Multifamily loan delinquency rate jumped from 1% to 7.1% since 2023
U.S. apartment landlords face more than $1.8 trillion in debt coming due over the next decade, with about $757 billion of those loans maturing from now through 2028, according to the Mortgage Bankers Association. The sector carries more maturing debt than any other commercial real-estate category.
The refinancing pressure is concentrated in the near term. Nearly $300 billion in apartment loans are maturing in 2026 alone, following a record $310 billion that came due in 2025 — the highest single-year total since the association began tracking. Another $223 billion comes due in 2027.
For landlords, the problem is the gap between original loan rates and current market rates. Apartment mortgages originated in 2020 and 2021 carried rates around 3%. Today’s refinancing environment requires borrowing at roughly twice that level. After the Federal Reserve raised rates a quarter point and with bond yields rising, that gap is widening.
“There was a sense of relative euphoria,” said Mike Wolfson, Newmark’s managing director for multifamily capital-markets research. “But things turned very quickly.”
The current distress traces back to that pandemic-era boom. When apartment-mortgage rates tumbled to historic lows in 2020 and 2021, multifamily buildings became the hottest investment in commercial real estate as office, retail, and lodging sectors struggled. Apartment rents were surging at double digits nationwide, and new construction flooded Sunbelt markets — Phoenix, Denver, Atlanta, and Austin were inundated with new luxury apartments that outpaced demand.
Many of the same landlords are now preparing to sell at a loss, hand the keys back to their lenders, or reconfigure their balance sheets to absorb sharply higher mortgage payments after refinancing. The financial strain is already causing developers to pare back on new construction and instead buy distressed properties at a sharp discount.
The delinquency rate for multifamily loans in commercial mortgage-backed securities jumped from 1% in October 2023 to 7.1% this year, the biggest increase of any major property type, a Morgan Stanley report found. About 3% of the loans coming due this year that cannot be extended are in some kind of distress, the highest level over the past five years, according to Trepp.
“The chickens are coming home to roost for a lot of people,” said Sean Burton, chief executive of the multifamily firm Cityview.
The distress is already reaching renters. To pay their debts, apartment owners may raise rents, add new fees, or cut back on building repairs and upkeep. The Tenant Union Federation has organized several rent strikes in financially distressed buildings where landlords deferred maintenance or raised rents to cover mortgage payments.
For years, debt-saddled investors survived on lenders’ willingness to extend loan maturities, betting that rent growth would rebound, the Federal Reserve would cut rates, and lenders would get their money back. That bet has not paid off, and lenders’ patience is running thin. “Lenders have gotten a lot more aggressive,” said Ryan Cotton, Bain Capital’s head of real estate. “That could lead to some real turbulence as you see distress start to manifest.”
Even the largest investors are not immune. In June, Blackstone defaulted on a $90 million loan from Ares Real Estate for an apartment building in Northern Dallas that the firm bought at the peak of the market in 2021 before interest rates rose.
“No one is spared here,” said Bob Hart, CEO of TruAmerica Multifamily Investments, who is working through his own pile of short-term apartment debt. “We’re seeing a lot of ‘time’s up’ situations.” Hart acquired one property in Raleigh, N.C., five years ago, and its loan is now coming due. Refinancing would require moving from a 3.5% rate to today’s 6% level, he said, and he is considering selling rather than writing “a large check to rebalance it.”
The pressure is accelerating industry consolidation. In May, multifamily giants AvalonBay Communities and Equity Residential agreed to combine in a $69 billion megamerger. The firms said part of the rationale was to rely less on expensive debt and use more of their revenue to finance projects. Apartment values fell about 3.5% in the past month and remain more than 20% below their 2022 peak, according to Green Street.
Some lenders have reasons beyond interest-rate hikes to push harder on borrowers. Rent growth is expected to regain momentum next year, and real-estate data firm CoStar expects rents to increase by 1.9% by the end of this year, a sharp increase from its previous forecast of 0.5%. Banks also have stronger balance sheets than they did several years ago, giving them more of a cushion to take on multifamily risk. “They are starting to believe that we can take some of the real estate back and make a play for that recovery” of rent growth, said Cotton of Bain Capital.
Some syndicator firms that went big on multifamily during the pandemic are now struggling to stay afloat. S2 Capital, a Dallas-based firm, has accumulated $400 million in loan defaults on its Sunbelt apartment portfolio. Earlier this summer, CEO Scott Everett dissolved the multifamily fund and informed investors that they would not see their money back. He is being personally sued by his lenders and recently put his Dallas home up for sale for $45 million. The firm plans to sell six of the properties in default for $290 million and is working to refinance hundreds of millions more of distressed loans. Everett said he expects the lawsuit to be resolved by the end of this month.
Cash-flush buyers are circling the distressed properties. Cityview is buying directly from lenders who have assumed control of properties — something the firm has not done in years. Burton said Cityview is acquiring a newly renovated apartment complex in the Dallas metro area that was foreclosed on, at roughly a 40% discount.
“It’s some of the best buying opportunities I’ve seen in my career,” Burton said.