
As debt financing providers closed out 2024, several reflected on how the year fared compared with expectations and how they are optimistic heading into 2025.
“We navigated two very different markets in 2024,” says Lument CEO Jim Flynn. “The first half of the year was a continuation of 2023, a test of patience and persistence. Around midyear, the market started to turn around. The Fed felt confident it had a handle on inflation, and long-term rates began to drop in anticipation of a rate cut. Business rapidly picked up to a pace we have not experienced in some time. In general, we rounded out the year on track with our forecasts and have a very strong pipeline moving forward.”
Hilary Provinse, executive vice president of production and capital markets at Berkadia, agrees, saying she was pleasantly surprised with how 2024 wrapped up compared with the expectations at the start of the year.
“A very diverse amount of liquidity in the debt markets—debt funds and life companies raised capital, equity providers moved down the capital stack to invest in credit, and strong commercial mortgage-backed securities (CMBS), single-asset single-borrower, and steady government-sponsored enterprise (GSE) activity—all contributed to a better-than-expected 2024,” she says. “We even saw some resumed bank lending in the second half.”
Provinse adds the main challenge for 2024 was the lack of transaction volume, which continued to be hampered by rate volatility and a persistent bid-ask spread differential.
What’s Ahead
Flynn and Provinse agree that early 2025 will be a continuation of the end of 2024. “Essentially, we will see more of the same. We’re very focused on the wall of maturities—nearly $300 billion of maturities were pushed into 2024, but how much will roll into 2025? When will owners choose to refinance or sell, or when will lenders step in to force the issue instead of continuing loans?” asks Provinse. “The first half of the year will likely look a lot like the last few months, but we leaned into increased transaction activity in the second half of last year so I’m optimistic.”
Even though rates are still volatile, Flynn concurs the growing wall of maturities along with the increase in investment sales activity provide optimism for the future.
“We have been incredibly busy across our agency, balance sheet, and capital markets platforms over the past few months,” he notes. “Investors have been either moving off the sidelines or evaluating their options to do so, and I expect overall increased activity this year, but impacts of new and unknown policies of the next administration may weigh on activity in the first half of the year.”
Mike Ortlip, senior managing director of originations at NewPoint Real Estate Capital, also is optimistic for 2025.
Ortlip says he expects construction lending to remain slow for the year, but the permanent market should be solid, with increased appetite from the GSEs, life insurance companies, and CMBS.
“There’s also optimism that the broad economy should strengthen in 2025, and it is looking like Treasuries should run between 4.5% and 4.8%—a big range, but relatively stable. We’re comfortable in that range with some wiggle room,” he adds.
Risk Factors
The debt providers are watching several factors that could negatively or positively impact multifamily lending in the year ahead.
“These include the bid-ask spread, cap rates, short- and long-term interest rates, supply and absorption trends, and the lack of new construction starts,” says Provinse. “Additionally, single-family fundamentals supporting multifamily, regulatory risks, and the potential for Fannie Mae and Freddie Mac reform are all key considerations. These are the top factors we’re watching as we head into 2025.”
On the positive side, Flynn points to strengthening multifamily fundamentals, which should lead to an acceleration of investment sales activity and, in turn, have a positive impact on lending volume. Those drivers include demographic demand, the soaring cost of homeownership, and the industry being past the peak of new unit deliveries. Even though absorption will take longer in some of the overbuilt Sun Belt markets, he notes the end result still will be positive for occupancy and rent growth.
In terms of risk, Flynn says a material increase in rates would throw uncertainty back into the market. In addition, policies related to government spending, tariffs, and corporate and government taxes could lead to increased inflation and ultimately long-term rates. “We might also see some localities continue to pursue rent control, which, despite having good intentions, is a misinformed policy detrimental to both the quantity and quality of available rental housing. It also is poorly targeted in terms of helping those who need rental assistance the most,” he says. “Other risks include geopolitical factors that could cause disruption, such as the Russo-Ukrainian War, growing destabilization in the Middle East, and any aggressive actions taken by China.”
As for borrower risk, lenders point to operating expenses.
“Operating expenses remain a top challenge for multifamily owners entering 2025, with a key driver being insurance premiums, which have increased up to 30% year over year in some coastal areas,” says Flynn. “Rising property taxes and wage growth are also putting pressure on net operating incomes against a backdrop of lower rent growth.”
Ortlip adds with softening rents and higher expenses, some properties have taken hits when it comes to deferred maintenance and expects to see acquisition-rehab lending increase slightly this year.
“Whether it’s NewPoint for our own balance sheet or for the agencies, we are trying to be clear-eyed about where expenses are, where they should be, and where they are expected to go. I think everybody has had to adopt a realistic viewpoint. Expenses are going to be up so it’s important to underwrite to reality,” he notes.
Opportunities Ahead
Affordable and workforce housing also will continue to be priorities for debt providers in 2025.
“Sun Belt markets with high numbers of multifamily deliveries—metros like Atlanta; Austin, Texas; Charlotte, North Carolina; Dallas; Denver; Nashville, Tennessee; Phoenix; Salt Lake City; and Tampa, Florida—are all dealing with muted rent growth and vacancy challenges. That being said, those issues are largely concentrated within Class A product,” says Flynn. “There is still high demand for the affordability offered by Class B and C properties. That is true in those Sun Belt markets and nationwide.”
According to Flynn, while Class A rent growth has been essentially flat over the past year, Class B rent growth averaged near 1% and Class C was near 3%.
“Affordability is as important as ever to renters, and we expect to see additional investment interest in these asset classes,” he adds. “The number of borrowers utilizing financing programs that incentivize the creation or preservation of units that are affordable to workforce households should continue to grow.”
In addition to affordable and workforce housing opportunities, Provinse and Ortlip say they are seeing strengths on the seniors housing side.
Ortlip notes that while seniors housing got hurt during the pandemic, it should fare well in the coming year with the wave of aging baby boomers.
“In seniors housing, demographic trends are creating strong tailwinds, prompting us to enhance our Seniors Housing & Healthcare platform,” adds Provinse.
In addition, Provinse says the expansion of the single-family rental and build-to-rent markets will present exciting opportunities for Berkadia in 2025.
“Multifamily has once again proved its resilience as an asset class, and the industry will be full of opportunities in 2025,” concludes Flynn. “On a specific level, I see investors targeting markets with limited new supply and steady job growth. This will lead them to growth areas in the Midwest or anywhere that the CHIPS Act is having a major impact. Those with longer-term investment horizons will continue to see opportunity in those Sun Belt markets even where near-term demand may be softening.”