Multifamily's Sudden Jump in Maturity Defaults

Office properties have probably received the majority of worry from CRE and financial professionals, to say nothing of investors and owners.

But Moody’s Analytics CRE pointed out a bit of a shakeup in another property type: multifamily.

“We were quite surprised to see a particularly poor September showing for Multifamily in our analysis of other property types,” wrote Matt Reidy, Kevin Fagan, and Twinkle Roy at Moody’s Analytics. “Multifamily has had a very high payoff rate all year…. Prior to September, only February (82.8%) and April (92.8%) have payoff rates below 95%. September came in at a stunning 71.7%. This was especially surprising on the heels of 3 of the 4 best payoff months of the year.”

Not that multifamily has been a beacon of calm. Valuations and transaction volumes have been trending down, but the sudden jump in September CMBS loan obligations was concerning. The situation was somewhat better than early concerns though. A large part of the fall-off was related to properties related to one sponsor, The Millenia Companies.

“The company focuses on affordable housing and LIHTC projects and all of the loans that failed to pay off were affordable senior housing projects that were recipients of LIHTCs,” the authors wrote. “This group of loans made up ~25% of the loans that failed to pay off. All of those loans were in FREMF 2016-KF25.”

Another fifth of the loans that didn’t pay off were two loans on student housing in Gainesville, Florida, a college town home to the University of Florida that sees more than 50,000 students come into the city every year, according to U.S. News & World Report.

Overall, student housing had performed strongly, Moody’s said, and this particular housing project had done so as well.

“NOI for the first half of 2023 has the property on track for a YoY NOI increase of nearly 50%,” they wrote. “Despite the strong increase, the property has a large loan that has resulted in Debt Yield of ~8%. While that would have been more than enough to secure refinancing 2 years ago, it falls into a more questionable range in today’s market. The loan appears to have been granted a 60-day extension so we will keep an eye on it to see what happens.”

Moody’s said that while the picture was less concerning than originally thought, with two projects responsible for half the maturity defaults, it still demands caution. It might be that slowing rent growth and higher interest rates and costs are catching up, with the potential for greater problems down the road.