Arbor Realty Trust (ABR) operates as a mortgage REIT that provides financing to multifamily developers and property owners. Rather than owning real estate assets directly, ABR earns income from interest payments on loans and credit performance ([2]). As a result, its profitability depends heavily on interest rate spreads, leverage, and borrower credit quality. Rising interest rates increase funding costs and compress margins, while economic downturns raise the likelihood of borrower distress and loan defaults. During the post-2022 tightening cycle, higher rates and refinancing pressures significantly affected ABR’s performance. As a result, ABR exhibited greater volatility and stronger sensitivity to macroeconomic shocks than equity REITs.

Equity Residential (EQR) is an equity REIT specializing in Class A multifamily properties in high-density urban markets. Unlike ABR, EQR’s revenue is derived primarily from rental income and long-term property appreciation ([6]). Its structure produces relatively stable cash flows under normal conditions but exposes EQR to risks associated with tenant demand, vacancy rates, and local housing supply ([4]). Although higher interest rates negatively affected property valuations, strong rental demand during 2021 supported rent recovery and occupancy growth before slower rent growth emerged during 2023-2025. Despite these pressures, EQR generally demonstrated more stable return behavior than ABR because of its consistent rental cash flow and lower exposure to funding-market volatility.

1) Interest Rate Sensitivity: ABR returns will be more negatively correlated with rising short-term rates than EQR.

2) Yield Curve Exposure: Yield spread compression will harm ABR more due to its reliance on borrowing short and lending long.

3) Multifamily Index Sensitivity: EQR should exhibit stronger sensitivity to multifamily market strength.

4) Vacancy Rate Impact: Rising vacancies will negatively influence EQR returns more than ABR.

5) Inflation Effects: Inflation may mildly benefit EQR through rent adjustments but hurt ABR via higher funding costs.

6) Error Covariance: Residual covariance between ABR and EQR will remain positive due to shared macroeconomic volatility.

The monthly return behavior of ABR and EQR reflects the fundamental differences between mortgage and equity REIT business models. As shown in Figure 1, ABR exhibited significantly higher return volatility than EQR throughout the same period (2020-2025). The standard deviation of ABR returns was significantly larger during both the COVID-19 crisis and the 2022-2023 monetary tightening cycle, indicating heightened sensitivity to liquidity stress, refinancing risk, and funding-market instability. EQR, by contrast, maintained lower volatility and more stable average returns, consistent with its reliance on return income and property operations rather than leveraged lending activities (see Figure 2).

The relationship between the two REITs is further illustrated in Figure 2, which plots monthly returns for ABR against those of EQR. The correlation analysis (see Figure 3 and Figure 4) reveals that ABR and EQR exhibit moderate positive co-movement (correlation coefficient = 0.50), suggesting exposure to shared macroeconomic forces, yet through differentiated transmission channels. While both REITs are influenced by the broader economic and monetary environment, the strength and direction of factor sensitivity vary. The wider dispersion of ABR observations reflects its greater sensitivity to financial-market volatility and changing credit conditions.

Figure 1. Mean and standard deviation of monthly return for ABR and EQR (The entire measurement period of 2020-2025 and the period of 2022-2025). Source: Author calculations using Yahoo Finance data.

Figure 2. Scatterplot of monthly returns for ABR and EQR. Source: Author calculations using Yahoo Finance data.

Figure 3. Time series of monthly returns for ABR and EQR (2020-2025). Source: Author calculations using Yahoo Finance data.

Figure 4. Correlation heat map of major macroeconomic variables. Source: Author calculations using Federal Research Economic Data.

The differing volatility profiles become even more apparent in Figure 3, which displays the time series of monthly returns from 2020 to 2025.

The macroeconomic variables themselves also exhibit meaningful shifts across the sample period. Both the 2y (short term) and 10y (long term) Treasury yields fluctuated sharply, falling in 2020 and rising rapidly in 2022-2023. Multifamily property prices rose sharply in 2021, driven by historically low rates, strong household formation, and institutional capital flows into rental housing. However, prices stagnated and declined from 2022 through 2024 as rates rose and cap rate expansion outpaced rent growth. The rental vacancy rate, which had compressed during the housing boom, began to trend upward post-2022, particularly in urban cores and Sun Belt regions with large new supply deliveries. Inflation, relatively stable pre-COVID, surged throughout 2021-2022, reaching multi-decade highs. This placed upward pressure on operating expenses (e.g., labor, insurance, materials) while also triggering interest rate hikes that affected both funding costs and asset valuations. It is important to note that many of these macro variables are interrelated.

As illustrated in Figure 4, several macroeconomic variables exhibited strong correlations with one another, particularly inflation and Treasury yields. This relationship reflects the broader monetary-policy environment in which rising inflation prompted aggressive interest-rate increases by the Federal Reserve.

