Multifamily Weakness Continues to Grab Attention

After a long stretch in which one of the two main commercial real estate darlings was multifamily, the minutes of the Federal Reserve’s Federal Open Markets Committee meeting in late January were jarring. “CRE prices continued to decline, especially in the multifamily and office sectors, and low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector’s weaker fundamentals,” they wrote.

From co-star with industrial to mention as a disappointing partner of office — quite a fall. There’s been a growth of negative news about the property sector, whether another month of negative rent growth; problems brewing in certain areas of multifamily because of the high price of refinancing; or by some counts the slide of transactions in major metros being highest for multifamily.

A new Trepp analysis, largely focusing on examples, points to “more significant fluctuations than usual” in multifamily delinquency rates, writes research analyst Vivek Denkanikotte. “In October 2023, the multifamily rate shot up 79 basis points to 2.64%. After hovering around there for a couple of months, the rate fell 71 basis points in January to 1.91%. Given these developments, the Trepp team has been closely observing the multifamily sector in recent times, keeping a keen eye out for any new developments that could potentially impact the rate’s fluctuations.”

Trepp then focused on four different loans that went on the firm’s watch list. First, 200 W 67th Street in New York City. The Carlyle Group and Gotham Organization recently paid $265 million for The Aire Apartments, a luxury 310-unit building behind Lincoln Center. “The Aire loan consists of a $193.5 million senior CMBS loan that is split across two 2013 vintage deals and $25 million in subordinated debt,” Denkanikotte wrote. “The implied loan to value (LTV) for the $218.5 million whole loan based $265 million sales price is 82% (73% LTV for only the senior loan).” The loan had been sent to special servicing ahead of a November 2023 maturity. Things were fine until a 421-a tax abatement expired, raising annual property taxes from $1 million to $6.6 million.

Next, 9920 Brickleberry Lane in Charlotte, North Carolina. The 288-unit Thornberry Apartments went for $49.3 million to Northland Investment. The previous owner, Eaton Vance Management, bought it for $42 million in 2016. The original loan was set to mature in December 2023 but wasn’t paid off. The loan had a DSCR of 2.52 and 95% occupancy rate.

A multifamily single asset single borrower CMBS deal comprising 17 loans went to special services after failing to pay off a February 2024 maturity. Originally there was an eighteenth property, but it was released. At securitization, the loan amount was $144.7 million. A two-year extension is potentially in the works if the borrower shows “sufficient credit enhancement.”

And then, Berkadia secured a $44.5 Freddie Mac loan on the Fountains of Fair Oak, a 270-unit complex in in Fair Oaks, California. The property is currently encumbered by a $25.55 million loan and a $9.01 supplemental loan.

Multifamily Spring Tag:

Multifamily Spring is coming to New York City this April 18. This year’s program will bring together the industry’s most influential and knowledgeable real estate executives from the multifamily sector for 5 hours of face-to-face networking and over 5.5 hours of can’t miss sessions. Learn more or register here.