Austin, Texas — In a follow-up to his recent statement on market disruption, Alan Stalcup has released a detailed explanation of how a decade-long, proven multifamily investment model broke down under the fastest interest-rate tightening cycle in modern history.
A Strategy That Worked — For Over a Decade
From 2010 through 2020, GVA operated a disciplined value-add strategy focused on acquiring B- and C-class multifamily assets, improving operations and physical conditions, increasing rents and occupancy, and refinancing or selling within approximately 24 months.
Through 2023, the platform completed more than 100 full-cycle transactions, generating an average internal rate of return (IRR) of approximately 42%. The model was proven and well-aligned with prevailing market conditions.
For years, interest rates remained near zero. Floating-rate debt was inexpensive and widely available, often ranging between 2.75% and 3.5%. COVID-era stimulus, remote-work migration into Sun Belt markets, and constrained new supply further supported performance.
Then Conditions Changed — All at Once
Between March 2022 and July 2023, the Federal Reserve raised interest rates eleven consecutive times, representing the fastest tightening cycle in modern history. Benchmark rates such as SOFR increased from near zero to more than 5.5%.
The impact on floating-rate debt was immediate. Monthly debt service increased by approximately 300%, fundamentally altering deal economics.
At the same time:
- Insurance and property taxes rose 20–30% year over year
- Labor, materials, and maintenance costs surged
- New multifamily supply entered the market at scale
Austin alone increased its apartment inventory by roughly 25% over four years, with similar dynamics playing out in Nashville, Charlotte, and other high-growth markets.
The Result: A Sector-Wide Reset
As rents slowed, concessions returned, vacancy increased, and values reset — in many cases declining by 40% or more. Equity across multifamily portfolios nationwide was materially impaired.
By late 2023, approximately 80% of GVA’s portfolio was under some level of distress. These challenges were not isolated to one firm, one strategy, or one region. The entire floating-rate multifamily sector experienced significant pressure.
The Key Takeaway
A strategy that worked exceptionally well in a zero-rate, supply-constrained environment broke when rates spiked, costs surged, supply flooded the market, and values reset — all at the same time.
Once that reality became clear, leadership shifted its focus from growth to loss mitigation and capital preservation.
A forthcoming release will outline what actions were taken proactively to reduce losses and how decisions evolved under sustained market pressure.
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