During the COVID-era period from 2020-2021, the relationship between REIT returns and changes in the 2-year Treasury yield appears positive. However, this relationship reflects crisis conditions rather than traditional interest-rate sensitivity. Large negative Treasury-yield changes coincided with severe market panic, liquidity shortages, and widespread deleveraging. ABR experienced particularly severe stress during this period because leveraged mortgage REITs faced margin calls and widening credit spreads. The most extreme observations in Figure 5 occur in the lower-left region of the chart, where sharp declines in Treasury yields coincided with monthly ABR losses exceeding 30%.

Figure 5. Scatterplot for monthly returns versus changes in the 2-year treasury yield during the COVID Period (2020-2021). Source: Author calculations using [7].

During the 2021 multifamily housing boom, EQR generated cumulative returns of approximately +57.3%, substantially exceeding both ABR’s cumulative return of +39.4% and the +25.5% appreciation in the multifamily property price index. This suggests that EQR benefited not only from property appreciation but also from exceptionally strong rent growth and occupancy recovery during the post-COVID rebound. The relationship reversed during the April 2022-April 2024 tightening cycle. Multifamily property prices declined by approximately −25.2%, while EQR’s cumulative return fell by approximately −22.2%, closely mirroring the broader decline in multifamily valuations, as shown in Figure 6. By contrast, ABR declined by only −5.6%, reflecting a more credit-sensitive and financing-driven return structure rather than direct dependence on property appreciation.

Figure 6. Scatterplot for monthly returns versus changes in the 2-year treasury yield post-covid period (2022-2025). Source: Author calculations [7].

Multifamily property prices increased sharply during 2021 before slowing significantly beginning in 2022 as rising interest rates reduced transaction activity and increased capitalization rates. The differing responses of ABR and EQR to these market conditions are illustrated in Figure 7.

EQR demonstrated substantially stronger alignment with multifamily property price movements because of its direct ownership structure. During the post-COVID housing boom, EQR benefited from strong rent growth, rising occupancy, and increasing property valuations, causing its cumulative returns to closely track the multifamily property price index. However, during the later tightening cycle, slowing rent growth and declining property valuations negatively affected EQR performance.

Figure 7. EQR cumulative return compared to multifamily property price movement. Source: Author calculations using multifamily property price index data.

ABR, by contrast, displayed weaker alignment with direct property-price movements because its returns were influenced more heavily by financing spreads, liquidity conditions, and refinancing risk rather than direct asset appreciation. This divergence reinforces the broader distinction between mortgage REITs and equity REITs: mortgage REITs are more sensitive to credit-market conditions, while equity REITs are more directly tied to property-level fundamentals.

The SUR model was estimated in R using the systemfit package ([9]). The following predictors were included in both equations:

Changes in the 2-year Treasury yield Changes in the 10-year Treasury yield The 2 Y - 10 Y Treasury spread Multifamily property price index changes Rental vacancy-rate changes Inflation changes

This specification allows direct comparison of how mortgage and equity REITs respond differently to identical macroeconomic conditions.

In building the regression model, I defined the “Crisis Regime” as periods when the 2-year Treasury dropped by more than 25 bps in a month, indicating market stress or emergency easing. Table 1 and Table 2 highlight the results from the regression for ABR and EQR respectively.

Table 1. ABR (Arbor Realty Trust): Credit-sensitive & regime driven.

Note: ***p < 0.001, **p < 0.01, *p < 0.05, ~p < 0.10, NS = not statistically significant.

Table 2. EQR (Equity Residential): More stable, less sensitive.

Note: ***p < 0.001, **p < 0.01, *p < 0.05, ~p < 0.10, NS = not statistically significant.

Table 1 reveals that overall:

ABR reacts negatively to rate hikes in normal months (−0.13 coefficient), as expected for a levered lender.During crisis months, sharp rate drops (i.e., stimulus) drive very large return rebounds, as seen in early COVID.

The positive Crisis_Regime intercept and large Rate_2y_Interaction together explain ABR’s steep recovery during crisis easing.

Table 2 reveals that overall:

EQR is less sensitive to rate moves, both in normal and crisis months.Its performance is more tied to property values and fundamentals, as seen in the positive (but borderline) significance of MF_price_change.No strong statistical impact from crisis rate changes, consistent with a core equity REIT.

The SUR model reveals that ABR demonstrates substantially greater sensitivity to interest-rate changes than EQR. In normal market conditions, increases in short-term Treasury yields negatively affected ABR returns because rising funding costs compressed lending spreads and increased refinancing risk. EQR displayed weaker statistical sensitivity to short-term interest-rate movements. Instead, its performance aligned more closely with multifamily property prices and rental market fundamentals. Vacancy rates and multifamily property value changes produced larger effects on EQR returns than on ABR returns, reinforcing the view that equity REITs are more directly tied to property-level operating conditions.