Multifamily Mark to Market

In response to the economic impact of the pandemic, central banks around the world implemented historically low-interest rates as part of their monetary policy measures. The logic was to stimulate economic activity and encourage borrowing and investment during times of economic uncertainty. With central bank rate cuts, interest rates reached all-time lows, which led to increased demand for commercial development and refinancing opportunities. Investors borrowed record amounts when Secured Overnight Financing Rate (SOFR) was .25 percent, now up to 5.25 percent.

The pandemic’s blow to office space is all over the headlines. Office spaces constitute 80 percent of the new commercial real estate loan delinquencies, with an occupancy rate of approximately 50 percent. However, they form only a modest 15 percent share of the $20 trillion market. Multifamily is a different beast by several billion dollars.

$8 billion in multifamily commercial mortgage-backed securities (CMBS), known as the “Red October,” are set to mature in the latter half of 2023. Essentially, this surge is equivalent to the total expected maturation of office CMBS throughout all of 2023. The combination of stricter lending criteria and higher-cost debt options leaves borrowers with limited choices.

As a result of higher interest rates, the cost of borrowing for multifamily property owners increased dramatically. With a wave of approaching maturities, the sector can expect the following:

  1. Reduced property valuations. Higher interest rates can lead to lower property valuations since potential buyers may be less willing to pay a premium for properties with higher financing costs.
  2. Refinancing challenges. Some borrowers may find refinancing at higher rates challenging, leading to potential defaults or distress in the multifamily sector.
  3. Investment performance. Higher interest rates can instigate a decrease in the value of multifamily mortgage-backed securities, impacting overall investment performance.
  4. Market demand. Higher interest rates may drain the demand for multifamily properties, further affecting property sales and development.

Take, for example, the A&E Real Estate $500MM Portfolio. Around June 2021, during a period of historically low-interest rates, the major player in the multifamily housing sector decided to restructure a collection of 31 properties spread across the Bronx, Brooklyn, Queens and Upper Manhattan. They secured a fresh loan of $506 million from JPMorgan Chase, a three-year arrangement carrying a 2.4 percent variable interest rate. The primary objective was to complete ongoing projects, raise rental prices and enjoy the resulting profits.

However, the Federal Reserve had a different trajectory in mind. The portfolio’s debt service coverage ratio experienced a sharp decline to 0.88 due to the increasing interest rates. With the loan maturing next June, A&E will potentially face another interest rate hike unless it manages to secure an extension. There’s even a chance that refinancing might not be feasible at all. Across the years 2021 and 2022, property owners specializing in multifamily housing borrowed a total of $682 billion through short-term, low-interest loans.

Due to risk management operations, banks are temporarily taking a step back. Private lenders, including mortgage REITs, debt funds and private equity groups, are poised to capitalize on this market. BayBridge Real Estate Capital has extensive relationships with major players that will shape the commercial landscape in the next decade. For a comprehensive capital markets consultation, contact the experts at BayBridge.

  • Cavannaugh, Suzannah (2023, July 3) “A Maturity wall is Coming for Multifamily. Can Rescue Capital Save the Day?” Retrieved August 11, 2023 from
  • Richter, J. (2023, August). Real Estate Daily Beat. Daily Beat NY. Retrieved August 11, 2023, from
  • Snyder, Xander. (2023, August 2) “First American Economic Outlook” America’s Commercial Real Estate Podcast. Retrieved August 11, 2023 from

Student Housing Surge

Student housing has become an increasingly attractive asset this past year. Pre-leasing numbers, current occupancy rates and year-over-year growth reached near all-time highs, indicating a robust market. In contrast to the plateaued multifamily housing market, student housing just experienced an average yearly rent surge of around nine percent. This acceleration is likely attributed to higher college enrollment rates and the phase-out of remote learning.

Students who took pandemic gap years are back, and international enrollment is making headway. Enrollment increases are most prominent in notable universities with Division I programs and better brand recognition. Students are back in droves, and it appears they are looking for the quintessential college experience.

The student housing market presents favorable conditions for new supply. In fact, data shows that between 2010 and 2020, universities added 60,000 to 70,000 new beds annually. However, in 2022 the rate declined to only 25,000 beds indicating an undersupplied market, particularly on campuses transitioning from “commuter” to “resident” settings.

A rising trend of commuter-style, city institutions shifting to resident campuses makes them prime candidates for substantial housing growth. Florida International University and the University of North Texas are examples of urban-centered campuses with a large influx of resident students.

While the student housing market presents attractive opportunities, it has its challenges. Local political structures and associated “not in my backyard” sentiments can pose significant hurdles. Developers can’t simply plan to build cookie-cut designs across all college towns and achieve success. Barriers to entry can make development a headache but, at the same time, prevent oversaturation and promote a balanced market.

There is a common misconception that regional banks comprise the majority share of financing for standard multifamily properties. Though, student housing receives a chunkier portion of local financing. Regional banks often have better market understanding and the right connections to pull strings on these types of deals.

Developers may have to get creative with their financing if regional banks are continuously sidelined. It is also worth noting that cap rates for student housing properties are typically 80 to 100 basis points higher than standard multifamily housing. Fortunately for developers, recent net operating income growth in student housing helps offset the valuation impact.


Richter, Joseph, et al. “Daily Beat – Commercial Real Estate News.” Daily Beat, 25 Sept. 2019,

Spotify. (2023, May 9). Student  Housing: Thriving Market Trends and Investment Opportunities. America’s Commercial Real Estate Show. episode.


Is Your Bank Running? You Better Go Catch It…

It’s bidding day! The FDIC is selling Silicon Valley Bank and Signature Bank, and the bids are due today. Only bidders with existing bank charters (and a little luck o’ the Irish) will be given access to the bank’s financials, when deciding whether to make an offer. This gives existing lenders the upper hand on private equity firms. If whole sales do not materialize, the banks will be sold in parts.

SVB and Signature were first to be run under water. Other banks, including First Republic and Credit Suisse, were headed for the same fate before being tossed an expensive lifeline. First Republic will receive a $70 billion rescue package pooled together by 11 other banks and the Federal Reserve. Republic’s share price dropped more than 60%, before receiving additional funding. Credit Suisse received a similar $54 billion lifeline on Thursday from Switzerland’s Central Bank, after its stock dropped 24% on Wednesday. Moody’s rating agency is currently reviewing Zions Bancorporation, Western Alliance, Comerica, UMB and Intrust, as well.

How might credit doubt and bank runs affect commercial real estate investors? Up until last week, our biggest challenge had been navigating the complications of increasing interest rates. Now there is new uncertainty in real estate finance as lenders are likely to tighten their underwriting. Debt will get more expensive and harder to come by. The entire situation is reminiscent of the Great Recession and guaranteed to constrain credit. Luckily, the panic is not as bad as that moment in history and the Federal Reserve’s response was swift and organized. Also, the Fed will likely cease rate hikes for the time being.

If we can help you navigate these challenging times, please don’t hesitate to reach out.

Works Cited

Richter, Joseph, et al. “Daily Beat – Commercial Real Estate News.” Daily Beat, 25 Sept. 2019,

Young, Celia. “First Republic Scores $30 Billion Rescue Deal from Lending Rivals.” Commercial Observer, Commercial Observer, 16 Mar. 2023,

Schenke, Jarred, et al. “National Commercial Real Estate News & Trends.” Bisnow,