According to the Wall Street Journal, the multifamily market carries about twice the amount of debt as the office market which amounts to about $2 trillion.  Over the past few years, multifamily has seen appreciation of property values and increased investment during a low interest rate period, but that all is poised to change in the near future as developers and investors will now be faced with the current high short and long term interest rates, with long term rates showing higher levels.  One of the reasons why this scenario is potentially dangerous for investors and devlopers is that once loans come due in the next few years, they will likely be faced with rates at a much higher level than their existing loans.  If the property values and rents cannot support the debt service at these higher rates, properties will be at risk for foreclosure.  Morningstar predicts that close to $8B in mortgage backed commercial securities will come due during the last two quarters of 2023.

Up to this point, the multifamily sector has remained strong with high occupancy rates and rent growth over the past few years, but as financing becomes more difficult to attain the growth and development in the sector will begin to wane.  In an effort by the government to tamper inflation, federal interest rates have risen steadily since March of 2022 and remain at the highest level seen in over 20 years.  For investors with a stable portfolio and long term loans on the books, given the current environment it would be a good time to delay seeking out any new transactions until rates settle.