Dive Brief:

• At the end of 2023, 49 community banks had multifamily nonperforming loans greater than 5% of total multifamily loans, according to a report from Fitch Ratings. 
• However, Fitch noted that these banks are relatively small, averaging $1.3 billion in total assets, and the balance of multifamily loans at these institutions is only a modest fraction of the overall industry. The 10 largest multifamily lenders comprise nearly 40% of total apartment loans for the U.S. banking industry, according to Fitch.
• The government-backed lenders, which hold a large share of the market, don’t appear to be facing near-term issues. Only 3%, or $28 billion, of the outstanding balance of multifamily and healthcare mortgages held or guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration and Ginnie Mae will mature in 2024, according to the Mortgage Bankers Association’s 2023 Commercial Real Estate Survey of Loan Maturity Volumes.

Dive Insight:

Since COVID-19 hit the U.S. in 2020, multifamily lending by U.S. banks has grown 32% to $613 billion outstanding as of the fourth quarter of 2024, according to Fitch. Twelve percent of mortgages backed by multifamily properties will mature in 2024, according to the MBA.

Fitch expects banks’ asset quality metrics to deteriorate for some multifamily loans. Borrowers will face risks from higher refinancing rates and valuation pressures as loans mature over the next few years, it said.

Fitch pinpointed as potential problem areas loans covering rent-stabilized housing that were reliant on overly optimistic rental income increase projections or backed properties in submarkets with elevated supply in states like Texas, Florida, Tennessee and the Carolinas.

Still, Fitch said the number of multifamily loans past due or on non-accruing status is below long-term averages and well below peak levels during the Global Financial Crisis. 

Wider commercial problems

Multifamily’s overall risk may be low compared to the broader commercial real estate universe, which is weighed down by the office sector. Overall, 20%, or $929 billion, of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024, a 28% increase from the $729 billion that matured in 2023, according to the MBA.

Originally, $659 billion in commercial mortgages were set to mature this year. However, lenders and servicers offered extensions and modifications last year that helped raise that figure to $929 billion.

“The lack of transactions and other activity last year, coupled with built-in extension options and lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other coming years,” said Jamie Woodwell, head of commercial real estate research at MBA, said in a press release.

The extensions have also limited the amount of distress in the market, according to Ric Campo, Camden’s CEO, on the REIT’s Q4 2023 earnings call. 

“We haven't seen anyone going bust yet,” Campo said. “We hear a lot of anecdotal information about banks working with their borrowers.”

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