Utilities Too Are Driving Up Multifamily Operation Expenses

Trepp CRE Research has been running a series of reports on multifamily operating expenses. The reason is that even if, as expected by most, interest rates eventually start to drop, increased regular expenses are driving up the cost of operating multifamily properties and pushing down net operating income, as Moody’s Analytics has pointed out.

Higher prices from inflation likely won’t drop when cost increases from inflation come down to the target 2% annual rate. Insurance prices that have risen due to climate change-driven natural disasters may be up there for good. Taxes have continued to rise. Construction costs for new buildings, rehabs, and repair have been up more than 40% since 2019. All those expenses will be something lenders will look at closely when considering if debt service coverage ratios are in a safe range. Plus, it means less profit ultimately.