Multi Family values in a rising rate environment

[Michael Evans]

My question is concerning multifamily properties. They are valued using cap rates, cap rates are driven to some degree by interest rates. Given that the Fed has been raising rates and we are in a rising rate environment wouldn't that mathematically devalue multifamily properties as cap rates rise? I understand rents should increase as well which would increase BOI. Do these offset and retain value? I understand we will see 2 or 3 rate increases thus year. Any insight would be helpful.

[Michael Le]

I want to point out that the feds raising the funds rate impacts short term interest rates. Long term interest rates, such a 30-year mortgages, are more impacted by the 10-year treasury. And the 10-year treasury goes up and down based on demand of that note.

So yes, cap rate generally trends with the interest rates but long term interest rates and not necessarily the Federal Reserves overnight funds rate.