Multifamily Debt Originations Drop Dramatically and the GSEs Aren't Filling in the Gap
Banks lines that were bullish in 2022 are now dried up and GSE lending offers only a limited buffer.
You’d have to go back to 2014 to find a first quarter multifamily debt origination volume that was lower than in 2023, according to data from Newmark. The year-over-year comparison in 2023 Q1 was a 61% drop. Even though that is a comparison to a historically high period, that is cold comfort when the lesser examples were the years of beaten down recovery coming out of the Global Financial Crisis, a crash second only to the Great Depression.
“While the volumes are subject to future revision, adjustments are likely to be limited,” Newmark wrote. “The [Mortgage Bankers Association’s] originations index found similar results, with first-quarter origination down 55.0% year over year, lending further credibility.”
It’s a surprising state for what had been one of the two darlings of CRE investment during the pandemic, along with industrial. A big reason is the pressure on banks and their defensive measures when it comes to lending.
Banks had embraced multifamily property-secured lending, according to Newmark. Not including construction finance, the amount increased by 121.0 billion between February 2022 and 2023. Calling it “an unsustainable pace even before the regional banking crisis,” the firm said that bank holdings of multifamily debt dropped $15.0 billion in March. Although up a bit since then, “the rolling trend remains negative and certainly a far cry from the massive accumulation of last year” because banks are worried about increased distress in their CRE loan portfolios. Multifamily maturities are “heavily concentrated in the 2023-to-2025 period.”
It is partly on banks, but also banks are seeing demand for CRE loans fall precipitously. With LTV leverage falling to about 55% for many banks, down from 70%, and higher interest rates, many developers and investors can’t make deals pencil, so have given up on loans, at least from banks.
Those who hoped that GSEs would backfill the need for loans should realize that the buffer they can provide is at best limited. Lending caps have been imposed and while they are growing slowly “they have become more exclusively focused on mission-driven lending.”
In other words, getting loans guaranteed by multifamily properties will continue to become harder.