By Sam Tenenbaum, Head of Multifamily Insights, Cushman & Wakefield
In the wake of the banking crisis that has unfolded over the past few months, the market is witnessing a sizable shift in the multifamily financing environment. As the only asset class with government-backed debt, lending from government agencies was already on the rise to start the year. It is poised to continue re-growing its share through the rest of the year as other lenders further step back from loan origination.
The modern lending environment has changed drastically as new debt sources came into play. Until the Great Financial Crisis (GFC), government agencies were relatively minor players in the multifamily debt market. From 2000-2006, agency lending as a share of total borrowing averaged just 16%. The bulk of financing was done through CMBS and banks, which represented about 75% of the overall sale and refinance volume during that time frame. That changed after the agencies went into conservatorship. During the financial crisis, the agencies provided nearly 75% of all multifamily debt from 2008-2012.
Since the GFC, the agencies have been the dominant source of multifamily debt capital, displacing CMBS and bank lending. Government agencies have represented about 58% of total multifamily loan originations since 2010, representing a key source of liquidity in the capital stack. Conversely, banks represent a much smaller share – about 20% of overall multifamily lending since 2010, indicating that the banking crisis shouldn’t create significant concerns for liquidity in the multifamily sector. However, before the onset of the COVID pandemic, the agencies’ share of lending had been falling for years as the lending environment diversified, with banks, debt funds, and life insurers buying into the positive multifamily story. When COVID hit, agencies again leaned in to provide much-needed liquidity – offering up 60% of all multifamily debt in 2020.
As the apartment market saw a significant recovery, agencies lost share despite reaching their caps. Borrowers shifted to lenders who were more willing to underwrite the extreme growth that was occurring across most of the U.S., especially favoring debt funds offering competitive bridge debt. As a result, the agencies’ market share tumbled to the lowest levels since the agencies entered conservatorship.
This year, we have already seen an uptick in liquidity provided by Fannie Mae and Freddie Mac. Through the first quarter, agencies have stepped up, improving their share by nearly nine percentage points. While we’re not even halfway through the year, we expect that share to increase, given the level of interest for agency loans.
Greystone has seen a significant uptick in loan requests over the past two months, quoting both refinancing and acquisition debt. These two months are the highest level of activity since 2021. If this activity level holds, agencies should be able to hit, or at least approach, their lending caps this year, even amid economic uncertainty.