The extend and wait approach to managing commercial real estate loans prevalent over the last few years, in which maturing loan terms were extended in the hope of better market condition coming soon, may prove to be a benefit in the multifamily sector.
More than $1T could be coming due between the start of last year and the end of 2025. Even higher volumes will mature between 2026 and 2028.
Stabilizing interest rates, lower volumes of starts and deliveries compared to the post-pandemic boom, and still relentless demand could fuel increased sales activity in multifamily, according to the Gray Capital multifamily forecast for 2025.
Reduced cap rates and loosening lending standards by lenders could also benefit the sector, Gray says, noting if interest rates stay high, multifamily capitalization rates may not compress.
Gray’s research points out several encouraging trends for market investors. The National Multifamily Housing Council’s equity financing index flipped during the third quarter, making Q3 the first quarter showing an increase in available equity financing since January 2022. With the NMHC Debt Financing Index breakeven point being 50, the Q3 reading was 77. Lastly, the ULI Firm Profitability Prospect index rose 24% from 2024.
Unlike 2023, which saw a similar wave of maturing loans, better servicing rates and changed conditions in the economy find banks less vulnerable to CRE holdings, which could boost multifamily sales activity.
The New York Federal Reserve has indicated the loan extensions and workouts seen in the market in 2023 are no longer appropriate. That shift in perspective, coupled with expectations interest rates will remain comparatively high, indicates current borrowers with loans facing maturity could face increasing financial pressures, making selling a more attractive option than it has been.
Between pressure on borrowers and improved base conditions for investors, multifamily investment could accelerate appreciably. (Source)
