, had borrowed $230 million to finance the purchase of the four complexes during the pandemic. Earlier this month, after Applesway defaulted on the floating-rate loans, mortgage company Arbor Realty Trust foreclosed on the properties. The apartment complexes were later bought by Fundamental Partners, a New York-based real estate investment firm. 

The latest news of pain in the multifamily market comes after new data shows that sales of multifamily properties in the first quarter of this year plummeted by 74 percent, a loss of $40 billion. The shocking figure stands in contrast to the strength and popularity of the multifamily market has experienced over the last few years. In 2021, the multifamily market swiftly rebounded from the early pandemic months, posting record-setting numbers. Rent growth was exploding, vacancy shrunk, and migration trends led to super hot markets in areas like the Sunbelt. But the high interest rate environment has led to a major pullback in investment in the market. And with a robust pipeline of new units expected to come online this year–approximately 500,000–apartment building sales are not expected to jump anytime soon.

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