Although Treasury yields did not trend lower as expected last year, multifamily fundamentals outperformed expectations, and lenders have become more aggressive about issuing new debt for performing properties to start 2025. Slower competition from new construction will likely lift lender sentiment throughout the year, which should support origination volumes and tighten spreads across the sector, according to Northmarq’s 2025 national multifamily outlook report.
The trend follows interest rate volatility and expectations, which have added complexity to transactions and reshaped strategies within the debt and equity markets, according to the report. This year, greater liquidity is expected in the multifamily property sector, especially for acquisition financing. Equity strategies remain complex, with many existing owners seeking preferred equity to recapitalize properties acquired at the market's peak. Meanwhile, developers are encountering challenges in finding equity to bring new projects through the construction pipeline, according to the report.
The agencies increased multifamily loan caps by about 4% from 2024 to 2025 and are expected to lead acquisition financing sources this year. Fannie Mae and Freddie Mac have volume caps of $73 billion for 2025.
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While multifamily construction starts are expected to reach multi-year lows, debt for new construction projects will remain available. However, the report said that development deals will need to be well capitalized with sufficient equity and proven sponsors.
Meanwhile, the equity environment for multifamily properties is expected to be split this year. A flood of real estate-owned (REO) assets was expected to come to market at prices below replacement cost, which prompted equity capital to be raised in anticipation in recent years.
“While a handful of these assets have sold across several markets, far more equity capital has been raised for this purpose than has been invested,” said Northmarq. “Capital is expected to be deployed in acquiring troubled assets in 2025, but the number of transactions is not expected to increase significantly.”
There has been greater success in deploying equity capital in purchasing new communities, with many newer developments acquired in all-cash transactions at cap rates of around 5%. Equity for new ground-up construction is proving more challenging to secure, and investors are expecting it to take a few years for high-growth markets to process new inventory and projects in the construction pipeline
“The more conservative stance by equity investors should ease some of the oversupply concerns in the next few years, which would allow markets to return closer to equilibrium and ultimately spark the next cycle of development,” said Northmarq.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
