Thoughts From Our Experts

Multi-family:

The outlook for the multifamily sector in late 2025, early ’26 hinges on three interrelated forces: interest rate policy, capital market liquidity, and valuation resets.

We all know we received some relief from the Fed, but if the Federal Reserve maintains a higher-for-longer stance, refinancing pressures will intensify as billions in multifamily loans mature over the next 12 to 18 months. Many borrowers face the challenge of rolling over debt at rates 250–400 basis points higher than when the loans originated, severely compressing cash flow coverage ratios.

Meanwhile, liquidity in the Bank, CMBS, and CRE-CLO markets remains constrained. Issuance volumes are well below historical averages, and risk premiums have widened as investors demand higher compensation for credit risk. This retreat in secondary market appetite has effectively raised the cost of capital for sponsors, even before accounting for higher benchmark rates.

On the equity side, private capital—including family offices and debt funds—is selectively stepping into distressed opportunities. However, underwriting discipline remains tight, with few willing to price assets assuming aggressive rent growth or cap rate compression.

For many leveraged owners, Q3/Q4 2025 and Q1/Q2 2026 may be a year of forced decision-making: either inject new equity, restructure loans, or sell at a discount. As distress deepens in the market, expect a gradual uptick in note sales, loan modifications, and opportunistic recapitalizations—especially across Sun Belt markets and secondary metros that saw rapid expansion during the last cycle.

In short, while multifamily fundamentals like occupancy and rent demand remain sound, the sector’s financial architecture is under strain. The coming year will test how well capital markets can absorb that stress—and whether new investors emerge to bridge the financing gap left by traditional lenders.

Blog Post Author: Jon Hardy, CCIM