Article: It IS Possible to Find Financing for Apartments

The multifamily sector performed well through 2023 despite slowing rent growth and a slight decline in occupancy. But like other real estate, apartments faced challenges with capital like higher interest rates, negative leverage and risk-adjusted return price discovery issues.

But financing options are available for multifamily borrowers, according to a recently released report from Matthews Real Estate Investment Services’ Geoffrey Arrobio. In this write-up, Arrobio outlines the current situation, apartment financing macro fundamentals, the deals that ARE getting done and what to expect in 2024.

Challenging, but Not Dire

Yes, cost of capital, price discovery and lack of interest rate stabilization took their toll in 2023. Arrobio also noted that investment capital “is being highly selective, for debt transactions and equity investments,” with construction taking the brunt.

The (somewhat) good news? Interest rates are stabilizing. And while debt maturities are coming due, borrowers are tapping into alternative financing methods to resolve the issue. Noted Arrobio: “There remains a bevy of private capital sources within the bridge, mezzanine, and preferred equity capital for multifamily as a wave of loan maturities hit the market over the next 12 to 18 months.” Additional capital sources continue to enter the market, he added.

Fundamentals Remain Strong

Even better news is that underlying basics continue to support housing demand. Arrobio lists the macro fundamentals, including the ongoing housing shortage (especially in the affordable space) and challenges remaining in buying single-family homes. This includes higher interest rates and a supply lack.

Arrobio explained that the above means that “multifamily housing, including build-to-rent (BTR) communities, continue to enjoy solid lease-up, occupancy and moderate rent growth.” Certainly, rent-growth velocity slowed over the past few years, partly due to rent-control mandates in many markets and new-unit deliveries. However, supply-side pressures, like increasing construction costs, will likely put a damper on deliveries, meaning “demand will ultimately outstrip supply,” Arrobio commented.

Financing Deals Are Getting Done

On top of this, Arrobio explained that there is capital for specific deals. The GSEs have liquidity, as do life insurance companies, CMBS, credit unions and private debt funds. In some instances, banks could also have capital (though Arrobio pointed out that many had shut down origination departments).

The attractive deals to lenders include stabilized, cash-flowing assets, acquisition/rehab projects, and bridge financing, especially for assets that need more time to stabilize or can’t pinpoint a conventional fixed-rate option. However, construction financing has been difficult to obtain, Arrobio said.

What’s Next?

The multifamily sector faces what Arrobio classified as “a sizable volume of loan maturities coming due within an interest rate environment that is much higher than the past five to 10 years.” This means challenges for borrowers.

But the report introduced several solutions, including:

• Loan extensions

• Refinancing (with additional equity or rate buy-downs)

• Loan restructuring

• Rescue capital

• Full/partial sale

From Arrobio’s perspective, the viability of the multifamily and build-to-rent sectors will remain positive in the face of increased housing demand. As such, “over the next 12 to 24 months, investors can acquire assets at much lower basis levels, as banks and bridge lending sources start to unload non-performing assets,” he added.

On April 18, join multihousing’s leaders and dealmakers when they explore the most important topics facing the Phoenix and Scottsdale markets today. Register to attend and hear expert insights first-hand, network with the best in the industry, and sit in on discussions you won’t hear anywhere else. Connect Phoenix Multifamily & Single-Family Build-to-Rent on April 18 at the Westin Kierland Resort & Spa.