Dive Brief:

• There are mixed signs about the health of commercial multifamily mortgage-backed securities loans, according to a pair of new reports by Trepp, a data and analytics firm.
• The multifamily special servicing rate rose 1 basis point in January to 2.27%, according to Trepp. However, the multifamily delinquency rate dropped 61 basis points to 1.56%.
• The overall CMBS servicing rate for commercial real estate fell six basis points in January to 5.11%, marking the second straight month of decline after four months of increases. Approximately $686 million in CMBS debt was transferred to servicers in January. Meanwhile, the delinquency rate fell 10 basis points in January to 2.94%, which is the second-lowest reading since the COVID-19 pandemic began. 

Dive Insight:

Trepp’s January report comes on the heels of a couple of major multifamily portfolios facing problems in late 2022, pushing up last year’s numbers. 

In December, a joint venture between San Francisco–based Veritas Investments and affiliates of Boston-based Baupost Group defaulted on a $448 million loan backing 1,734 rent-controlled units in 62 multifamily properties across San Francisco, according to Fitch Ratings.

In November, The Chetrit Group’s $481 million loan backing an 8,671-unit portfolio comprising 43 properties in 10 states went into special servicing for default, according to Trepp. The company is working to reduce debt in its portfolio.

With $25 billion of securitized debt secured by multifamily properties maturing during 2023, Michael J. Hurley, Jr., managing partner of New York–based law firm Cassin & Cassin LLP, which represents institutional lenders in commercial real estate finance, said delinquencies should rise but remain under 2%.

“Some of these loans will go into default and be transferred to special servicing, but I anticipate that those maturing loans originated more than two to three years ago will have no problem being refinanced in that those properties have had the benefit of the significant rent growth over these past few years,” Hurley told Multifamily Dive.

Although the lending market has slowed, CMBS originators are still active. 

“There is more than $25 billion of multifamily loans maturing during 2023; that, coupled with the fact that a record number of apartments are coming online during 2023, should provide CMBS lenders with plenty of opportunities to make fixed-rate, non-recourse loans secured by multifamily during 2023,” Hurley said.

Although there are some issues in the lending environment, Hurley said investors and lenders still covet the multifamily space. “Multifamily remains one of the darling asset classes for investors and lenders, and for good reason,” he said. “High single-family home prices, lack of supply and higher/rising mortgage rates make renting an apartment an attractive alternative for first-time homebuyers.”

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