Rising Rates & Inflation in the 1980s: What Multifamily Investors Can Learn From History

Inflation emerged in 2021 and has since had a profound impact on real estate investors. Many were caught off guard when the Federal Reserve began raising interest rates in response, a shift that has reverberated through the multifamily sector. Interest rates for multifamily properties, once comfortably in the 3-4% range, have climbed to 6-7% today. This increase has elevated borrowing costs, tightened margins on new acquisitions, and caused distress for many deals with upcoming loan maturities.

The Federal Reserve’s decisive actions surprised many in the industry. Yet, this inflation response is not without precedent. To gain perspective on our current environment—and insight - we can turn to the late 1970s and early 1980s, a period of similar economic turbulence. In this week’s newsletter, we’ll outline what happened in the 70’s and 80’s, and how investors stayed afloat and capitalized on the economic turmoil.

The Great Inflation of the 70’s

In the 1970s, inflation escalated from 5% in 1970 to 13.5% by 1980, driven by expansive monetary policies to fund the Vietnam War, oil price shocks from the 1973 OPEC embargo and the 1979 Iranian Revolution, and a wage-price spiral fueled by rising expectations.

In response, Federal Reserve Chairman Paul Volcker raised the federal funds rate to a peak of 20% by 1981. This aggressive tightening succeeded in curbing inflation, which fell to 3.2% by 1983, but it came at a significant cost. The economic fallout was immediate and severe. The high interest rates triggered a recession from July 1981 to November 1982, with unemployment rising to 10.8%—the highest since the Great Depression.

Commercial real estate, heavily reliant on debt financing, faced a brutal reckoning. Development projects stalled as construction loans dried up, and property values declined sharply in oversupplied markets, particularly in regions like Texas and the Southwest, where oil-dependent economies collapsed after a mid-1980s price drop compounded the pain.

The Savings and Loan (S&L) industry, a key lender for real estate, buckled under the strain—over 1,000 institutions failed by the early 1990s as their fixed-rate mortgage portfolios yielded far less than the soaring cost of funds.

How Real Estate Investors Thrived in the Wake of the Crisis

Well-positioned real estate investors not only survived but capitalized on the turmoil. Those with liquidity or access to credit acquired distressed multifamily properties at 30-50% below pre-recession values, particularly during the peak distress of 1982-1983, as foreclosures and S&L liquidations flooded the market.

Investors who had secured fixed-rate debt at 7-10% before the rate spike maintained cash flow stability, avoiding the fate of over-leveraged players forced to sell. They focused on cash-flowing assets like Class B and C multifamily properties, where occupancy remained resilient and rents could be adjusted, ensuring income even as property values dipped.

Some negotiated directly with banks to acquire portfolios at discounts, turning short-term distress into long-term gains as the economy recovered and rates fell to 9% by 1986. Patience and foresight enabled these investors to emerge with significant profits by the late 1980s.

Learning From the Past

For multifamily investors today, this history offers actionable lessons as we navigate rising rates and persistent inflation. Here are three takeaways:

Avoid Too Much Short-Term Debt

Long-term debt can stabilize cash flows and shield against further rate increases, a critical buffer given the Fed’s unpredictable path. In the Value Add space, I use 5-year construction-to-permanent debt to fund the reposition and 10-year debt thereafter.

Target Discounted Assets

The 70’s and 80’s crisis flooded the market with undervalued properties, rewarding investors who acted decisively. Today, as higher rates strain put downward pressure on values, it’s a great time to acquire assets.

Prioritize Cash Flow

If rates rise, debt service costs increase, potentially straining a property with weak cash flow and limiting loan proceeds. A cash flow-focused property can better absorb higher interest payments, ensuring it remains refinance-eligible even in a rising-rate environment.

Conclusion

The inflation surge since 2021 and the Federal Reserve’s response mirror the dynamics of the late 1970s and 1980s, when Volcker’s rate hikes tamed inflation but reshaped commercial real estate and the economy. The investors who entered the tumult with strong liquidity, a cash flowing existing portfolio, and longer term debt were able to stay afloat. Those maintaining strong liquidity, steady cash-generating portfolios, and long-term debt structures weathered the economic storm more effectively. Moreover, opportunistic investors who strategically acquired assets at reduced prices during the downturn were ultimately rewarded when interest rates began to decline.

-Ben Michel

Ben Michel is the founder of Ridgeview Property Group, an investment firm specializing in multifamily real estate. Register Here to be notified of available investment opportunities.