6.28% Cap Rates Leave Houston Apartment Buyers Without Positive Leverage

Matthews put the average Houston apartment cap rate at 6.28% in its second-quarter market report, after eight straight quarters of increases. On Oct. 22, Northmarq's rate sheet quoted a 10-year Freddie Mac loan at 65% leverage at 6.13% to 6.28%.

That means a standard long-term agency loan on a stabilized Houston property costs about what the property earns. Fannie Mae's comparable quote was higher, at 6.23% to 6.53%, and a 10-year CMBS loan ran 6.93% to 7.33%.

Those two numbers come from different dates, and we could not find a third-quarter Houston cap rate from Matthews yet. Northmarq's sheet listed the 10-year Treasury at 5.08%, and Treasury data show it closed at 5.00% on Oct. 26, down from 5.24% on Oct. 1.

Why the math has stopped working

A buyer borrows to raise the cash return on the equity they put in. That works when the cap rate is above the loan rate, because each borrowed dollar earns more than it costs.

At 6.28% on both sides, the borrowed dollars earn nothing extra, and principal payments on an amortizing loan pull the cash yield below the unlevered one. Debt now only helps a Houston deal if rents rise or the next buyer pays a lower cap rate.

The same squeeze shows up in national loan data. CRED iQ's review of $26.1 billion of loans securitized this year found multifamily collateral with an average cap rate 19 basis points below its coupon, Commercial Observer reported in June.

Lenders and equity are both stepping back

NMHC's October survey of 130 apartment executives, taken Oct. 1 to 15, shows the squeeze from the capital side. The Debt Financing Index fell to 10 from 46 in July, CRE Daily reported, and stood at 75 in January.

In the survey, 81% said borrowing was harder than a quarter earlier and 2% said it was easier. The Equity Financing Index dropped to 17 from 44, and 66% reported less equity available.

Jonathan O'Kane of Chandan Economics noted that the indexes measure how widely a change was reported, not how large it was. A Sales Volume Index of 22 does not mean sales fell 22%.

Rates moved against borrowers in September. The Fed raised its target range by a quarter point to 3.75% to 4% on Sept. 16 in a 12 to 0 vote, and CRED iQ found SOFR rose from 3.62% to 3.85% the next day.

SOFR was 3.93% on Oct. 26, according to the New York Fed. The Fed meets today and tomorrow, and prediction markets tracked by DeFi Rate put the odds of a hold on Oct. 28 at 93% as of 8:17 Eastern time on Tuesday morning.

Fewer Houston trades, and who is still buying

Cushman & Wakefield's third-quarter Houston MarketBeat counts 96 apartment sales so far this year, covering 21,189 units and $414.9 million. In the same period of 2025 it counted 117 sales, 28,464 units and $609.7 million.

Cushman's sample is narrower than other trackers. Matthews alone counted $946 million of Houston volume in the second quarter, which was still down 38.6% from a year earlier.

Two October trades show who is still buying. Accel Equity Group paid $31.5 million for the 324 units at Holly View in Northwest Houston, about $97,222 a unit, and disclosed no financing.

That price is below the $100,000 a door at which some Southwest Houston properties were financed before rates rose, Bisnow reported on Oct. 19, and lenders have since taken some of those properties back.

On Oct. 1, Spirit Investment Partners and Strategic Value Partners bought Resia Ten Oaks, a 573-unit West Houston property built in 2024, with acquisition financing from Oaktree Capital Management, REBusinessOnline reported.

What it means for owners and investors

Houston's operating numbers pull in two directions.

On the soft side, MRI ApartmentData's October report has 57.0% of Houston units offering a concession, with an average special worth 10.1% of rent. Cushman puts effective rent at $1,299, 2.5% below a year ago, and RealPage forecasts 0.5% rent growth over the next four quarters, the lowest of its top 50 markets.

On the supply side, Cushman counts just over 11,500 units under construction, down 37.0% from a year earlier. Northmarq expects roughly 5,600 Houston deliveries in 2027, which would be the lowest annual total in nearly 15 years.

That is the case for buying now with more equity and less debt. At these loan rates a smaller loan gives up little current yield, and it leaves a buyer able to hold through the concession period and into a year with far fewer new units competing for tenants.

Owners with loans coming due face the other side of it. Among agency and CMBS apartment loans maturing by the end of 2028, CRED iQ found that those written in 2021 and 2022 carry a median coupon of 3.35%, and 46% of them need new equity to refinance.

At Bisnow's Houston multifamily conference at the Hilton Post Oak, which Bisnow covered on Oct. 19, Lincoln Property Co. executive vice president Gabe Lerner said, "The recycled capital isn't there." He expects it to "be bleak for another year."

What to watch next

The Fed's statement comes out Oct. 28. Dallas Fed President Lorie Logan said at least another half point of hikes is needed, Reuters reported on Oct. 2, and DeFi Rate's markets price a December 9 hike at 75%.

Matthews and Northmarq both published their second-quarter Houston reports in August. Their third-quarter editions will show whether cap rates kept rising while loan quotes eased with the Treasury.

The debt side can still get more expensive. In its Oct. 19 analysis of $136 billion of maturing apartment loans, CRED iQ figured that each further 25 basis points adds roughly $1 billion to the equity borrowers would have to bring.