The supply side of the purpose-built, single-family rental housing market is being pummeled. Multifamily, including build-to-rent (BTR), starts are way down from last year, with recent surveys reporting that 40% of project delays are due to availability of financing.
Why? You’ve seen the headlines—the regional banking sector, which accounts for most commercial real estate (CRE) loans, is under stress. Consequently, many operators will tell you that CRE lending is in the middle of a full-blown credit crisis.
The first signs of brewing liquidity problems arose late last year, shortly after interest rates rapidly increased. Many banks that planned to move 2021 and early 2022 loans off their books found that those lower-rate loans had devalued. Thus, fewer dollars than planned flowed back into the banks’ vaults.
Also in late 2022, regulators showed up at the proverbial (or actual) door of many CRE lenders, telling the banks that they needed to increase the reserve holdings that backstop many of their development and construction loans, further restraining liquidity.
Then earlier this year, CRE lenders experienced more blows. Silicon Valley Bank collapsed, along with several others, and deposit outflows from regional lenders to either G-SIBS or Treasuries became an ongoing, sectorwide concern.
Alongside that, more and more borrowers with loans maturing began asking for extensions instead of repaying their loans. And finally, lenders with significant office exposure began taking an extremely conservative approach to liquidity management given the likelihood that they will need to cover losses.
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