Over the past two years, commercial real estate investors and operators have primarily hoped for falling interest rates. They may need to abandon this expectation, as the Federal Reserve increased its key interest rate by another 25 basis points in September. This places the target range for the Federal Funds Rate between 3.75 percent and 4 percent. More crucially, however, the Fed highlighted persistently high inflation, and its recent projections suggest that higher rates could remain for longer than many investors had anticipated. This once again alters the market environment for commercial real estate.
For the New York City multifamily sector, however, I do not see a general change in opportunities. It merely shifts who is best positioned to seize these opportunities. The most obvious impact of another rate hike concerns financing. Debt capital becomes more expensive, returns shrink, and debt service coverage requirements become harder to meet. Buyers must adjust their bids or inject more equity. Properties previously calculated with a loan-to-value ratio of 65 percent might now only be viable at 55 or 60 percent. This additional equity must come from somewhere.
At the same time, owners whose financing is soon to expire face the opposite problem. A building financed several years ago at a significantly lower interest rate may no longer be able to support the same loan amount today. This creates the possibility of refinancing with an equity injection – and for some owners, selling becomes the more rational alternative. Here, I see the beginning of an interesting new phase of the market.
Marktdynamik trotz Zinsanpassung
We are not entering this interest rate shift with a paralysed multifamily market; quite the contrary. The New York multifamily market has already demonstrated that buyers are transacting even in an environment of higher interest rates. In the first half of 2026, New York City recorded 579 multifamily transactions totalling approximately 3.27 billion US dollars, based on market reports from Alpha Realty. The momentum even intensified in the second quarter in terms of deal count: the second quarter saw 304 transactions, an increase of 10.5 percent over the first quarter and 2.4 percent year-on-year. Manhattan illustrates this even more clearly. The borough recorded 193 transactions in the first half of the year, totalling around 1.86 billion US dollars, with the number of deals in the second quarter still 62.5 percent higher than in the same period last year.
This is significant because another interest rate hike would hit a market with momentum. The market has already proven that investors are transacting even with rates significantly above the near-zero interest rate environment of the last cycle. Another 25 or 50 basis points may change financing conditions, but they do not automatically eliminate demand. They differentiate the market. Highly leveraged buyers will find it harder to compete. Low-leverage capital, family offices, international investors, and buyers with discretionary equity should gain strength. A similar dynamic was already seen earlier in the interest rate cycle, when well-capitalised investors could step into situations where traditional investors could not secure financing. This development could quickly re-emerge.
Fundamentale Vorteile von Mehrfamilienhäusern
The New York multifamily market has an advantage over many other commercial real estate sectors: its fundamental revenues. An office building with low occupancy cannot refinance its way out of an operational problem. A multifamily property in a strong rental market offers an entirely different perspective. If rents are rising, vacancies remain low, and replacement supply is limited, investors can factor in future income even with higher financing costs.
This does not mean that every multifamily property wins. Free-market multifamily properties are likely to remain the easiest to finance and trade, as investors have greater flexibility in capturing rental growth. Rent-stabilised buildings will face greater challenges. Higher borrowing costs combined with restricted revenue growth can put additional pressure on owners whose expenses continue to rise. Ironically, this pressure could ultimately create some of the best buying opportunities of this cycle.
When financing becomes more difficult, the fundamentals gain importance. A buyer paying the right price with conservative leverage can weather higher interest rates. A buyer who overpays, assuming that rate cuts will save the deal later, takes a significantly greater risk. Therefore, I believe the biggest mistake investors can make now is to wait for the Fed's signal announcing the perfect market entry point. Real estate markets rarely work that way. Opportunity often presents itself precisely when financing is uncomfortable, sellers adjust their expectations, and competing capital hesitates. Once rates are clearly receding, lenders become more aggressive, buyers return, confidence rises, and prices can move before investors realise the window has closed.
I have previously argued that cap rates do not have a perfect one-to-one relationship with interest rates. Buyer competition is of enormous importance. If ten credible buyers compete for a property instead of three, pricing can firm up, even if debt capital costs remain elevated. This distinction is particularly important right now. Should the Fed raise rates again, I expect more refinancing pressure, more selective institutional capital, and a greater advantage for well-capitalised buyers. Some sellers will have to adjust their expectations. Certain highly leveraged owners will be motivated to sell. Bid-ask spreads might temporarily widen.
