When investors compare apartment syndications, they usually focus on the property: the location, the rents, the renovation plan. The loan gets a line in the offering summary and not much more attention. Yet over the past few years, the type of debt a sponsor chose has done more to separate good outcomes from painful ones than almost anything else.
This post explains the two most common ways apartment buildings are financed, fixed-rate agency loans and floating-rate bridge loans, what happened when interest rates rose, and why we only use fixed-rate debt at Veritas Equity Partners.
Two very different loans
Fixed-rate agency debt
"Agency" refers to Freddie Mac and Fannie Mae, which buy apartment loans made by approved lenders. For an established apartment building, a typical agency loan has a fixed interest rate for a set term, is paid down slowly over a long amortization schedule, and is non-recourse, meaning the lender looks to the property rather than to the borrower personally, apart from standard exceptions for things like fraud.
For example, Freddie Mac's conventional fixed-rate loan offers 5 to 10 year terms with up to 30-year amortization and is non-recourse except for standard carve-outs (Freddie Mac, Optigo Fixed-Rate Loans). For smaller buildings, Freddie Mac's Small Balance Loan program covers loans of $1 million to $6 million in all markets, and up to $7.5 million for properties with 75 units or fewer in certain markets, with 5, 7, or 10 year fixed-rate options (Freddie Mac, Small Balance Loans). Banks offer similar fixed-rate products.
One detail worth knowing: "agency" does not automatically mean "fixed." The same Small Balance Loan program also offers hybrid loans that are fixed for 5, 7, or 10 years and then float. When a sponsor says they use agency debt, it is fair to ask whether the rate is fixed for the whole term.
Floating-rate bridge loans
A bridge loan is a short-term loan, usually lasting a few years and often with extension options, meant to "bridge" a property from one condition to another. Sponsors use them to buy buildings that need heavy renovation or are partly vacant, often with renovation money built into the loan. The interest rate floats: it equals a benchmark, usually the Secured Overnight Financing Rate (SOFR), plus a spread. Many bridge lenders require the borrower to buy an interest rate cap, which limits how high the benchmark can go for a period of time, but caps expire and must be replaced, sometimes at a high cost.
The plan with a bridge loan is usually to renovate, raise rents, and then refinance into permanent debt or sell. That plan depends on rents, values, and interest rates cooperating within a short window.
What happened when rates rose
In 2021, borrowing was cheap and bridge loans were plentiful. Many sponsors bought apartments at high prices with floating-rate debt, assuming rates would stay low or that rising rents would outrun any increase.
Then rates moved sharply. Trepp reports that SOFR averaged 0.04 percent in 2021 and stood at 3.66 percent in September 2026. On a floating-rate loan, that is roughly 3.6 percentage points of additional interest, before any cap (Trepp, October 16, 2026).
The results show up clearly in the data. Bridge-style apartment loans are often pooled in securities called commercial real estate collateralized loan obligations, or CRE CLOs. In the five states with the most securitized apartment debt, Trepp found that CRE CLO apartment loans securitized in 2021 and 2022 were 20.21 percent delinquent, compared with 0.69 percent for loans from every other year. All of the loans in that group carry floating rates, and their median debt service coverage fell from 1.60 times at securitization to 0.64 times, meaning the typical property's cash flow no longer covered its loan payment (Trepp, October 16, 2026).
Across securitized apartment debt as a whole, Trepp reported an August 2026 delinquency rate of 0.80 percent for Freddie Mac loans, 3.88 percent for CRE CLO loans, and 7.69 percent for private-label CMBS (Trepp, October 15, 2026). These pools hold different kinds of loans and properties, and Trepp notes that CLO managers can remove troubled loans from their pools, so the CLO figure may understate the stress. The comparison is not apples to apples. But the direction is hard to miss.
When a floating-rate loan stops covering its payments, the options are unpleasant: investors may be asked for more capital, distributions may stop, the property may be sold at a poor time, or the lender may take it back.
The fair case for bridge loans
Bridge loans are not inherently reckless. They exist for good reasons:
They fit properties agency lenders will not finance. A half-empty building or one that needs a full renovation often does not qualify for permanent agency debt yet.
They are flexible. Bridge loans usually have lighter prepayment penalties, so a sponsor can sell or refinance early without a large fee.
They can win when rates fall. A floating rate drops when the benchmark drops.
