Multifamily prices drop by 20% when interest rates go up by 1%

[David C.]

It’s generally thought that if interest rates go up, investors will demand a higher Cap Rate.

Assuming that’s true, if Cap Rates go from 4% to 5%, the math says price would have to go down by 20%.

Somehow I don’t see sellers willing to drop their price by 20% simply because interest rates went up by 1%.

For those multifamily investors and syndicators out there, how does this play out in real life?

Example:

NOI = 1,000,000

Cap = 4% ==> 2,500,000 price

Cap = 5% ==> 2,000,000 price

That's a 20% drop in price going from 4-5% Cap Rate.