Next Commercial Challenge? Multifamily Loans


Investors bid up prices for multifamily properties during the pandemic, and that debt will soon cost even more after higher interest rates affect loan rates.

NEW YORK – Apartment buildings could be the next trouble spot in commercial real estate, with last year’s sudden increase in debt costs threatening to wipe out multifamily property owners nationwide.

For years, investors bid up the prices of apartment buildings amid steady increases in rents and the potential for outsize returns. Many buyers took on too much debt believing they could boost rents fast enough to pay down the debt.

However, apartment-building values dropped 14% for the year ended in June, according to CoStar. That’s on par with the decline in office values, compared with a 25% jump the prior year.

Although multifamily mortgage delinquencies are low, they are on the rise. The Mortgage Bankers Association said outstanding multifamily mortgages hit around $2 trillion over the past decade, which Trepp said is close to double the amount of office debt. According to Trepp, $980.7 billion in multifamily debt is expected to come due between 2023 and 2027.

“Everyone is focused on office,” but apartment default risk “is a really big issue that is not getting the attention it deserves,” says Blackstone’s Peter Sotoloff.

Source: Wall Street Journal (08/07/23) Putzier, Konrad; Parker, Will

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