Multi family stability

One reason the sky is not falling in multifamily: Fannie Mae, Freddie Mac and FHA are, combined, the biggest players in multifamily lending. Only a tiny share of their loans are maturing in 2023 -- and more than half won't mature for at least 5+ more years, per MBA's research. The GSEs + government entities (including federal, state, local) together hold more than half of all multifamily mortgages, according to the Federal Reserve.

Just like homeowners locked into mortgages at low rates, so are most apartment owners. Higher rates impact pockets of the market, i.e. value-add investors who bought at 2021 / early '22 peak prices with short-term floating rate debt, now facing much higher debt costs that could exceed revenues -- even for properties where rent + occupancy is on target. We've already seen some of that distress hit the market, and we'll see more of it in the second half of 2023 and into 2024.

But don't mistake pockets of distress for a sector-wide crash. Most of the market is more insulated. Remember: This is all about rates (and to a lesser degree, other expenses like insurance and taxes). If you're locked in a low rate, you'll likely be okay -- even in a recession scenario where fundamentals fell to 2008-2009 lows (national occupancy of 92%, peak rent cuts at 5%)... especially for long-term holders who benefited from the rent upswings of 2021 and early 2022.

Where we will see more distress is likely among properties with bridge debt or CMBS. Among the big lender categories, it's only CMBS that will see the so-called "wall of maturities," and CMBS plays a smaller role in multifamily than for office or retail. It'll be interesting to see how that plays out, particularly with so many "rescue capital" funds emerging -- but so far not seeing the bargain shopping that many hoped to see.

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