The five-year escalation in multi-family debt continues to soar to record levels, according to the

Mortgage Bankers Association's analysis of data from the Federal Reserve Board. From the second quarter to third quarter of 2004, the association reported that multifamily debt grew by $8.2 billion, or 1.4 percent, to $582 billion.

One big reason for the run-up is that capital sources abound.

“Commercial mortgages are performing very well,” says Jamie Woodwell, senior director of community and multifamily research for the Mortgage Bankers Association. “You have historically low delinquency rates on commercial and multifamily mortgages. This is making them all the more attractive as investment opportunities.”

These lenders are offering diverse products, such as mezzanine loans, that require smaller equity commitments than in the past. “Credit has been extremely loose, and most lenders have become increasingly more aggressive by reducing debt service coverage ratios and qualifying stress rates to stay competitive,” says Mark Kanter, owner of Commercial Realty Consultants, an owner of multi-family properties in Calabasas, Calif.

These products can also make a property more lucrative. “The more leverage you take, the higher an equity return you can get,” says Dan Palimer, president and CEO of Potomac Realty Capital, a lender in Needham, Mass.

Lower interest rates are also making debt more attractive to owners, according to Dale Gruen, a portfolio manager with SSR Realty Advisors, a real estate investment firm based in Morristown, N.J. “Locking in long-term lower interest rates gives us some protection in the event rates rise and creates some back-up in cap rates,” he said.