The multifamily housing market has remained resilient despite a slowdown in rent growth and a slight decrease in occupancy rates. However, like other real estate sectors, apartments have faced challenges with capital due to factors such as higher interest rates and risk-adjusted return price discovery issues.
Fortunately, there are financing options available for multifamily borrowers according to a recent report by Geoffrey Arrobio of Matthews Real Estate Investment Services. In his write-up, Arrobio provides an expert analysis of the current state of apartment financing including macro fundamentals, successful deals being made and predictions for the future.
While 2023 proved challenging for the industry due to rising costs of capital and lack of interest rate stabilization, it was not dire. According to Arrobio’s research “investment capital is being highly selective” but there are still opportunities available through alternative methods such as bridge loans or mezzanine financing.
Despite these challenges, underlying fundamentals continue to support strong demand for housing including an ongoing shortage in affordable units and difficulties with purchasing single-family homes. This bodes well for multifamily properties which have seen steady lease-ups and moderate rent growth over the past few years.
In terms of securing funding for specific projects within this sector, lenders such as GSEs (government-sponsored enterprises), life insurance companies,and private debt funds remain liquid while banks may also be potential sources depending on their origination departments’ status.
Looking ahead at what’s next in store for this market segment,Arobbio notes that “a sizable volume”of loan maturities will occur within an environment where interest rates are significantly higher than they were five or ten years ago.This presents challenges but solutions can include loan extensions,restructuring,rescue capital,and full/partial sales.Additionally,the continued high demand combined with increasing construction costs means that investors may find lower basis levels when acquiring assets from banks unloading non-performing loans over the next year or two.
