Multifamily Loans Well Positioned for Refinance, Sales

Buoyed by positive headwinds in the market, multifamily loans will be well-positioned for refinance and sale transactions this year. Predictions of either distress or disruption to the sector have failed to materialize this year, despite eviction bans and foreclosure moratoriums initiated early in the COVID-19 pandemic⁠—and experts from Trepp say they don’t foresee challenges for those multifamily loans over the next few years. 

“Multifamily investment has historically been the path of least resistance and even despite the pandemic, finances remain above the underwritten values,” Trepp’s Scott Barrie writes in a recent analysis. “While circumstances may change, which means all bets are off, we do not foresee challenges to this cohort of loans when it comes to dispositions in the next several years. Risk-averse multifamily opportunities are there for the taking.”

Loans slated to mature over the next few years have, overall, posted a steady increase in net operating income, or NOI⁠—and since interest rates are at historical lows, “owners should have the opportunity to reap rewards with the equity built since the great financial crisis,” according to Barrie. 

An estimated $113 billion in multifamily loans should mature over the next three calendar years. And currently, overall delinquency is less than 2%.  Loans in special servicing stand at 0.66%. And in the last month, just 8 multifamily loans have failed to pay off at maturity, a number that’s dramatically low when compared to 44 retail loans.

“Unless circumstances change dramatically, the outlook for robust transaction volumes with little discounting is more in the cards than not,” Barrie writes. “While loans on the servicer watchlist are slightly over 14%, this is a function of tracking maturities that are less than a year out.”