Matthew breaks down why 2021's record real estate deals are collapsing. Most were financed with aggressive bridge loans at 80-85% loan-to-value with floating rates. Rising interest rates crushed cash flow, while oversupply pushed rents down and inexperienced syndicators amplified the damage.
Maturity wall has been talked about a lot. 2021, 2022, the highest transaction volume years for multifamily and really CRE we've seen in many, many decades. And so because all these deals were being sold and purchased with mostly bridge debt that was getting very aggressive in the market, those lenders were structuring these deals very high leverage points, 80, 85%, generally floating rate interest rates and 3-year maturities, sometimes with some extensions. Obviously interest rate, we saw a rapid rise of interest rates, the fastest increase of interest rates we've seen in U.S. history. And with those floating rates, with these bridge loans, put a massive amount of pressure on the bottom line cash flow. In addition to all that, we saw a massive amount of new supply come to the market and a lot of downward pressure on rents.
By meaning newly built multifamily apartment buildings coming online, competing with what was currently being purchased.
Thanks, COVID. Yeah, right. It was, it was a great time to be an owner then, you know, guessing double-digit rent growth. I only felt like everything go up to the right. That's usually indicators of, hey, it's time to get out. The other challenges have been operational challenges with insurance and seeing a lot of different challenges in the labor force. And so all these factors are compressing margin, putting a ton of pressure on the operators that are purchasing these. And then you couple that with the syndicator boom.
Matthew, 1 in 4 people in Dallas are multifamily coaches, right?
Absolutely. These gurus are making so much money and it was just so easy. At that point. So I was like, hey, just copy my model and you can go do it and make millions of dollars without any background experience. Well, that got toppled pretty quick.
