Financing Multifamily Properties: A Play with New Actors and New Lines

Abstract

Financing of multifamily properties has evolved dramatically over the past decade with the role of traditional actors overshadowed by the emergence of State finance agencies, publicly traded debt real estate investment trusts (REITs), Freddie Mac, Fannie Mae, and the private-sponsored secondary market conduits. For example, since 1993, increased holdings by Freddie Mac, Fannie Mae, and private-sponsored pools have represented approximately 90 percent of the net increase in conventional multifamily debt in the United States. Changes accompanying this transformation include lower cost access to capital; the decoupling of underwriting, servicing, and investment decisions; and an injection of new capital from investors. Multifamily mortgage rates have fallen relative to single-family rates and U.S. Treasury yields, and regional disparities in loan pricing have narrowed. While the near-term outlook remains bullish, a latent question is whether there is sufficient market discipline to avoid the extreme real estate cycles of the past.

JEL Classification: G2, G1, H5, D6