Government-sponsored entities, including Fannie Mae and Freddie Mac, accounted for only 44% of all apartment financing transactions in the first half of 2016. This is the only time in the past five years in which GSEs have not been the majority lenders in the apartment market, according to the US Capital Trends Report by Real Capital Analytics (RCA). The GSEs' share of apartment financing transitions has declined by 8% since 2015, when GSEs made up 52% of all transactions, and by 22% since 2012, when they made up 68% of all transactions.

RCA US Capital Trends Report

Overall, apartment deal volume fell by 11% YOY in August on sales of $9.9 billion. While individual asset sales were up 19% YOY on sales of $9 billion, portfolio and entity-level deals fell by 74% YOY on sales of $928 million. (There were no entity-level transactions in August, which accounts for the steep decline.) RCA notes that single-asset sale activity is 2% higher than in 2015, while the pace of entity-level transactions is 14% ahead of 2015’s pace.

Across all categories, the national average cap rate stood at 5.6% in August 2016. Average mid/high-rise cap rates stand at 4.9%, down 20 base points YOY, and garden cap rates stand at 5.8%, also down 20 base points for the same period. Average seven- to 10-year fixed apartment mortgage rates stood at 3.9%, down from 4.5% in January, and the spread between mortgage rates and apartment cap rates is at 170 base points, an increase from Q1'16.

RCA US Capital Trends Report H1'16

In the first half of 2016, the average apartment loan had an LTV ratio of 68%, down 1% YOY. CMBS lenders have seen a significant drop in LTVs, from 64% in 2015 to 55% in first half of 2016, but RCA notes that the sample size may be misleading as CMBS lenders only make up 2% of the market. Insurance lenders’ LTVs are up to 67% from 63% in first half of 2015, but their average occupancy is up to 94% and their cap rates are up to 5.3%.

Bank lenders are the second leading source of financing in first half of 2016, but regional and local banks have seen the fastest growth. They only made up 11% of the market in 2014, but as of first half of 2016 they have captured 19% of the market. Their growth was especially high in the Northeast, where they accounted for 44% of all activity.