Multifamily Loans Coming Due May Be a Challenge

In a research bulletin, Yardi Matrix says maturing debt of multifamily loans coming due may test the strength of the multifamily industry
Yardi Matrix says In the short term, through the end of 2025, loans on 6,800 properties totaling nearly $150 billion are set to mature.

In a multifamily research bulletin, Yardi Matrix says maturing debt of multifamily loans coming due may test the strength of the multifamily industry.

Higher mortgage rates, lower property values and tightening bank credit will challenge the market in coming years, Yardi Matrix says in a special report.

“For this special report, Yardi Matrix analyzed mortgage debt on more than 58,000 properties in its multifamily database to determine when the loans are coming due, which metros have the most maturing debt, lender type and more,” writes Paul Fiorilla, director of research, Yardi Matrix, in the special report.

Multifamily loans coming due

“A review of Yardi Matrix’s database found that loans on more than 58,000 properties totaling $525 billion will mature over the next five years, nearly half of the total $1.1 trillion of loans currently backed by apartments. In the short term, through the end of 2025, loans on 6,800 properties totaling nearly $150 billion are set to mature,” Fiorilla writes.

When the Federal Reserve starting rapidly raising interest rates to fight inflation, worries about defaults in the multifamily area begin to rise.

Fiorilla writes, “Years of zero short-term interest rates had pushed loan coupons to historically low levels, and many multifamily properties booked loans with coupons within the 3%-4% range.

“Meanwhile, reflecting the higher capital costs, multifamily property values fell by 20%-30% from the 2022 peak, and lenders tightened standards due to regulatory pressure, growing fears of a recession and weaker income growth. The result is that many properties up for refinancing are qualifying for lower proceeds than they did when their existing loans were originated,” he says in the report.

Summary

Fiorilla writes that despite these concerns, multifamily fundamentals are solid and most properties are in good shape – especially with signals from the Fed that rates may be coming down in the future.

“Long-term investors, as usual, are on more solid ground. Investors who try to time the market and expect to make a quick profit are more likely to see an uptick in defaults.

“Overall, multifamily delinquencies will increase from current low levels and provide a venue for opportunistic capital. But it may not be enough to deploy the amount of capital being raised or lead to a banking crisis akin to the last downturn in 2008-10.”

Read the full special report here.

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