Stay Ahead
of the Curve

Partner with us today.

Get a Quote

Register now to get real-time quotes, track progress of your loans and more.


have You Heard

Read it here first

Jul 28, 2022

Multifamily in Review: Inflation, Rising Costs and the Rise in ESG

By Ed Hussey

One thing that’s become clear is that the last two years catalyzed mass movements of renters now able to work remotely, out of expensive coastal metro markets – many in search of more space and larger units. Specific markets such as Denver, Atlanta, Charlotte and metros within Texas and Florida were widely reported recipients of these mass population migrations. A recent examination of financials for Freddie Mac multifamily loans, which calculated 3.50% growth in year-over-year NOI nationally, attributed NOI growth rates of 8.45%, 5.90% and 5.73% to the Mountain, South Atlantic and Southeast Central regions respectively due to the pandemic’s migration effects.[i]

However, the movement of renters into different markets is not the only thing causing rental rates to increase. Inflation is driving up operating costs across the board, with rises in everything from gas, labor, building supplies, insurance and utilities all contributing.[ii] Unwavering demand for rentals plays a key role as well, with problematic dynamics in the for-sale housing marketplace pushing many would-be buyers back into the rental sector. In addition to expensive home prices, recent interest rate rises instated by the Federal Reserve have also priced many who were home shopping just a couple months ago, out of home ownership.

Recently, some developers with on-the-board new construction projects, as well as owners of current apartment communities undergoing maintenance and renovations, have noted that building materials may be one cost starting to level off, allowing more projects to come in on budget. However, it could also be that they’ve gotten better at planning for higher priced materials. And, because the multifamily sector remains so hot, it’s easier today to ask your lender or equity provider for additional funds to cover material costs, because obtaining both higher rental rates and low occupancy is a given for the foreseeable future.

It’s true that most apartment rents are increasing. Prices on the other hand appear to be softening. The rising interest rate environment has caused cap rates, in turn, to increase. Some buyers in the process of transactions have been forced to renegotiate with sellers as they can no longer, due to higher interest rates, get the same financing. Buyers today simply can’t pay as much as they could just a couple months ago. Luckily financing is still available, in general. While some of the more aggressive lenders have slowed or stalled their lending activity because of the volatility in the market, the more conservative lenders remain in the game, better able to hedge risks. The agencies – including FHA, Fannie Mae, and Freddie Mac – are prime examples.

The agencies also happen to be some of the industry’s larger proponents of ESG, a movement which continues to grow in momentum the U.S. A recent study of ESG found that, of the three ESG categories, sustainability is the primary focus today for investors. Additionally, the study found that LEED-certified multifamily assets were shown to garner 3.1% higher rents and pointed out that GSEs (like Fannie Mae and Freddie Mac) have established significant incentive programs for apartment assets that satisfy green building certifications and efficiency metrics. Incentives include lower interest rates and additional loan proceeds.[iii]

Both the Fannie Mae and Freddie Mac sustainable finance incentive programs target multifamily owners who facilitate property enhancements that improve efficiency in both the energy and water saving categories. For owners whose properties also qualify as affordable, the incentives and rates provided are even greater. The bottom line is that sustainability and the overall interest in ESG will continue to grow in the apartments sector because tenants want to reduce their Earth impacts and are willing to pay more to live in efficient communities. Additionally, investors are looking to increase allocations in ESG investments, including real estate.

Finally, with asset repositioning being one of the best ways to increase apartment community yields today, the owners that incorporate energy and water efficiency enhancements into their repositioning plans will not only be able to increase their rents, but many will also be able to access a lower financing rate, in another boon to their ROI.

About the Author

Ed Hussey is Head of Conventional Agency Lending for Sabal Capital Partners, LLC, a wholly-owned subsidiary of Regions Bank, overseeing production across the nationwide lender’s Freddie Mac and Fannie Mae loan programs. Visit

[i] Trepp, Multifamily Net Operating Income Growth Across the Country: Trepp’s Round-up Part Two, June 15, 2022,

[ii] Multifamily Executive, Multifamily Industry Navigates Rising Costs, July 5, 2022,

[iii] Cushman & Wakefield, Green is Good: The Impact of Sustainability on Real Estate Investment (Part  Three: Multifamily Performance),