Capital Sources Eye More Multifamily Business This Year

Capital markets are open and ready to serve multifamily borrowers this year. According to a new report from Yardi Matrix, the apartment industry is continuing to cope with the challenges of the pandemic—like a decline in rent collections and waning demand in primary metros—but the availability of capital is not among them. This year, the capital markets will support transaction activity in multifamily.

In 2020, this was not the case. Transaction volume fell to $80 billion, down from $127.6 billion in 2019, and lenders took a pause to evaluate the new market conditions. Deal flow fell following the onset of the pandemic, but now, it has rebounded. For 2021, multifamily is once again considered a top investment asset class. Why/? Multifamily continues to be in short supply, particularly among the renter-by-necessity and affordable housing segments. In addition, multifamily produces 4% to 6% dividend yields, better than both sovereign bonds and investment-grade corporate bonds, according to the Yardi Matrix report.

Government agencies led in loan originations last year, funding a record $181 billion of loans in 2020, up from $155 billion in 2019. Simultaneously, CMBS originations fell to levels not seen since 2012.

This year, some of those trends will reverse. FHFA, the agency regulator, has reduced 2021 loan allocations to $70 billion from $80 billion in 2020 for each agency. That is a 12.5% decrease in lending power. In addition, Fannie and Freddie each have increased affordable housing mandates. At least half of all new loan originations must be for affordable housing, up from 37.5% in 2020.

These restrictions will likely reduce lending power of the agencies, but borrowers will still have many other options, including commercial banks, life companies, CMBS. According to Yardi Matrix, all of these capital sources want to increase multifamily business this year.

Yardi Matrix notes that not all multifamily properties will be on an equal playing field in 2021. Properties that have suffered a substantial loss in rent collections or decreases in vacancy will still find challenges securing capital, and lenders are likely to scrutinize deals. However, multifamily defaults have remained low, and barring a sudden change in the current economic conditions, investments from both debt and equity sources should remain high in 2021.