Concerns about interest rates and income growth as well as a flood of 500,000 new units will likely restrain multifamily transactions in the year ahead, according to a new report on the multifamily outlook from Yardi Matrix.
When interest rates briefly fell in 2024, there was an uptick in deal-making, but it slumped as rates rose again, the report noted. The total value of transactions in 2024 was $62.7 billion, virtually the same as in 2023. And Treasury rates are not expected to fall again to a level that would spur more deals this year.
Investors remain most focused on fast-growing markets in the Sunbelt and Mountain West, especially Denver ($3.4 billion). Dallas ($3.1 billion), Phoenix ($3 billion) and Atlanta ($2.9 billion). Washington, DC, New York, Los Angeles, Boston and Chicago also saw significant activity. Mergers and acquisitions also rose as wealthy investors bought in bulk in Sunbelt markets expected to experience stronger rent growth in 2026 and beyond. Sales were highest in tech hubs.
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Nevertheless, high interest rates remain an obstacle to deal-making. “Higher-for-longer rates also complicate the strategy of extending loans with the hope that another year of rising income and lower rates would put existing loans in the black and make them easier to refinance,” the report stated. It cited a Mortgage Bankers Association calculation that $213 billion of multifamily loans would mature in 2025 – a number certain to rise if loans extended from 2024 are included. The MBA estimated that multifamily lending will climb more than 20% in 2025 to $390 billion – but that level would be due to a sharp increase in extended loan refinancing.
While multifamily distress is low, the report noted that the special servicing rate has risen to 6.2%, raising the question of how long banks can hold on to underwater loans before forcing a resolution. The CMBS multifamily delinquency rate – which is often relatively high compared to other lenders – rose to 3.2%.
“Multifamily delinquency rates are 1.0% or less for banks, life companies and the GSEs. We anticipate rising delinquencies in 2025, short of crisis levels but opportunities to buy distressed assets will rise in the next 12-18 months,” the report said.
It noted that commercial banks remain cautious about allocations to CRE and are focused on lending to customers with which they have relationships. Debt funds, though still working through loans originated in 2021, issued $8.7 billion of collateralized loan obligations through early December 2024. The report predicted they would be active in originating mezzanine debt and buying loan portfolios from banks.
In 2024, CMBS issuance rose 206% to $104.1 billion, especially for single-asset, single-borrower transactions. “CMBS lenders were able to meet borrower demand for five-year fixed-rate mortgages, which lock in a fixed rate but allow for refinancing in a few years, when rates are expected to be lower. CMBS issuers are likely to remain active again in 2025, as they have flexibility to change course quickly and structure products to fit borrower demand,” the report stated. Tightening bond markets also help them offer better rates to borrowers.
Activity at Freddie Mac and Fannie May also rose when rates fell but still fell short of past years. They issued $44 billion of structured securitizations through December 2024 – well short of their 2021 peak of $131.4 billion. An additional $3 billion raised their 2025 allocations to $73 billion. At least 50% must be used for affordable/workforce housing or green projects. However, looming over both agencies is the question of whether the Trump administration will privatize them or remove them from conservatorship.
“Investors still favor multifamily due to its stability and strong prospects for future income growth, but worries about short-term weakness in rent growth, uncertainty about interest rates and the gap between mortgage rates from pre-2022 loans to today is leading to an abundance of caution that should persist through the first half of 2025,” the report summed up.
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