Best investment opportunities in rising interest rate environment

[Shane Clark]

Hello,

I have been investing in real estate since 2012. I have been purchasing value add apartments for the purpose of capital (or asset) growth. My company buys apartments with management deficiencies and also in need of physical updates. The plan has been to make capital improvements to increase the net operating income over the course of 5-7 years. At the end of this period, we will exchange into a larger commercial property with a similar value add component. Over the course of the next 20 to 30 years we will build up our portfolio until we reach the point of exchanging into more passive triple net lease class A properties requiring less intensive management. 

In light of increasing interest rates and the expectation for interest rates to continue to rise over the next several years, I am hesitant to continue the above strategy. If rising interest rates cause local cap rates to increase by 1.5-2.5% over the next 5 years, my projected internal rates of return for my apartments will be decimated. I am looking for capital growth opportunities at this stage of my investing career. For some of the veteran investors in the BP community who have lived through multiple RE cycles, what types of growth investments do you recommend in this rising interest rate environment? 

Very Respectfully,

Shane