Investors are showing renewed interest in the multifamily market, driven by pent-up demand, interest rate stability and normalizing apartment supply trends. This improved sentiment could prove to be a catalyst for sales activity in the multifamily market as a wave of loans mature in the coming two years, according to Gray Capital’s 2025 multifamily forecast. Coinciding with this trend, agency and FHA lenders are increasing their caps and loosening their sending standards as the capital markets environment turns favorable, said Gray Capital. The firm noted multifamily cap rates may not compress if interest rates remain elevated.
As evidence of improving investor sentiment, Gray Capital noted that the National Multifamily Housing Council’s equity financing index flipped during the third quarter to a reading of 63, the first quarter of more available equity financing since January 2022. The NMHC Debt Financing Index also came in above the breakeven level of 50, indicating more favorable conditions for debt financing compared to the previous three months, with a reading of 77. And the ULI Firm Profitability Prospects index was up 24% from last year.
By some estimates, more than $1 trillion in CRE loans were scheduled to mature between 2024 and 2025, with an even larger wave coming due between 2026 and 2028. Many loans have been extended in the past year due to high interest rates.
A similar wave of maturities that washed over the market in 2023 had little effect on the market, said Gray Capital. However, with special servicing rates of 7.37% – the highest since 2015 according to Trepp – as well as different economic conditions that have left banks less vulnerable to CRE holdings, loan maturities this year could drive sales activity in the multifamily market, the firm said.
“Along with research from the New York Federal Reserve suggesting that loan workouts and extensions are less appropriate in 2025 than they were in 2023, forecasts for the federal funds rate and 10-year treasury yields point to a continued elevated interest rate environment, putting more pressure on borrowers facing maturities,” said Gray Capital.
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