• H Squared Capital, LLC

These Are Reasons Why You Should Definitely be Concerned About The Effect of Rising Interest Rates.




It's important for investors who are concerned about the rise in interest rate effect on the multifamily syndication market to pay attention to the indicators in the market. These indicators are published from time to time by Major analyzers of the commercial multifamily space. Companies like the National Multifamily Housing Council (NMHC), Costar, and Real Page Analytics have a large annual budget to perform research. These research are made public or can be acquired early with memberships. It's important to read multiple reports being that they track different indicators.

As the interest rates rise, it is causing concern among investors about how it will affect the multifamily syndication market. Although there has been a tightening of the market conditions, it has not stopped investment from happening. In fact, many investors are still looking to invest in the market because of its attractiveness compared to other alternatives. While there is always some risk involved when investing in any market, it seems that the multifamily syndication market is still attractive.


Companies like Blackstone still favor the multifamily sector. It is speculated that their most recent $24.1B fund will be looking for multifamily and industrial investment opportunities, according to GlobeSt.com.

As we all know, with rising interest rates, it is more expensive to buy a house, and this tends to push more renters into the multifamily market. So there is still good reason to believe that the multifamily real estate market will continue to do well even with rising interest rates. Furthermore, construction expenses will rise in an inflationary economy, which slows down the already struggling demand for housing. So, not only will more renters be looking for apartments, but developers will have fewer apartments to offer them. The conventional wisdom is that It's still a good idea to borrow and invest in income-producing assets if interest rates are going up by 2% and inflation is increasing by 7%.


Operator's sentiment on the effect of rising interest rates.


According to the National Multifamily Housing Council (NMHC), increased borrowing costs are deterring investors from obtaining loans, which has resulted in a decrease in sales volume. As we, H Squared Capital, network with other syndicators, we are seeing that many owners are reluctant to lower prices as some syndicators are asking to retrade prices. This is due to having strong rental history through 2021 and the first quarter of 2022 to demonstrate the value of their properties. Being that the sale price is typically based on the historical performance of the property, retrading can be a little bit challenging. As we know, the price of the property is calculated based on the net operating income divided by ago in Cap Rate. This calculation does not factor in the type of financing that a buyer would use. But on the buyer side, in communication with lenders, we get to project how an increase in interest rate will affect the margins.

So, what does all this mean for multifamily investors? Despite the current market conditions, there is still good reason to believe that the multifamily real estate market will continue to do well. Furthermore, construction expenses will rise in an inflationary economy, which slows down the already struggling demand for housing. So, not only will more renters be looking for apartments, but developers will have fewer apartments to offer them. The conventional wisdom is that It's still a good idea to borrow and invest in come producing assets if interest rates are going up by 2% and inflation is increasing by 7%.


What we do?


Over at H Squared Capital, we build relationships with the best-in-class multifamily Operators to provide you with income-producing multifamily assets. Let H Squared Capital do the hard work and also accept most of the associated risk while you invest passively and continue doing what you love.


Download your Operations Manual Here. In the Operations Manual, you will learn how passive investors leverage Syndication to create Passive Income in order to grow their wealth for their future generation and create the ability to make an impact!


For more information on how you can get involved in a value-add multifamily syndication deal, please contact me at Hutch@HSquaredCapital.com or Dr. Heath Jones at Heath@HSquaredCapital.com. You can also visit our website at www.HSquaredCapital.com. We’d be happy to answer any of your questions and help get you started on the path to financial success through multifamily investing!

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