As the rest of the economy has foundered, apartment owners have surged coming out of the recession. But the good times might not last forever. Here are eight things that could wreck their joyride.
1. Fannie Mae and Freddie Mac
It’s been more than five years since the speculation about Fannie Mae and Freddie Mac started, yet they remain a vital source of liquidity in the sector, especially in secondary and tertiary markets (where other lenders are less likely to go). “Fannie and Freddie are the most dominant lending sources in our industry,” says John Sebree, director of Calabasas, Calif.–based Marcus & Millichap’s National Multi-Housing Group. “If that is changed, it will have an effect on our values and our ability to finance properties.”
2. Unemployment
The apartment sector has seen great rent growth over the past few years without its customers enjoying real income growth. If the sector wants to continue to grow, employment, and wages, must increase. And, if things regress, the industry will suffer. “You put unemployment and the economy in the macro bucket,” says Dan Fasulo, managing director at New York–based Real Capital Analytics. “They’ll be hovering above everything we do and directly impacting values.”
3. Rising Interest Rates
When interest rates rise, they reduce investor-levered returns, which obviously hinders valuations. “The interest-rate market, and how much interest rates increase and over what period of time, will have a huge effect on value,” Sebree says. “If Treasuries jump 100 or 120 basis points, that will have an effect on cap rates.”
4. Overdevelopment
Simple supply and demand dictates that when more apartments show up in your neighborhood, it generally decreases the value of those properties that were there already. “Supply is an issue at the submarket and neighborhood levels,” says Ryan Severino, senior economist and associate director of research at New York–based Reis. “It’s not a uniform thing.” But in markets with oversupply, valuations will take a hit.
5. An Exodus of Capital
Already, some players, like Washington, D.C.–based Carlyle Group, are trimming their apartment holdings. If the movement gets bigger, it could hurt values. “Capital is moving out,” Fasulo says. “Your smart money players, chasing yield compression in the market, are already playing in the other sectors where there is a bigger spread.”
6. Inflation
Inflation will hit apartment owners, but, ultimately, the sector is in a good position to handle higher prices. “If we look at what inflation will do, it will increase rents, but it will increase expenses and interest rates [too],” Sebree says. “It will probably increase values, as well. If inflation happens at a higher rate than what many are predicting, the investors that have locked in long-term debt will be in better shape than others.”
7. Political Threats 
When Bill de Blasio was elected the next mayor of New York City last month, apartment owners in the city, including Fasulo (who owns units in Brooklyn) took note. “The mayor of New York has a lot of power to impact change very quickly,” Fasulo says. “Understanding the positions of the new mayor-elect, I’m not sure I’d make a bet that operating expenses for New York City apartment owners would be going down.”
8. Geopolitical Issues

Apartment industry executives, like everyone else, are susceptible to what happens in the outside world. If gridlock in Washington or recessions in other countries plunge the U.S. into recession, multifamily owners suffer. “One of my greatest concerns that I believe will impact apartment values and fundamentals is uncertainty about global economics and our government policy,” says Lili Dunn, chief investment officer for Greensboro, N.C.–based Bell Partners (though she remains hopeful the economy will remain along its path of moderate growth).