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Fed rate hike raises financing costs for New York City multifamily

The Federal Reserve raised its benchmark rate by 25 basis points in September, pushing the federal funds target range to 3.75% to 4.0%.

Reported · Written up by our desk · Commercial

Commercial Observer says investors and operators in commercial real estate, including New York City multifamily, have spent the past two years waiting for lower interest rates, but the latest Fed move challenges that assumption.

According to Commercial Observer, the Federal Reserve raised its benchmark rate by another 25 basis points in September, bringing the federal funds target range to between 3.75% and 4.0%. The outlet adds that the Fed signaled inflation remains elevated and that higher rates may stay in focus longer than many investors expected.

Commercial Observer links the shift to funding conditions, saying higher rates make debt more expensive and can reduce proceeds for deals. It also notes that debt service coverage requirements can become harder to meet, forcing buyers to adjust bids or add more equity.

The outlet says leverage assumptions may need to be revised as a result, citing examples where deals that worked at 65% leverage could instead pencil at roughly 55% to 60% leverage.

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