MBA NewsLink Multifamily Roundtable: Rents, Ratings and Refinancings

(Cover photo credit: Andreas Leindecker/pexels.com)

The apartment industry today represents approximately two trillion of the overall $4.8 trillion commercial real estate finance ecosystem according to MBA’s Q2 2025 Data Book. MBA NewsLink interviewed three executives whose comments explore shifting dynamics in multifamily finance, investment and credit ratings.

MBA NewsLink: Describe recent trends in multifamily bridge lending.

Chad Musgrove, Senior Vice President at M & T Realty Capital Corp.: We’ve seen increased levels of capital chasing multifamily product, especially in the prior 12-month period, leading to tighter interest rate spreads. That trend is expected to continue into 2026 with the anticipation that short-term rates will trend downward. The tightest spreads in sub 200 to 250 bps range are seeking the strongest deals at 65-70% leverage while those north of that are attracting pricing from S+275-325 or higher in some instances depending on the last dollar leverage point.

MBA NewsLink: Because there is plentiful capital chasing good deals, where are lenders competing to win business?

Chad Musgrove: There is high desire to provide funding secured by newer assets seeking lease-up loans to replace the existing construction lender. Value-add bridge financing is readily available, but those sponsors will have to demonstrate their operational excellence to mitigate the risk associated with any rehabilitation plan. Most lenders are competing to win deals led by experienced sponsorship with a proven track record and hard equity in transactions.

Well-located deals in strong (sub)markets will be key as decision makers evaluate opportunities on both the project and macro level. Over-supplied markets lacking positive demographic trends will face headwinds when evaluating their impact on the asset.

MBA NewsLink: What dynamics have been playing out this year in terms of multifamily and the CRE CLO new issuance?

Malay Bansal, Managing Partner, Head of Trading & Capital Markets at 3650 Capital: CRE CLOs have been predominantly backed by multifamily loans and play a role in multifamily financing. Since 2013, of the total $163 billion loans securitized in CRE CLOs as of August 2025, $102 billion or 63% were multifamily. Of the $65 billion outstanding CRE CLOs, multifamily is $48 billion, or 74%. Most deals are predominantly multifamily, though some diversified deals with higher share of non-multifamily loans bring the total average down.

After the Global Financial Crisis, CRE CLO issuance did not really pick up till 2018 when $13.5 billion was issued. Issuance jumped up in 2021 and 2022 with volumes of $44 and $30 billion. That was driven primarily by multifamily borrowers looking for lower floating rates, and more importantly, prepayment flexibility, especially for those with less certainty on their hold period.

As rates went up and costs for interest rate caps required by lenders increased, many borrowers moved away from transitional loans financed by CRE CLOs. Issuance dropped to $6.6 billion in 2023 and $8.5 billion in 2024.

With short-term rates coming down and long-term rates staying higher, the steeper rate curve and prospects for lower short-term rates is increasing interest from borrowers, and CRE CLO issuance has come back strongly in 2025. CRE CLO YTD issuance in 2025 as of September 30 is at $21.1 billion vs $7.1 billion at the same point in 2024, $8.5 billion for all of 2024, and $8.1 billion for all of 2023.

Another trend is the high number of CRE CLO deals being called (i.e. collapsed). 2025 has already seen most called CRE CLO deals in the last 10 years. Over 20 deals have been called so far. Many of the loans from called deals have gone into the new CRE CLO issuance. One might expect a MF loan in a CRE CLO would get to a stabilized statues and be financed in the GSE, life company or the conduit market but absorption rent growth has been so tepid that many of these loans are still transitional in nature and a better fit for the CRE CLO market. Even with so many deals called, the net issuance is positive at about $1.8 billion YTD as of September 30.

The current outstanding balance for CRE CLOs is $72.7 billion as of September 30. Approximately $50 billion of that is multifamily, more than the $37 billion of multifamily loans in conduit deals. So, CRE CLOs continue to be an important source of financing for multifamily properties. Also, as older loans mature and need to be financed, there will be need for short-term financing to get the stalled business plans of not fully stabilized properties to completion. These loans will also be important for those whose business plans require the option of selling properties in the near future, and who do not want to be locked in long-term financing. CRE CLOs continue to be a useful tool for financing multifamily for appropriate situations.

