‘Foong on Finance’: Rising Interest Rates Torpedo Acquisition Deals

The multifamily acquisitions market became a buyer’s market as early as the beginning of last year.

Cap rates for apartment properties have now slid back down to levels last seen in the mid- to late-2000s. For example, cap rates are 5.5 percent in certain California locations and in New York City, says Nathan Collier, founder and chairman of the Collier Companies.

Collier spoke at a session last week at the National Association of Home Builders’ International Builders’ Show. Speakers at the session, which addressed the acquisition of multifamily properties, suggested that rising interest rates (which have increased by as much as one percent at various points) could in turn push up cap rates.

Investors want a spread of 50 to 100 basis points over the cost of the debt, says Collier. A lot of deals that were begun three to four months ago are now falling through, possibly because of the rising interest rates. Indeed, Collier is receiving calls asking if he would be interested in these deals.

Lance Swank, chief operating officer at the Sterling Group, says the best opportunities await all-cash buyers who can close quickly.