The Three Value-Add Multifamily Lies You Are Being Told Right Now

"Value-add multifamily" printed money from 2015 to 2022. Then interest rates doubled, cap rates expanded, and insurance costs exploded — and a lot of deals that looked bulletproof stopped working. Three assumptions specifically broke.

Lie #1: "We'll raise rents $200/unit." In 2021, that was often true. In 2024, it depends on your submarket, your competitive set, and your CapEx budget. Ask the sponsor: what comps support the post-renovation rent, and how far away are those comps? What did they spend per unit on the renovation? A $12K/unit renovation targeting $200 rent bumps sounds great — a $6K/unit renovation targeting the same bump usually isn't real.

Lie #2: "Cap rates will compress on exit." For years, sponsors modeled exit cap rates 25-50 basis points LOWER than the acquisition cap. That is a bet on the direction of interest rates. Anyone underwriting today should assume exit cap = acquisition cap MINIMUM, and stress-test at +50 bps. If the deal doesn't survive that stress test, it's not a deal — it's a leveraged bet on rates.

Lie #3: "Bridge debt gives us optionality." Floating-rate bridge debt looked cheap when SOFR was 0.05%. Today, floating-rate bridge is often the most expensive capital in a deal — and it comes with rate caps, extension fees, and refinance risk. If a sponsor is defaulting to bridge debt in 2024+, ask why they aren't using agency debt, what the rate cap costs, and what happens if they can't refi at Month 36.

The best multifamily sponsors right now are the ones who own the numbers, use conservative leverage, and can articulate exactly why THIS deal works even if their pro forma is 20% wrong.