The Interest Rate Hike Shifts the Calculus on New York City Multifamily Investing

For the last two years, commercial real estate investors and operators have been waiting for one thing: lower interest rates.

They may need to stop waiting.

The Federal Reserve in September raised its benchmark rate another 25 basis points, bringing the federal funds target range to between 3.75 percent and 4 percent. More importantly, the Fed made clear that inflation remains elevated, and its latest projections suggest higher rates could remain part of the conversation longer than many investors expected. For commercial real estate, that changes the landscape again.

But, for New York City multifamily, I don’t necessarily think it changes the opportunity. It changes who is best positioned to take advantage of it.

The obvious impact of another rate hike is financing. Debt gets more expensive, proceeds shrink, debt service coverage requirements become harder to satisfy, and buyers have to adjust bids or contribute more equity. Properties that penciled at 65 percent leverage may suddenly work only at 55 or 60 percent. That extra equity has to come from somewhere.

At the same time, owners facing upcoming maturities have the opposite problem. A building financed several years ago at a materially lower rate may not support the same loan balance today. That creates the possibility of a cash-in refinance — and, for some owners, selling becomes the more rational alternative. 

That is where I believe the next phase of this market gets interesting.

We are not entering this rate move with a frozen multifamily market. Quite the opposite. New York City multifamily has already demonstrated that buyers are willing to transact in a higher-rate environment. 

During the first half of 2026, New York City recorded 579 multifamily transactions totaling approximately $3.27 billion, according to Alpha Realty’s multifamily market reports. And the momentum actually strengthened by deal count in the second quarter: The second quarter  recorded 304 transactions, up 10.5 percent from the first quarter and 2.4 percent from a year earlier. 

Manhattan makes the point even more clearly. The borough recorded 193 transactions totaling approximately $1.86 billion during the first half of the year, with the second-quarter deal count still 62.5 percent above the same period a year earlier. 

That matters, because another rate hike would be hitting a market with momentum. 

The market has already demonstrated that investors will transact with rates well above the near-zero environment of the last cycle. Another 25 or 50 basis points may change underwriting, but it does not automatically eliminate demand.

What it does is separate the market. Highly leveraged buyers will have a harder time competing. Low-leverage private capital, family offices, international investors and buyers with discretionary equity should become more powerful. We saw a version of this earlier in the rate cycle, when well-capitalized investors were able to step into situations where traditional investors could not make the financing work. 

That dynamic could return quickly. And New York City multifamily has something working in its favor that many other commercial real estate sectors do not: income fundamentals.

An office building with weak occupancy cannot refinance its way out of an operating problem. A multifamily building in a strong rental market has a very different story. If rents are growing, vacancies remain tight and replacement supply is limited, investors can still underwrite future income even while paying more for debt.  

That does not mean every apartment building wins. Free-market multifamily should remain the easiest product to finance and trade because investors have greater flexibility to capture rental growth. Rent-stabilized buildings will be more challenged. Higher borrowing costs combined with constrained revenue growth can put additional pressure on owners whose expenses continue moving upward. 

Ironically, that pressure may ultimately produce some of the best buying opportunities of this cycle. When financing gets harder, basis becomes more important.

A buyer paying the right price with conservative leverage can survive higher rates. A buyer overpaying because he assumes rates will rescue the deal later is taking a much bigger gamble.

That is why I think the biggest mistake investors can make now is waiting for the Fed to ring a bell announcing the perfect entry point. Real estate markets rarely work that way.

The opportunity often appears precisely when financing is uncomfortable, sellers are adjusting expectations, and competing capital is hesitant. Once rates clearly reverse, lenders become more aggressive, buyers return, confidence improves, and pricing can move before investors realize the window has closed.

I have argued before that cap rates do not move in a perfect one-for-one relationship with interest rates. Buyer competition matters enormously. If 10 credible buyers are chasing a property instead of three, pricing can strengthen even when the cost of debt remains elevated. 

That distinction is especially important now. If the Fed raises rates again, I would expect more refinancing pressure, more selective institutional capital, and a greater advantage for cash-rich buyers. Some sellers will have to recalibrate. Certain highly leveraged owners will become motivated. The bid-ask spread could widen temporarily. 

But I would not confuse that with the death of the market. Quite the opposite. The next rate hike could be what finally forces another round of price discovery.

Owners should be reviewing upcoming maturities now rather than six months before a loan comes due. Buyers should be stress-testing acquisitions at higher debt costs instead of underwriting around an immediate Fed rescue. And investors with dry powder should be paying very close attention to assets where the basis has reset but the underlying rental fundamentals remain intact.

The last cycle rewarded leverage. This part of the cycle may reward liquidity, patience and execution.

Higher rates will create pain, but pain creates price discovery. In New York multifamily, the investors who win the next phase will not necessarily be the ones who correctly guess the Fed’s next move. They will be the ones with enough capital and conviction to act when higher rates create the right basis.

Lev Mavashev is the founder and principal of Alpha Realty, a New York brokerage focusing on multifamily.