These Are the Sunbelt Markets Where Multifamily Owners Face the Most Financial Risk

Over the next two years, CRE borrowers will face more than $1 trillion in debt maturities. Some may be able to refinance or restructure their debt, but others may have to sell assets as lending sources become hard to access. 

Keyway used AI technology to identify and analyze the refinance risk of multifamily property owners in the five Sunbelt markets of Dallas-Fort Worth, Atlanta, Austin, Nashville and Raleigh/Durham and identified 300 owners who control 126,000 units that are likely to face debt maturity issues as more than half of the properties in their portfolio face the risk. Those owners who haven’t diversified well—and are considered small with just one or two properties—may face more risk than larger owners who own more than two.

The analysis put the refinance risk into two categories: Elevated, which means the properties have loan maturity dates through December 2025 and extra elevated, which means the loan maturity dates are through the same period, but the loans originated during the pandemic beginning in 2020.

Of the five markets, Atlanta faces the biggest refinancing risk since a good number of multifamily properties there may not get refinanced. And that may offer an upside to investors to acquire properties facing a risk. According to the analysis, the city has 2,300 properties with 540,000 units and outstanding debt of $55 billion. To dive deeper, 23.7% of its units and 26.7% of its outstanding debt are in properties with loans coming due between now and December 2025.

When it comes to elevated risk, Austin comes in second due to its construction boom of recent years. But it has only 17% of units in properties with 13.5% loans due in the next 18 months. Dallas-Fort Worth is the healthiest market with 13.9% of its units and 13% of its outstanding debt in properties with loans coming due. Yet, because of its size, the market still will have distressed properties if the economy turns down.

Regarding extra elevated risk, Atlanta again has higher exposure than the other markets, with 19.3% of its outstanding debt due before December 2025 and the debt originated during the pandemic to make owners face more risk when refinancing.

But which property owners are most at risk? The analysis found that small property owners do not have an elevated refinancing risk compared to their larger property owner colleagues. The difference is a few percentage points. Yet, they still face an additional elevated risk because of their lack of diversification against “idiosyncratic risk,” the report says.