With unprecedented year-over-year increases in rents occurring in almost every market across the country, multifamily property has been an irresistible asset class for investors – and lenders. That’s according to a new survey of lenders and financial intermediaries by business-to-business media company France Media Inc., which publishes media for the commercial real estate industry. Its survey of mortgage and lending professionals revealed that 83 percent of respondents felt that the multifamily sector provides today’s most attractive financing opportunities, followed by industrial real estate at 75 percent. Mixed-use ranked a distant third place (at 25 percent), retail ranked fourth (at 71 percent), hotels ranked fifth (at 14 percent) and office ranked sixth (at 7 percent).
While the pandemic has forced the retail, office and hotel sectors to navigate multiple challenges, the snapshot for multifamily real estate could not be more different. At the end of 2021, the national vacancy rate for apartments was a mere 2.5 percent.
According to the France survey, 2022 looks to be an even busier year for multifamily, with an overwhelming 77 percent of respondents expecting the total dollar amount of multifamily loans to exceed the amount lent in 2021.
Refinancing and Acquisitions
There was some disagreement among respondents regarding the type of lending activity they expect to be the most robust for commercial real estate in 2022. The historically low interest rates of 2021 made refinancing a major component of lending activity, and 39 percent of lenders expect refinancing to be the main type of lending activity to occur again in 2022. However, another 33 percent believed that acquisition financing would be the most common form of lending activity, due to how quickly properties and portfolios have been changing ownership.
Any conversation about the economic outlook would be incomplete without mentioning the role of inflation. As of March 2022, the national inflation rate was 7.9 percent and climbing. Survey respondents were asked how they think this will affect lending in the next year to 18 months. Forty-eight percent believe that the inflation rate will have a negative impact on the industry, while 28 percent think it will have a positive impact. When asked what single factor will have the greatest impact on the multifamily industry in the year ahead, 28 percent cited inflation, followed closely by supply chain issues at 25 percent.
While the enthusiasm for multifamily is strong among lenders, several respondents expressed concern about the potential for a bubble, with reduced occupancy lowering the value of multifamily. Others highlighted the chance to address the need for affordable housing, which has been described as “massively undersupplied” and one of the greatest multifamily opportunities in booming Sun Belt markets.