- Capital investment in multifamily real estate is accelerating, with tighter interest rate spreads and strong investor interest in newer, stabilized assets.
- Despite the inflow of capital, distress and delinquencies in the sector are rising—multifamily CMBS delinquency rates have nearly doubled over the past year.
- A glut of new supply and flattening rent growth is squeezing performance, especially for older, rent-regulated properties with high operating costs.
Investor Demand Remains Strong—For Now
Multifamily investment activity is rising again, according to industry leaders at a recent Mortgage Bankers Association (MBA) roundtable, reports GlobeSt. Chad Musgrove of M&T Realty Capital Corp. said spreads on multifamily loans have tightened. Current pricing falls in the 200–250 basis point range for moderate-leverage deals (65–70%). Higher leverage loans are seeing spreads in the 275–325 basis point range.
The capital influx is largely being directed at newer, stabilized properties, especially those transitioning out of construction loans and into lease-up financing. Value-add opportunities remain viable but only when backed by experienced operators and strong equity positions. Musgrove expects this investor enthusiasm to carry into 2026, particularly if interest rates trend downward.
But Credit Stress Is Mounting
Despite strong capital inflows, cracks are showing in the multifamily market. Delinquencies and distress are rising rapidly, especially among non-agency multifamily CMBS loans. Robert Grenda of KBRA noted that the delinquency rate in this segment jumped from 3.33% in September 2024 to 6.59% recently. Including specially serviced loans, the multifamily distress rate now sits at 9.87%—behind only office and mixed-use assets.
The root causes? A surge in new supply, declining net absorption, and a spike in operating costs. Between 2011 and 2024, new multifamily deliveries increased from 45K to over 300K units annually. Yet demand has cooled. First-quarter 2025 absorption was less than half of the same period a year earlier, signaling a potential oversupply in some markets.
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Shift In Loan Composition Reflects Sector Sentiment
The rising share of multifamily loans in CMBS conduit deals suggests shifting investor priorities. According to 3650 Capital’s Malay Bansal, multifamily loans accounted for 27% of conduit issuance in the first nine months of 2025—up from just 9% in 2023. Occupancy has stabilized at 92%, boosting confidence, though fundamentals remain uneven.
Notably, older, rent-regulated properties are experiencing the most distress. As expenses rise faster than regulated rent growth, these assets are increasingly under financial pressure—a trend lenders are watching closely.
What’s Next
Multifamily remains a favored asset class for many investors, especially as fundamentals recover in newer, high-quality properties. However, rising delinquencies and a glut of new supply are reshaping risk profiles—forcing lenders and borrowers alike to be more selective.
The sector’s future hinges on the delicate balance between capital availability and operational performance, with 2026 poised to be a pivotal year.
