Private lenders continue to extend their reach as the multifamily asset class remains desirable. Multifamily properties are easy to rent, supported by a robust government-backed secondary market, and thus appeal to lenders—most private lending firms in the US finance residential investment properties with 1 to 4 units. However, almost all of them will lend on multifamily properties, with a select few focusing on value-add projects.
The strong appeal of multifamily properties influences this trend, as the wide variety of long-term financing options and the relatively lower risk these properties pose in the event of a loan default. The accessibility and feasibility of these deals make them attractive to lenders and investors alike, helping establish multifamily properties as a favored investment vehicle in the real estate industry. As we venture further into 2023, we are set to witness the continued evolution of this dynamic landscape.
Navigating Challenges in Multifamily Property Financing
In 2023, private lenders have identified three major challenges in multifamily financing: skyrocketing interest rates, low multifamily cap rates, and a potential oversupply of multifamily properties.
These hurdles have resulted in difficulty for multifamily investors to qualify for permanent financing and a higher cash requirement in purchase transactions. Market oversupply in certain regions could also lead to a drop in multifamily property values.
|Skyrocketing interest rates
|Difficulty qualifying for permanent financing
|Low multifamily cap rates
|High cash requirement in purchase transactions
|Drop in multifamily property values
The Growing Popularity of Private Lending Among Multifamily Investors
Given these challenges, multifamily investors in 2023 are leveraging private lending to secure deals and wait out high-interest rates. However, investors must be financially prepared with lenders requiring a 30% to 35% cash down payment and restrictions on loan-to-value ratios.
Private lenders continue to fund multifamily rehab value-add projects, provided investors contribute 20% to 25% cash to the purchase.
Current Interest Rates: A Critical Factor in Multifamily Property Financing
In 2023, interest rates for multifamily bridge loans range from 9% to 11%. Though some California lenders may offer rates in the highs 7’s, these rates may continue to rise if the federal funds rate increases.
Predicting the Future: Anticipated Trends in Multifamily Lending
Despite the current volatility, we predict an increased focus on short-term bridge and rehab loans, particularly for multifamily value-add projects. Lenders will likely continue to focus on the permanent financing options available to the borrower to mitigate risk.
Tech Revolution in Multifamily Lending
Amidst 2023’s multifamily lending challenges, technology is reshaping the landscape. FinTech firms are introducing digital solutions that streamline lending, improving speed, accuracy, and transparency. This tech evolution assists lenders in managing risks associated with fluctuating market conditions. Additionally, borrowers benefit from easier access to diverse financial services and a more efficient borrowing experience.
Future multifamily lending is expected to increasingly harness AI, machine learning, and blockchain to enhance risk assessments, loan servicing, and operational efficiency. This technological approach is pivotal to navigating the industry’s evolving dynamics.
Top 8 Multifamily Lenders in 2023
In the tumultuous financial landscape of 2023, the following multifamily lenders have consistently demonstrated their dedication to supporting multifamily property investors:
With a strong foothold in the industry, Berkadia continues to be a leading choice for multifamily property financing, offering more than just multifamily loans.
Walker & Dunlop
This company’s comprehensive suite of financing solutions makes it a preferred lender for multifamily investors. They predominantly focus on multifamily, with loans insured by the Department of Housing and Urban Development.
Arbor Realty Trust
Known for its customer-centric approach, Arbor Realty Trust remains a strong competitor in the multifamily lending sector, providing a wide array of financing alternatives, including agency debt, FHA multifamily loans, and Commercial Mortgage-Backed Securities (CMBS) debt.
CBRE Capital Markets
CBRE’s vast market presence and diversified service offerings place it among the top multifamily lenders. The firm has successfully closed numerous major multifamily financing deals over the past year and operates in every primary and secondary market across the country.
Stands out with its innovative loan products and deep understanding of the multifamily market. In addition to multifamily properties, Greystone provides financing for a broad spectrum of commercial real estate, from self-storage assets to office parks. The lender offers various financing options, including CMBS, bridge, and mezzanine loans.
Highly regarded for its tailored financing solutions and commitment to client success. The company encompasses several other familiar brands, including Hunt Real Estate Capital and RED Capital Group.
With its wide-ranging financial services, KeyBank continues to be a reliable partner for multifamily investors. While most of its portfolio comprises multifamily lending, the regional bank occasionally finances other types of commercial real estate assets.
Capital One’s robust financial services and focus on multifamily investments make it a preferred choice for many investors. The bank provides a comprehensive array of Fannie, Freddie, and HUD financing for multifamily properties and has consistently been recognized as one of the top lenders by these agencies in recent years.
The Bottom Line
In the dynamic landscape of 2023, top multifamily lenders are navigating a challenging environment marked by high-interest rates, low cap rates, and a potential oversupply of multifamily units. Despite these challenges, these lenders continue to demonstrate resilience and innovation in their approach to lending, offering a range of tailored financial solutions to multifamily investors. They’ve adapted to these obstacles by adjusting their lending criteria, embracing conservative loan-to-value ratios, and focusing on multifamily rehab value-add projects.
The future of multifamily lending is expected to continue evolving, with lenders increasingly relying on advanced data analytics, risk mitigation strategies, and adaptive business models to navigate the changes in the market.
What strategies are top private lenders using to navigate the high-interest environment in 2023?
In 2023, top private lenders are employing strategies such as reducing loan-to-value ratios, focusing on multifamily rehab value-add projects, and offering tailored solutions to meet the unique needs of multifamily investors.
How are multifamily property valuations affecting lending decisions in 2023?
Lowered multifamily cap rates and the anticipation of declining property value have made lenders more conservative in their lending decisions. They’re increasingly focusing on whether a deal qualifies for long-term permanent financing.
What unique solutions are private lenders offering to multifamily investors facing financing challenges?
Private lenders offer short-term bridge loans to help investors navigate the high-interest-rate environment and tailored financing solutions such as rehab loans for multifamily value-add projects.
How can an investor effectively connect with top multifamily private lenders?
Investors can use platforms like PrivateLenderLink.com to find detailed profiles of lending companies and their guidelines, helping them choose the best lender for their needs.
What role is market oversupply playing in multifamily property lending decisions?
Market oversupply is a concern for lenders as it could lead to a drop in market rents and, potentially, a decline in multifamily property values. This influences lending decisions, especially in regions with significant new apartment constructions.
What should investors consider when seeking financing for multifamily rehab value-add projects?
Investors should consider the lender’s loan-to-completed-value ratio, the loan-to-purchase, and loan-to-cost rates. They should also ensure the project qualifies for permanent financing based on the lender’s full deal analysis, including the rent roll, expenses, and market rents.