Used with low leverage, a real rate cap, and a conservative plan, a bridge loan can be a reasonable tool. The trouble came when sponsors used them with high leverage on optimistic projections.
The trade-offs of fixed-rate debt
Fixed-rate debt has its own costs, and we want to be clear about them:
Prepayment penalties. Fixed-rate agency loans usually carry yield maintenance or defeasance, which can make paying the loan off early expensive. Freddie Mac's conventional fixed-rate loan, for example, uses yield maintenance or defeasance for most of the term (Freddie Mac, Optigo Fixed-Rate Loans).
Lower loan amounts on unstabilized buildings. Agency lenders size loans on income the property already produces, not on the income a sponsor hopes to reach.
Maturity risk still exists. A fixed-rate loan eventually comes due. If rates are higher at that point, refinancing costs more. Fixed debt reduces rate risk during the term; it does not eliminate it forever.
No benefit if rates fall. You keep paying the rate you locked in.
Why we only use fixed-rate debt
For the way we invest, fixed-rate debt is the natural fit, and bridge debt is not.
Our buildings already work
We buy mismanaged, not distressed, workforce housing: 30 to 100 unit communities built in the 1960s to 1990s, in Pierce and Snohomish Counties. These buildings are generally occupied and producing income when we buy them. The opportunity is in operations, such as below-market rents, unchecked expenses, and dated units. Because the income is already there, the buildings qualify for permanent fixed-rate financing from the start, and we do not need a bridge.
Positive leverage on day one
We look for positive leverage on day one, so going-in yield on current operations is meant to sit above our fixed borrowing rate. Year-one income is anchored to trailing financials, not to a broker pro forma. We do not need cap-rate compression, rate cuts, or a rent spike for a deal to work in our underwriting.
Renovation is funded with equity
Renovation budgets are funded with equity at closing, not borrowed later.
Predictable costs protect the plan
Our business plan is slow and steady: bring rents toward market gradually through renewals and turnover, rebid vendors, and run the property well. That kind of plan needs time. Fixed-rate debt gives it time, because the largest expense line does not move with the bond market.
So our rule is simple. We use long-term fixed-rate agency or bank debt, and we do not use bridge or floating-rate loans. You can read more about how we underwrite and finance on our strategy page.
Questions to ask any sponsor about debt
Whether or not you ever invest with us, these are worth asking before you commit to a syndication:
Is the rate fixed for the full loan term, or does it float now or later?
When does the loan mature, and does the business plan finish comfortably before then?
If the loan floats, is there a rate cap? When does it expire, and who pays to replace it?
Does the deal work on today's income, or only after renovations and rent increases?
Is a refinance or sale required to return investor capital on schedule?
Is the loan non-recourse, and what happens to investors if the property cannot cover its payments?
Our FAQ covers more of the questions we hear, and our invest page explains how partnering with us works.
About Veritas
We have been investing in Washington multifamily for sixteen years. Since 2010 we have closed 21 deals and acquired 468 units, and we manage about $85 million in assets, with no realized losses on any deal. You can see what we own on our portfolio page.
Talk it through with us
If you are comparing offerings and want to understand how the debt behind each one changes the risk, we are glad to walk through it with you. Book a Discovery Call and we will go through it together.
This website is for informational purposes only. It is not an offer to sell, or a solicitation of an offer to buy, securities. Any offering is made only through official offering documents, and only to investors who meet the requirements of that offering. Past performance does not guarantee future results. Investing in real estate involves risk, including the possible loss of capital.
Sources cited
Freddie Mac Multifamily, "Optigo Fixed-Rate Loans" product sheet (dated 4/26): https://mf.freddiemac.com/docs/product/fixed_rate.pdf
Freddie Mac Multifamily, "Small Balance Loans" term sheet: https://mf.freddiemac.com/docs/product/sbl_term_sheet_landingPage.pdf
Trepp, "CRE CLO Multifamily Loans Securitized in 2021 and 2022 Hold 12% of CRE CLO Balance in the Top 5 States, but 80% of Delinquency" (October 16, 2026): https://www.trepp.com/trepptalk/cre-clo-multifamily-delinquency-2021-2022
Trepp, "Where Is Multifamily Delinquency Concentrated? Private-Label CMBS Holds Half of Delinquent Debt" (October 15, 2026): https://www.trepp.com/trepptalk/securitized-multifamily-delinquency-cmbs-cre-clo