Apartment investors scramble to pay loans, seeing skyrocketing interest rates

WSJ's Konrad Putzier and Will Parker break down an overlooked economic development roiling the housing market: Property investors are getting crushed by the combo of rising interest rates and diminishing apartment-building returns, as local Housing Depts like SJ's try to suffocate landlords via expanded rent control laws.

Apartment buildings, long considered a real-estate haven, are emerging as the next major trouble spot in the beleaguered commercial-property world.

Investors bid up the prices of multifamily buildings for years, attracted by steadily rising rents and the prospect of outsize returns. Many took on too much debt, expecting they could raise rents fast enough to pay it down.

Unlike office buildings and malls, which have been hit hard by remote work and e-commerce, rental apartments have low vacancy rates. The apartment sector’s main problem isn’t a lack of demand—rents have soared since 2020—it is interest rates.

The sudden surge in debt costs last year now threatens to wipe out many multifamily owners across the country. Apartment-building values fell 14% for the year ended in June after rising 25% the previous year, according to data company CoStar. That drop is roughly the same as the fall in office values.

This article originally appeared in the Wall Street Journal. Read the whole thing here.

Follow Opportunity Now on Twitter @svopportunity

Opp Now enthusiastically welcomes smart, thoughtful, fair-minded, well-written comments from our readers. But be advised: we have zero interest in posting rants, ad hominems, poorly-argued screeds, transparently partisan yack, or the hateful name-calling often seen on other local websites. So if you've got a great idea that will add to the conversation, please send it in. If you're trolling or shilling for a candidate or initiative, forget it.