#2 Multi-Family and Apartment Investing Contributor
- Cincinnati, OH
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Is Floating Rate Debt still Bad?
#2 Multi-Family and Apartment Investing Contributor
- Cincinnati, OH
I just posted a similar discussion to LinkedIn, but would love to get your insights here. This is concerning syndications, and specifically directed to those that are truly open to making syndication investments (if you are adamantly opposed to syndications, I respectfully ask that do not reply, as much as I generally respect your opinions on if syndications are good or bad).
I just returned from the Best Ever Conference. As usual, I thought it was great. But my topic comes from listening to a small panel (two operators), both with multifamily portfolios in the billions. One of the two operators was asked about fixed vs floating rate debt. He is a fairly well known multifamily syndicator, who I don't believe has lost any properties, but does have several with paused distributions. He noted how he continues to prefer floating rate debt. His reasons were: a) he can borrow capital improvement budget, thereby not diluting LP returns and b) he could not underwrite yield maintenance.
He continued to imply that his business model will remain short term holds (under 5 years) so this debt works for him and is better than fixed rate.
My question to this community: would you still be willing to invest with an operator taking out floating rate debt in today's world?
