This Key Banking Figure Just Gave a Dire Warning—What Should You Be Preparing For?

13 Replies

Jump to latestLatest
  • Rob BeemanPro Member
    Specialist · Philadelphia, PA · Member since 2010 · 301 posts · 118 votes
    3y

    We are seeing negativity in the multifamily space. Many under-experienced syndicators purchased multifamily assets a few years ago with high interest short-term debt as part of their capital stack. Those assets are now ready to be refinanced into long-term debt, however the operator had penciled in a long-term debt interest rate of 4% for cash flows, when now the more average interest rate of that debt is 6-7%+. This combined with increased insurance costs creates a scenario where the operators are having issues with the fact that the assets do not produce positive cash flows, hence they can't payout distributions to their limited partners (LP's in the syndication). Worse yet, some operators are being forced to make capital calls to their LP's (asking for additional investment infusions) just to keep the bills paid. Some have begun to get behind on mortgage payments and we suspect there will be more of that coming. Multifamily is feeling the pain of the rate increases, higher vacancies and increase in late paying tenants that this current market is delivering.

    0Reply
    • David Siddall
      Member since 2022 · 67 posts · 0 votes
      3y

      The lazy, "passive" investment seeking LP's and duped investors will learn a hard lesson. You can only trust your self and your own self managed investments and businesses earned from your own hard work and "experience". This goes for the casino stock market and sleazy shark fund managers as well!

      0Reply
  • David Siddall
    Member since 2022 · 67 posts · 0 votes
    3y

    Remember the 10x battle cry? Watch what happens to all these famous so called syndicates flying around in private jets paid for by their conned investors. Their goal was buy, accumulate, and overleverage as many doors as possible regardless of the price, mngmt, Maintenance costs, and skyrocketing insurance rates! They threw the 1% rule out the window and they all deserve what's coming when thier loan terms, property values, and rental income all reset against them.

    0Reply
  • Katie Rogers
    Santa Barbara, CA · Member since 2015 · 644 posts · 17 votes
    3y

    The context of the BIS comments is international because it is an international entity. The current inflation problem is global, and many countries have higher inflation rates than the US with a less vibrant economy than the US to provide the soft landing the US has been experiencing. As the article notes, the Federal Reserve’s "10 straight rate hikes—one at each Fed meeting since March
    2022... have helped [US] inflation fall from over 9% to 4% in that time frame."

    This is click bait, as the concluding paragraph makes plain. In order for the "dire warning" in the headline to come to pass "would require a number of dominoes to fall." Furthermore the "key figure" cited in the article says, "“There is an emerging sense that the global economy could achieve a soft, or soft-ish, landing,”

    0Reply
  • Michael Naples
    Member since 2022 · 8 posts · 2 votes
    3y

    If no one can get lending, wouldn't that make demand for housing increase and not decrease? What am I missing?

    0Reply
    • BiggerPockets TeamPro Member
      OP
      Member since 2026 · 14k+ posts · 5 votes
      3y

      Cash buyers. During the pandemic, almost 1/3 of purchases were made with cash. Over half put down at least 20% if not more. This isn't the same as 2008/2009 since it's not as much private individuals with no money and income pushing demand. Rather, it's institutions with tons of cash reserves courtesy of our Govt shoveling money out the door by the truckload.

      Originally posted by Sid Whiting.

      BiggerPockets
      0Reply
    • Michael Naples
      Member since 2022 · 8 posts · 2 votes
      3y

      Thanks for the reply - very helpful and insightful. Therefore, if inflations lessens... home prices would then increase at that point? As the value of the dollar increases?

      0Reply
    • Katie Rogers
      Santa Barbara, CA · Member since 2015 · 644 posts · 17 votes
      3y

      Or very often it is buyers with at least one more property borrowing on a property they already own in order to make a so-called all cash offer.

      0Reply
  • Rob Anderson
    Investor · Dallas, TX · Member since 2019 · 6 posts · 6 votes
    3y

    There will definitely be a weed out period for the unexperienced, but seasoned developers know how to manage this environment and knew to lock in long term fixed debt. This will be another way to tell the professionals from those who probably shouldn't be in the business in the first place. Those who didn't lock in fixed debt or have expiring caps run the risk of experiencing what has been mentioned in this thread already. That also creates opportunities for well capitalized shops.

    Occupancy and rent growth are location dependent. Our properties in Texas are still seeing rent growth, but it is quite muted from what occurred last year. Insurance is the real issue now days.

    0Reply
    • BiggerPockets TeamPro Member
      OP
      Member since 2026 · 14k+ posts · 5 votes
      3y

      Yes, insurance - private or FEMA?

      How do we keep home insurance affordable enough for 100M+ homes that are increasingly in areas of high flood risk? Millions upon millions of coastal properties in the Gulf region are not insurable, so they rely on FEMA and state sponsored insurance policies, aka socialism.

      Few want to talk about this, since it affects the growth of their regions and states and involves government spending and the taxes that support this. With strong hurricanes that have more and deeper 80F+ Gulf/Atlantic water to pull from and deposit on land, the Gulf region will only become less and less insurable by private companies.

      Only in the past 10 years, FEMA has spent more of our tax $$$ than the previous 100 years...
      Katrina was the only outlier due to massive levy failure, and below sea level living is unsustainable in the 21st century.

      https://en.wikipedia.org/wi...

      Originally posted by SoCalSurfer.

      BiggerPockets
      0Reply
    • Katie Rogers
      Santa Barbara, CA · Member since 2015 · 644 posts · 17 votes
      3y

      It is beyond foolish that people rebuilt houses in the same locations where they were destroyed due to a previous flood.

      0Reply
  • BiggerPockets TeamPro Member
    OP
    Member since 2026 · 14k+ posts · 5 votes
    3y

    " if inflation isn’t tamed "
    .
    And how would inflation be tamed? By countries Central Banks refusing to push more money into the system via deficit spending. So... we'd have to rely on Govt frugality.
    .
    Pardon me while I stop laughing uncontrollably. National Govts are addicted to overspending. They won't stop until the whole system crashing down MAKES them stop.

    Originally posted by Sid Whiting.

    BiggerPockets
    0Reply
    • Katie Rogers
      Santa Barbara, CA · Member since 2015 · 644 posts · 17 votes
      3y

      As the article points out, our FED has done a pretty good job of taming inflation, currently 4% from a high of 9%. This data point contradicts your prescription for taming inflation.

      0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free