Interest Rates Just Don't Matter in Multi-Family

[Robert C.]

I thought I'd start a discussion about rising interest rates, because quite honestly I'm not hearing that much about it, and I'm wondering why. From what I'm observing, it's like the elephant that's NOT in the room, even though I'm POSITIVE every investor is privately obsessing over the rates as they put together their pro formas. 

I saw @Ben Leybovich put together a blog post back in February and the rates have only gone up since then, +1.25%-1.5% since last year. And I believe @Sam Grooms, made a mention in their trending success story (98-units Closed).

Here's the pickle... The MF interest rates have clearly gone up and are expected to continue that trajectory. However, at least in my neck of the woods, there's been no change in the cap rate expectations, and in some areas investors are paying even more. What gives?? What are you all seeing in multi-family? 

Here are some of the theories I'll throw out there to start the discussion:

1.) The market just hasn't caught up... I felt more strongly about this explanation earlier in the year, but it's been a while, and the Fed has clearly indicated where it's headed.

2.) People are getting stuck in 1031 land, and they have to compete for still limited supply.

3.) The short term trend in the achievable rates are slightly downward these past few weeks, and people are waiting to see what happens.

4.) Investors think we're headed for a crash, and the only lever the Fed has is to lower interest rates again. 

5.) Everything is going to keep going up - values and rents! (I don't really see how this is possible in the bay area for now, and the rents have already stalled).

Clearly, there is movement in the single family arena, which makes sense, so I'm talking explicitly about MF. I would love to hear some feedback. Are you seeing the same thing in your markets? What do you predict?