MBA NewsLink: What are you observing in terms of CMBS multifamily delinquencies and distress?

Robert Grenda, Managing Director at KBRA: Delinquency and distress among non-agency CMBS multifamily loans are at higher-than-expected levels today. Trepp reported a 6.59% delinquency rate in September, up from 3.33% a year ago. Within KBRA’s book, the multifamily distress rate among non-agency deals—which is all loans 30+ days delinquent plus those loans that are current but specially serviced—was 9.87% in September, ranking third after office and mixed-use properties. There are several reasons for the high distress rate: new supply in 2022 – 2024 coupled with lower net absorption; flattening rent growth (and even declines in some markets) coupled with higher property expenses; higher interest rates leading to lower debt service coverage levels leaving little room for cash flow deterioration; moderately aggressive underwriting during the same period; and lower rent growth or falling average rent in some markets.

Net absorption of apartment units peaked around Q3 2021, then fell precipitously thereafter. Absorption was negative in the second half of 2022 and barely positive at the start of 2023. During that same period, however, completions rose significantly and outpaced absorption by a wide margin. It wasn’t until Q2 2024 that absorption exceeded completions. In some markets this trend put downward pressure on rents and forced landlords to offer more attractive concessions.

While these new units were being delivered, a variety of factors—government spending and supply chain disruptions among them—caused prices for many goods and services to skyrocket. Property expenses for repairs and maintenance, utilities, and insurance took off. With downward pressure on the income side and upward pressure on expenses, property net operating income got squeezed.

MBA NewsLink: How has multifamily exposure shifted in 2025 conduit transactions?

Malay Bansal: One of the most notable changes related to multifamily loans in conduit deals is the jump in the share of multifamily loans in conduit deals. Multifamily loans were 15% and 9% of conduit deals in 2022 and 2023. In 2024, that share jumped to 25%. So far in 2025 as of September 30, multifamily loans represent 27% of the pool.

The increase reflects growing investor preference for multifamily loans driven by improving fundamentals for the sector. Decline in occupancy rates from sharp increase in supply (from 45K units in 2011 to 305K units in 2024), especially in Sunbelt MSAs, seems to be bottoming out at 92%, and multifamily construction supply deliveries have stepped down significantly as starts have collapsed. TTM Net absorption as of 2025 Q1 was -98K compared to -248K as of Q1 2024. Under construction have dropped from 1,015K units (5.1% of inventory) as of Q1 2024 to 648K (3.2% of inventory) as of Q1 2025. Supply is expected to keep dropping for the next five years. Also, multifamily demand rebounded strongly in 2024 and has the potential to remain robust given deep housing unaffordability

The increase in multifamily share of conduit deals balances out the decrease in share of office loans, which are out of favor with investors. Office loans were 32% and 33% in 2021 and 2022. That has come down to 14% and 16% in 2024 and 2025 YTD as of September 30.

The increase in share of multifamily has happened along with increase in conduit issuance, which jumped to $32.9 billion in 2024 and $20.1 billion so far in 2025 as of September 30, compared to $23.3 billion and $19.8 billion in all of 2022 and 2023 respectively.

The increase in multifamily exposure in conduit deals is happening at the same time as an increase in delinquencies. Multifamily 60+ day delinquency in conduit jumped from 1.0-1.5% in 1H 2024 to 3.9% at end of 3Q 2025. Including 30+ and special servicing, the distress rate is around 8.5%. The high distress rate is driven by older, rent-regulated buildings (heavily present in some Northeast MSAs) which are showing outsized distress, with expenses having increased more than rents.

The increase in multifamily distress has the effect of increased scrutiny from investors on the underwriting, especially on rising operating costs, inflation, rent regulation constraints. More scrutiny has resulted in tightening of underwriting and metrics, and higher selectivity by lenders for these affordable properties. This is particularly noticeable in New York City’s five boroughs. The government and GSEs can do more to support affordable housing.

Despite the increase in multifamily loans in conduit deals, the absolute numbers remain low. Conduit issuance in 2022 and 2023 included $3.3 billion and $1.8 billion of multifamily loans. That jumped to $7.6 billion in 2024, and $5.2 billion so far in 2025. That is a big percentage change but is dwarfed by the roughly $50 billion issuance per year by each of Freddie and Fannie. The higher volume of loans by GSEs reflects the cost advantage they have. The GSEs have pulled back a little recently, but not by a lot. Even a small change for GSEs represents a big percentage change for multifamily loans in conduit.

