By Danny Fishman
The Federal Reserve rate hike, announced on Sept. 16, may matter less than the headlines suggest, with the real damage still to come. Owners will continue to face financing pressure that existed before the increase. Many fixed-rate multifamily loans are priced off Treasury yields, so borrowing costs had been climbing well before the Fed acted.
In that sense, the Fed is catching up with the market. For owners and developers financing acquisitions or refinancing maturing debt, the challenge is already here. For me, the more useful question is what an owner should do with the financing terms available today. If you are buying a property or refinancing a maturing loan, you already have to make the numbers work at higher borrowing costs. Waiting for the next Fed announcement does not resolve that challenge.
We are also seeing a market where improving demand is slower and does not necessarily translate into an easier financing decision. CBRE reported that second-quarter 2026 net absorption almost doubled the first-quarter total, while national vacancy fell to just above 4 percent. But, average rents grew by only half a percent year-over-year. I would be careful about assuming rent growth will cover a larger debt payment. Also, many markets are still giving concessions, so the net rent growth can be negative.
Preparing For a Higher Borrowing Cost and Rethinking Leverage
I start with underwriting the property at today’s available terms, then test what happens if rates move in either direction. To do this, account for loan proceeds, amortization, reserves, insurance, taxes, concessions and realistic capital expenditures. The base case has to work without assuming both cheaper debt and higher rents. Otherwise, too much of the plan depends on conditions outside our control.
A second source of pressure involves floating-rate debt. Borrowers with inadequate interest-rate protection will feel rate increases directly through higher monthly debt payments. Here, it’s good to evaluate the cost of replacement caps, refinancing and principal reduction before the increased payments begin consuming property cash flow.
Estimates from the Mortgage Bankers Association say 13 percent of all outstanding multifamily mortgage balances come due in 2026. This will make market-wide pressure, with borrowers competing for refinancing. Starting the process as early as possible is best to avoid a weak negotiation position.
This means having a realistic, current estimate of the valuation range, getting refinancing quotes from multiple lenders, and determining how much additional cash the owner would need to put in to make the deal work. With these numbers, owners can then decide if they want to refinance, extend or sell.
At GAIA Real Estate, we approach that choice as a new investment decision. The current income, capital needs and expected forward return of the property must justify the new loan.
Lower-leverage refinancing is the right decision in this environment and leaves enough capital to operate the asset properly. It’s important to be cautious when the plan requires immediate rent growth, a sharp decline in expenses, or a quick sale at a higher valuation. Understanding whether the investment works under reasonable conditions is the first step.
An extension is right when time is likely to create measurable value. To evaluate if an extension is the right call, you can quantify the extension fee, rate cap, cash sweep, principal paydown and additional recourse, then compare that all-in cost with a refinance or sale today.
Selling deserves the same consideration. It can be the strongest choice when new equity would earn a weak return, partners need liquidity or the property’s risk has changed. I try to keep the decision focused on what happens from here. The price paid years ago is part of the history, but the question now is what return we can reasonably expect on each additional dollar invested.
I expect these conditions to make the market more selective. Some acquisitions will struggle to secure financing, some construction starts may be delayed, and owners with too much leverage will face greater pressure as loans mature. At the same time, those pressures can bring acquisition opportunities to buyers with available capital.
How an Increase in Rates Can Create Opportunity
At GAIA, we focus on situations where the difficulty lies in the capital structure. A strong property can become an attractive acquisition when excessive leverage or an approaching maturity creates pressure on the seller.
That is why I do not think the next phase of activity depends entirely on the Fed. Owners still have maturities to address, and buyers will act when pricing and financing support a deal. The rate hike will also not weaken every apartment property equally. It will expose differences in leverage, maturity timing, basis, local supply and operating execution.
Focus on the decisions you can make now. Look at how much leverage a property can carry, what capital it needs and whether the expected return justifies the commitment. The Fed did not create the underlying leverage and maturity problems. For owners and investors, addressing those problems is already part of doing business.
Danny Fishman is co-founder and CEO of Miami-based GAIA Real Estate.