Multifamily Mortgage Debt Grew Over 8% In 2020

Multifamily debt escalated steadily in 2020, including an increase in new issuances despite headwinds from a pandemic and uncertainty about the future of the nation's housing market.

"In the second and third quarter, while we saw multifamily transaction volume fall off in line with other property types, we also saw its financing hold up better," MBA Vice President of Commercial Real Estate Research Jamie Woodwell said in an interview with Bisnow. 

Overall outstanding multifamily debt rose by 8.2% in 2020, or by $127.9B annually, the Mortgage Bankers Association said in its latest Commercial/Multifamily Mortgage Debt Outstanding quarterly report.

In just the final three months of 2020, multifamily mortgage debt ticked up 2.5%, or roughly $41.8B, from the third quarter of 2020, reaching a total of $1.69 trillion in Q4, the MBA said. 

Market analysts attribute this growth in multifamily issuance to strong investor confidence in the apartment segment, low interest rates that greased the wheels of pending deals, and steady support and strong acquisition appetites from government-sponsored housing enterprises like Fannie Mae and Freddie Mac. 

"There were two things going on," Woodwell said. "One was that multifamily lenders and investors continued to have a fair amount of faith in multifamily to get through the pandemic and to be in good shape on the other side of it. And, No. 2, you had federally backed lending that was available and because of where rates were it was extremely attractive."

All of these factors prompted strong refinancing activity through the Federal Housing Financing Agency, Fannie Mae and Freddie Mac, Woodwell said. 

Another force that potentially pushed multifamily originations higher during the final part of 2020 was the ongoing shortage of single-family homes nationwide and rising home prices that have locked out next-generation buyers. 

"We have seen that the single-family ownership market is very tight and while new construction has been ticking up, it's still relatively subdued in contrast to what we are seeing on the multifamily side. As a result, there may be households that may otherwise be in a place to go out and purchase a home that are remaining renters," Woodwell said. 

Fannie and Freddie, along with mortgage-related securities, provided a great deal of liquidity to the multifamily market, with the agencies holding the largest share of total multifamily debt outstanding at $838B, or 50% of the total, the MBA said.

Commercial banks come in second with $480B in outstanding multifamily mortgage debt, followed by life insurance companies with $168B, state and local governments with $106B, and commercial mortgage-backed securities, collateralized-debt obligations and other asset-backed issuers with $51B in outstanding debt.