Multifamily Loan Originations Expected to Increase This Year

The pace of multifamily loan originations is expected to pick up in 2022, as the sector’s stellar performance drives record loans and investment volume hits new highs. 

Multifamily originations hit an all-time high in the third quarter of last year, according to new research from Northmarq. Fourth quarter originations were likely even higher, thanks to a big investment spike during that same period.

“Against this backdrop, further gains are likely in 2022,” the report notes, predicting that increases in volume will likely start with the GSEs. “Both Fannie Mae and Freddie Mac will each have caps of $78 billion in 2022, representing increases of more than 10 percent from 2021 caps. The agencies will continue to place an emphasis on housing affordability.”

Half of the GSE’s production volumes for 2022 must also be “mission driven” and serve low- and middle-income earners or be geared toward sustainable improvements. Northmarq predicts that deals with affordability components will nab the best pricing from the agencies this year.

Bridge loan volume also spiked last year, with value-add acquisitions enjoying increased popularity. Northmarq predicts that will pick up as well: “With expectations for continued rent increases in 2022—albeit at more modest paces than have been recorded in recent quarters—bridge lenders will likely remain active in the year ahead,” the report says. “With many of the largest bridge lenders expected to step up activity levels in this space in 2022, bridge lending terms— including both leverage and rate—are expected to improve in the coming year.”

The equity side continues to focus on SFRs, with large institutional investors planning to move tens of billions of dollars into the sector. However, “it remains to be seen if there are enough viable projects to meet the capital demand in the market,” according to Northmarq. “Some of the flood of capital into the space will likely be allocated to acquisitions, while still keeping an eye out for developments of new projects.”

One uncertainty for space: The cost of capital, which will likely be subject to several Federal Reserve rate hikes over the second half of this year. But “while interest rate increases—or the threat of them—could conceivably slow some of the momentum in the lending markets, they are not expected to completely disrupt financing activity,” the report states. “Any initial rises in interest rates are expected to be offset by spread compression and new sources of capital entering the market. These forces will likely keep all-in rates similar to current levels. Both acquisitions and refinance activity are expected to be quite strong in the year ahead.”