Dive Brief:
- The total amount of outstanding multifamily mortgage debt increased 7.1%, or $141.6 billion, to more than $2.1 trillion in the second quarter of 2023, according to a Trepp analysis of the Federal Reserve's flow of funds.
- Among debt providers, pension plans saw the largest increase in multifamily loans on their books, with a 23.3% jump to $3.8 billion. Banks and thrifts’ holdings rose 8.8% to $682.2 billion, while insurance companies’ balances ticked up 6.3% to $219.0 billion.
- Overall, commercial mortgages increased 5.9%, or $320.5 billion year-over-year, to $5.8 trillion in Q2 2023, according to Trepp.
Dive Insight:
Despite leading the market in originations in the first half of the year, the government-sponsored enterprises’ overall mortgage increases trailed pension funds, banks and thrifts and insurance companies. Fannie Mae and Freddie Mac saw their holdings rise 5.7% to $970.6 billion.
Lending to apartment owners fell 53% YOY in the first half of 2023, according to a report that data firm MSCI Real Assets shared with Multifamily Dive. However, the GSEs helped backstop the market and saw their originations increase 1% YOY in the second quarter of 2023. Overall, they claimed 58% of all loans in the first half of the year and 60% in Q2.
Matt Rosenthal, president at Boca Raton, Florida-based real estate investor and owner Eastham Capital, said his firm and its partners mainly rely on agency debt because of favorable spreads despite more stringent debt service coverage ratios.
“You’re not getting the proceeds that we used to get in the good old days, but it’s solid,” he told Multifamily Dive. “The interest rate is good, and it’s Freddie. They’re not going anywhere.”
Inventory decrease
Some debt providers saw their outstanding loan amounts fall. Finance companies’ multifamily inventory decreased by 7.8% to $15.1 billion, and providers of securitizations had a 4.1%, or $3.5 billion, decline.
Instead of making new loans, many of these lenders are dealing with issues on their books. “I think they're doing the best they can to save the loans they have because a lot of those guys made iffy loans,” Rosenthal said.
And, soon many of these loans will come due. Commercial real estate borrowers are facing $2.28 trillion in loan maturities through 2027. Trepp projects that $540.6 billion in total commercial mortgage loans, including multifamily, will come due in 2024, with $534.7 billion estimated to mature in 2025.
Borrowers who took out floating-rate loans in the last couple of years and have maturities coming up may need a lifeline to keep their properties.
“I think that's where you're going to see the distress,” said Jay Remillard, managing director at New York City-based real estate investment manager CP Capital. “They’ll need to put $10 million back into a deal in order to refinance it and keep it going or they’re going to sell it and take what we can get.”
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