Rising interest rates and slower rent growth have captured much of the attention in multifamily housing, but industry analysts warn that another force is quietly reshaping property performance: operating expenses. Once a secondary concern, operating costs have become what Trepp describes as “a fundamental driver of multifamily loan performance and valuation.”
The shift reflects how inflation has seeped into nearly every line item of property management. Trepp data shows that operating costs in some metros have been growing at annual rates as high as 7%—well above the traditional underwriting norm of 3% to 5%. Certain expense categories have surged at double-digit rates. Property insurance, in particular, has climbed an average of 11.77% a year, driven by escalating risks tied to climate change and severe storm activity. Those increases outpace not only headline inflation but also the rapid jumps tracked in the Producer Price Index.
Across commercial real estate as a whole, operating expenses grew at a compound annual growth rate of 4.15% between 2015 and 2024, Trepp reported. But in the nation’s largest markets, the pace was strikingly higher: 6% annually across the top 10 metropolitan areas, 5.30% across the top 25, and 3.66% across the top 50.
For multifamily properties specifically, the national CAGR figures from 2015 to 2024 underscore the mounting pressure. Net operating income grew at 5.58%, slightly ahead of total operating expenses at 4.15%. But within the details lies the concern. Categories such as repairs and maintenance (2.61%), advertising (3.23%), payroll (2.29%) and utilities (3.65%) grew at modest rates. Others, such as professional fees (5.89%), management fees (5.58%), and real estate taxes (5.43%), climbed more sharply. Insurance costs towered over them all, growing nearly 12% a year.
Revenue growth over the same period registered at 4.96%, only a narrow margin ahead of expenses. Trepp warns that such a slim spread leaves little cushion; small increases in costs or softening in revenue can quickly erode profitability, altering loan performance and reshaping portfolio risk.
In certain markets, the trend has been even more pronounced. Buffalo, New York, recorded the fastest metro-level growth in multifamily operating expenses at a 6.94% CAGR. Riverside, California (6.84%), Tampa (6.14%), Raleigh (6.05%) and Orlando (6.03%) followed closely. Other fast-rising metros included Atlanta (5.92%), Dallas-Fort Worth (5.78%), Miami (5.45%), Charlotte (5.44%) and Salt Lake City (5.41%).
The financial implications have rippled through lending metrics. From 2015 through 2021, multifamily debt service coverage ratios generally ranged between 1.6x and 2.0x, with loan-to-value ratios in the mid-60% range and debt yields between 11% and 13%. But as inflation accelerated, lenders tightened underwriting standards. By 2023, debt yields peaked at 18.23% and LTVs fell below 60%. National averages still show revenue growth narrowly exceeding expenses. But in higher-cost growth markets, the gap has closed quickly—turning what was once a manageable risk into a central challenge for owners, lenders and investors alike.
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