The Fed Hiked, Then Held: What It Means for Multifamily

Many investors spent the last two years waiting for interest rates to fall. Instead, the Federal Reserve moved the other way. On September 16 it raised its benchmark rate for the first time in more than three years, and on October 28 it held steady, with two members voting to raise it again. For anyone weighing a multifamily investment, that changes the questions worth asking.

What the Fed Actually Did

According to Multifamily Dive, the Federal Open Market Committee voted unanimously on September 16 to raise the federal funds rate by 25 basis points (a quarter of a percentage point) to a target range of 3.75% to 4%. It was the first increase in more than three years.

Six weeks later, the Federal Reserve’s October 28 statement kept that range unchanged. The vote was 10–2. Lisa Cook and Beth Hammack dissented, and both preferred another quarter-point increase. The statement says economic activity is expanding at a strong pace and that inflation remains elevated.

A hold is not a cut. With inflation still elevated and two committee members leaning toward further hikes, the Fed has not signaled that relief is close.

Long-Term Rates Matter More Than the Fed Rate

Apartment pricing and mortgages track longer-term rates more closely than the Fed’s overnight rate. Here is where those stand:

• Mortgage rates: Freddie Mac’s weekly survey for November 5 put the 30-year fixed mortgage at 7.18%. That is down 0.06 points from the prior week but up 0.96 points from a year ago.
• The 10-year Treasury: Per Multifamily Dive (September 11), the 10-year yield hit 4.8% in early September, its highest level since 2023. A CRE Daily report from October 23 says it sits near a 25-year high after a late-September surge.

The 10-year Treasury is a common benchmark for commercial real estate loans, so when it rises, borrowing costs for apartment buyers rise with it.

How Higher Rates Show Up in Apartment Deals

Higher rates do not hit every deal the same way. Three pressure points stand out.

Pricing and underwriting. Underwriting means the math a sponsor runs to decide what a property is worth and what it can afford to pay. In the September 11 Multifamily Dive piece, Jon Siegel of RailField Partners said the cushion his firm had built into its models for rates not going past about 4.75% “is gone.” Sharon Karaffa of Newmark said that at these levels, “we would expect a slowdown in origination, development, and sale activity.”

Transaction volume. CRE Daily, citing Institutional Property Advisors data, reports that single-property apartment sales trailed last year by 6% through August. Fewer deals getting done is what you would expect when buyers and sellers disagree about price.

Floating-rate debt. A floating-rate loan has an interest rate that moves with a market benchmark. Justin Ashcraft of Northern Ridge Capital told Multifamily Dive after the September hike that “bridge debt is going to feel a real squeeze,” especially for recently completed construction and value-add acquisitions financed with floating-rate loans. Bridge loans are short-term loans used while a property is being renovated or leased up.

Why This Is Not Only Bad News

Higher rates work in two directions. They squeeze sponsors who bought with thin margins and short-term floating debt. They also tend to reduce competition and can create better entry points for buyers who have capital and discipline.

Matt Rosenthal of Eastham Capital told Multifamily Dive he was not expecting sudden effects, though he said the hike would add to the current market malaise. He also noted that the only bright spot may be that long-term rates could settle down. Industry voices are measured rather than panicked. That matches how real estate cycles tend to work: the stress shows up unevenly, and it falls hardest on deals that were built to depend on cheap money.

What This Means for Passive Investors

You do not need to predict the Fed. You do need to ask better questions of any sponsor. When you review a multifamily syndication, consider these:

• How is the debt structured? Fixed-rate loans, or floating-rate loans with a rate cap (an insurance-style limit on how high the rate can go), behave very differently from uncapped floating debt.
• When does the loan mature? A loan coming due in the next couple of years faces more refinancing risk if rates stay high.
• What are the underwriting assumptions? Ask whether the plan depends on rates falling, on a sale at a lower cap rate, or on aggressive rent growth. Conservative plans do not need a rate cut to work.
• How much cash is held in reserve? Reserves are what let a sponsor ride out a rough year without calling for more capital.
• What is the sponsor’s track record through a downturn? Experience in a stressed market tells you more than experience in an easy one.

Higher rates are a reason for more diligence, not a reason to avoid the asset class. Rents, housing demand and the tax benefits of owning real estate do not depend on what the Fed does next, but the way a deal is financed does. Keep in mind that every investment carries risk, including the loss of capital.

Want to go deeper on the tax side of real estate? Download our free eBook, or talk with the D3 Capital team about how passive multifamily investing could fit your portfolio.

This article is for educational purposes only and is not investment, tax, or legal advice. No offer of securities is made here; any offer is made only through a Confidential Private Offering Memorandum and only to accredited investors. Past performance does not guarantee future results.