It has been a busy last 12 months or so for multifamily CMBS lending in New York City, according to a KBRA report. Conduit issuance jumped to $6.7 billion, roughly four times higher in 2024 compared the previous year.
It was also an unusually active time in metro area for multifamily conduit delinquencies, with the distress rate — loans either delinquent or labeled current and in special servicing — at 8.5% by the end of 2024.
The multifamily conduit issuance was the highest dollar volume since the $6.9 billion in 2019, according to KBRA. In 2024, it was also 20.5% of total conduit issuance across all types in the city, and at least 486 basis points higher than each of the last five years. New York City multifamily issuance was also 27% of the year’s total multifamily issuance and 4.4 times higher than the city with the next highest volume. In 2023, the multifamily portion of issuance was 23%. Total national conduit issuance for the asset class was the highest since 2019.
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By loan count rather than dollar balance, multifamily conduit issuance was about 32.2% of the total sector issuance for the city, up from 27.3% in 2023. The difference is common in CRE analyses and typically happens when some smaller number of loans have higher values, creating top-weighted distributions.
As more companies have instituted return-to-office plans and employment in the city was up 1.03% year-over-year, rents have started again moving upward, increasing the financial appeal of the property type. The population increased by 0.4% from the previous year, adding to demand. Forecast rent growth is 2.7% this year after dips in 2024 Q3 (-0.5%) and Q4 (-0.8%).
At the same time, distress was up. The overall rate at the end of 2024 was 14.4%, more than double the 7% at the end of 2023. Multifamily was 43% of that distress balance, with a separate distress rate of 14.4% at the end of 2024.
Distress rates were “significantly higher” among older buildings. Those built before 1974 had a 6.9% rate by count and 25.1% by balance. Apartment complexes built after 2000 had distress rates of 1.2% by loan count and 2.9% by balance. Part of this might be rent stabilization; the majority of such units were built before 1974. Restrictions on rent increases could make it difficult for borrowers facing higher costs on operations to maintain a high enough NOI and DSCR to avoid financial challenges.
Additionally, “the Housing Stability and Tenant Protection Act of 2019 has made rent-stabilized buildings less attractive to own” because of limits on transitioning units to market rent and the size of rent increases. Recently, inflation rates have outpaced the allowable rental increase rates. That makes it more difficult to keep a property profitable and to find a buyer willing to take on the restrictions.
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