“With interest rates much higher and rents beginning to decline on average nationwide, if you need to refinance a loan, then you are refinancing into a more expensive environment,” said Mark Silverman, a partner at Locke Lorde. “It’s harder to make these buildings profitable.”
Concerns are particularly concentrated in the Sun Belt, where many developers built apartment complexes to meet expected demand during the pandemic. However, the influx of new residents has slowed, leading to an oversupply of luxury apartments.
In 19 major Sun Belt cities, including Miami, Atlanta, Phoenix, and Austin, Texas, 216,000 new units became available last year, but demand fell to 95,000 renters.
“The developers just got so far out of hand,” said Jay Lybik, national director of multifamily analytics at CoStar Group. “Everybody thought the demand we saw in 2021 was going to be the way it was going to be going forward.”
Investors like Tides Equities, which expanded their portfolios in the Sun Belt, are now struggling with falling rents and prices. Tides Equities’ apartment holdings grew from about $2 billion to $6.5 billion in a few years, but the firm is now facing difficulties in making loan payments and covering operating expenses.