MBA NewsLink: What other factors are impacting multifamily performance?

Robert Grenda: I think another contributing factor was that some of the multifamily loans in recent conduit deals were underwritten with lower debt service ratios while at the same time projections for near-term rent growth were a bit optimistic. Anecdotally, many of the multifamily loans securitized since about 2022 had DSCs around 1.20x or 1.25x, which doesn’t leave much cushion should property cash flow come under pressure. Rent growth jumped starting around Q4 2021 and continued rising for several quarters. I think this led some underwriters to make rosy assumptions about future growth. Rent growth began slowing around the start of 2023 and then fell meaningfully. By the end of 2023 growth was either negligible or negative in some markets.

So, the combination of lower revenue, higher expenses, lower rent growth or falling rents, and little margin for error in the form of low DSCs meant that some borrowers would fall behind on loan payments.

These factors explain why the conduit multifamily distress rate is so high. It also partly explains why we’ve seen some comparatively large multifamily loans in recently issued conduit deals run into trouble relatively quickly after securitization.

Although conduit multifamily delinquencies are rising, we expect that any losses from defaulted loans should be lower than the other major property types. The reason is that multifamily is the most liquid CRE property type in both debt and equity markets and are subject to less binary risk.

We recently updated our Conduit CMBS Default and Loss Study (July 2025) and again found that multifamily loans have a lower default rate and lower loss rate than the other major property types, which makes the current trend a bit unusual. This is also consistent with other studies we’ve done.

We’re not seeing the same level of delinquencies or distress within agency deals we rate. Based on KBRA’s tracking of currently outstanding loans across the Freddie Mac K Series fixed-rate program, the delinquency rate by loan count is less than 0.1%. Moreover, we haven’t seen many large agency loans fall delinquent or transfer to special servicing, and I think that speaks to the generally solid underwriting standards for the agency multifamily loans.

MBA NewsLink: What dynamics do you observe impacting legacy CRE CLOs and their performance?

Malay Bansal: As previously mentioned,one of the factors that has impacted transitional multifamily loans in CRE CLOs is the increase in expenses for multifamily (and other) properties. Since 2012, BOA and NCREIF estimate that multifamily expenses have grown at an annualized rate of 4.9% while revenue has grown only at 4.2%. A lot of that expense increase has been in more recent years. That has pressured NOIs and DSCRs on these properties.

Higher costs for interest rate caps required by lenders for exercising loan extension options did not help. As a result, many of these loans have run into trouble, increasing the delinquency for multifamily loans in CRE CLOs to about 6.6% currently. However, just looking at the delinquency does not give the full picture. Some 20-30% of current CRE CLO loans have been modified to keep them current. The cumulative modification rate is estimated at 30.6%.

Also, CRE CLOs have over-collateralization and interest coverage tests that result in shutting off cashflows to bottom tranches (held by the CRE CLO managers) if the deal fails to meet the required levels. To avoid that from happening, CRE CLO managers buy these loans out of the deal at par and work them out, outside the deal (which is a good result for CRE CLO bond holders). Industry participants estimate $1.3 billion and $1.4 billion delinquent loans were bought out of the trusts in 2023 and 2024. Another $550+ million was bought out of trust in the first half of 2025. Anecdotally, these loans sit in distressed loan warehouses, while they are being worked out. Advance rates are lower, and the financing costs are higher on these warehouses, but it provides more time for property owners and lenders to work out loans, instead of forcing a quick liquidation.

MBA NewsLink: What should borrowers keep in mind with plentiful capital available and competitive market dynamics?

Chad Musgrove: Amid the current credit landscape, borrowers should keep in mind that prudent underwriting is still key to success. Though there is great liquidity within the marketplace, it does not mean they should stretch on their underwriting because they are working with the most aggressive lenders. Being able to clearly demonstrate their business plan and substantiate it will allow lenders to present financing options with less execution risk. While I believe we are headed in the right direction, there is still some volatility in the market and changes in the broader economy still play a great role in the financing landscape today. If you’ve received great financing terms that work for you, take it, and execute.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)