Big banks have held back from investing in new multifamily projects in the wake of the current supply glut.

The U.S. apartment market has been a “winning bet” for real estate investors in the years following the recession, according to MPF Research, a division of RealPage. Average U.S. apartment rents have increased by 26% since 2010, and the multifamily sector annually contributes about $284 billion to the economy.

Given the current oversupply of units nationwide, plus 378,000 more set to go on line in 2017, big banks have lately held back from investing in new multifamily projects. This has led developers either to invest more of their own capital in projects or seek nontraditional funding sources, many of them at much higher premiums, reports Laura Kusisto for The Wall Street Journal:

Commercial mortgage brokers said they are seeing an uptick in mezzanine loans, which carry higher interest rates than traditional loans. Brokers also see a rise in preferred equity, which also comes with higher payments than bank loans and therefore poses a greater risk to developers of losing projects if things go south.

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