Rising inflation will likely favor property types with a shorter than average lease term like multifamily and self-storage, while industrial deals with lower lease terms remaining will command premium pricing as buyers mark to market rents more quickly. 

That's according to a new capital markets report from Newmark, which notes that borrowing costs will increase as interest rates continue to rise.  At least a half-point hike is expected in June, with other increases to follow at the Fed's remaining meetings this year. Higher rates will make debt more expensive as commercial and multifamily rates increase, and that will impact levered IRRs and will "undermine levered returns achieved by real estate investors," Newmark analysts note in the report.

"If debt costs rise substantially, it is possible certain investors may experience 'negative leverage,' wherein mortgage costs exceed capitalization rates," the report predicts. "Investors using limited or no leverage are expected to have a considerable advantage bidding on and winning deals during the remainder of 2022, particularly in negative leverage situations and when interest rate volatility impacts financing."

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