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On Multifamily AP360, host Rama welcomes Brian Burke, president and CEO of Praxis Capital and author of The Hands-Off Investor, to discuss why he shifted from multifamily to senior housing after selling most multifamily holdings by early 2022 and beginning acquisitions in early 2025. Burke explains the senior housing thesis: rapid growth in the 80+ population (10,000 turning 80 daily), decade-low construction, and a post-COVID cycle bottom creating low values and rising demand. He outlines why portfolios should diversify across acuity levels, operators, geography, lenders, and acquisition timing, and stresses the operator’s critical role and culture-focused due diligence. He covers underwriting using EBITDA (akin to NOI), sourcing off-market deals, typical facility sizes and occupancies, triple-net considerations in skilled nursing, key risks like another pandemic, and ways LPs can evaluate sponsors and gain exposure, including REITs and funds.

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The Real 2026 Multifamily Killer: Expenses (Insurance, Taxes & Repairs)

This episode argues that in 2026 the biggest threat to multifamily deals isn’t rent growth but rapidly rising expenses that crush net operating income. It highlights insurance as the fastest-growing cost, citing Trepp’s estimate that multifamily property insurance is up 58% over five years, with some analyses showing per-unit costs rising from about $100 to over $250 nationally and worse in high-risk coastal and southern markets, where owners can’t fully pass increases to tenants. Property taxes are also climbing 5–10% annually due to lagging assessments, and combined with insurance can erase years of rent gains, pushing some loans into distress as DSCR falls below 1x. Repairs and maintenance are up roughly 30% in five years, with deferred CapEx now becoming urgent, especially for older Class B/C assets, making aggressive expense underwriting essential.

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Why many multifamily owners are struggling to refinance as a major 2026 loan maturity wall collides with higher rates and weaker fundamentals. About $160 billion in multifamily loans mature in 2026, many originated in 2021–2022 at 3%–4.5% with optimistic rent growth assumptions, while the Fed is now at roughly 3.75%–4% and permanent debt is more expensive. Refinancing is being constrained by higher lender requirements for debt yield and DSCR amid slower rent growth, lower appraised values as cap rates expand, and rising operating expenses like insurance and taxes that reduce true cash flow. The most impacted are 2021–2022 floating-rate and bridge loans, deals that never stabilized, high-supply Sunbelt markets, and max-leverage owners, while stabilized Class B assets with fixed-rate agency debt fare better. Likely outcomes include equity injections, discounted sales, or special servicing, creating opportunities for well-capitalized buyers and debt investors.

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This episode explains why many apartment owners are selling ahead of 2026: low-rate loans from 2021–2022 are maturing, refinancing is far more expensive after Fed hikes, and rent growth in many markets hasn’t kept up, leaving property values down from peak levels. As a result, new loans often won’t cover old balances, forcing owners to either inject significant equity or sell. The biggest sellers are owners with 2021–2022 floating-rate/bridge deals, projects that never fully stabilized, properties in high-supply Sunbelt markets, and partnerships running out of capital or patience, while stabilized owners with fixed-rate agency debt in stronger Midwest and gateway markets are less motivated. For buyers, forced sales can be opportunities only with realistic underwriting, since many deals have deferred maintenance, soft rents, or higher expenses than advertised.

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This episode explains why multifamily deals often fail due to bad assumptions, then breaks down five underwriting mistakes to avoid in 2026: assuming aggressive rent growth based on “market rent” instead of achievable rent and submarket comps; ignoring incoming new supply and the 24–36 month delivery pipeline; underwriting expenses too low by relying on seller numbers instead of normalized taxes, insurance, repairs, utilities, payroll, management, and turnover (showing how a $150K NOI miss can erase about $2.5M of value at a 6% cap); using too much leverage and not stress-testing refinancing risk as rates and maturities (13% of balances in 2026) impact DSCR, LTV, valuation, and proceeds; and relying on overly optimistic exit cap rates instead of running best, downside, and stress cases.

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This episode explains why chasing the highest cap rate can lead multifamily investors into bad deals, since a higher cap rate doesn’t automatically mean better value. Using two $10M apartment examples, it shows how a seemingly superior cap rate can be driven by inflated or unrealistic NOI projections, understated expenses, or post-sale increases in taxes and insurance. It also highlights that higher cap rates often signal higher risk—such as weaker locations, higher vacancy, deferred maintenance, and limited rent growth—and clarifies that cap rate is not the same as investor return or IRR. The script outlines a deeper underwriting checklist, stress-testing assumptions like flat rent growth, rising expenses, expanding exit cap rates, and additional CapEx needs, emphasizing risk-adjusted decision-making over headline numbers.

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The script argues that the current multifamily opportunity may be in overlooked Class B apartments because Class A owners face heavy competition from new supply and concessions, while Class B competes on affordability. It cites CBRE data on 2026 completions and slowing deliveries, and the National Apartment Association’s view that stabilized Class B often holds stronger occupancy and steadier rent performance in high-supply markets. The speaker warns that not every Class B deal is good and outlines five key checks before buying: local job growth, upcoming supply, true renter affordability, ongoing CapEx needs in older buildings, and whether the deal works without aggressive rent growth. Value creation is framed as operational—improving collections, turnover, expenses, vacancy, and selective renovations—while cautioning that “cheap” properties can become expensive when CapEx and risk are ignored.

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The speaker explains that before buying an apartment building they start with seven key numbers, not the purchase price, because deal quality depends on the underlying metrics. They verify and normalize NOI from actual collections, vacancies, concessions, expenses, taxes, insurance, repairs, and management fees, noting that small NOI changes can shift value significantly at a given cap rate. They then evaluate the going-in cap rate in market context, DSCR (NOI vs. annual debt service) to ensure the property can withstand changes in rates, occupancy, or expenses, and LTV to avoid over-leverage. They stress-test rent growth assumptions against real market drivers and scenarios, scrutinize the expense ratio for value-add opportunities, and use price per unit plus required CapEx per unit to determine true basis. The core lesson: don’t fall in love with amenities—NOI and conservative underwriting drive returns and protection.

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