Boston multifamily borrowers are seeking out bridge loans and other types of financing as their construction and other loans come due in this high interest rate environment. iStock illustration

Multifamily owners are facing a financial crunch as they try to refinance construction and other loans into an expensive credit market – a scenario some observers have taken to calling the “wall of maturities.”

Yardi Matrix recently reported that about $525 billion in loans covering about 58,500 multifamily properties are set to mature over the next five years in the U.S., representing nearly half of the total $1.1 trillion in loans backed by apartments.

Multifamily property owners and developers in Sunbelt areas are expected to see the largest amount of maturing loans and refinancings, due to recent housing building booms in those high-growth regions. The Atlanta market will see about $34.9 billion in maturing multifamily loans through 2029, followed by Dallas ($22.9 billion) and Houston ($20.8 billion), according to Yardi.

Due to its comparatively slow rate of new multifamily construction, the Boston metropolitan area doesn’t even rank in the top 15 markets in terms of multifamily loans reaching maturity over the next five years in the U.S.

$7.4B Matures by 2029

According to Yardi, Greater Boston has about $7.4 billion in maturing multifamily loans, covering 850 deals, through 2029, or roughly 35 percent of the total $20.9 billion in multifamily loans in Greater Boston.

Next year, about $1.25 billion in debt across 46 multifamily loans, is set to mature in the Boston area, or nearly 6 percent of all multifamily loans in the region, according to Yardi data.

Local experts say many regional borrowers will indeed be hit with higher debt service costs, due to higher interest rates coming at a time of maturing loans, and that could put financial stress on some borrowers. There’s already been an uptick in bridge-loan and other lending activity tied to maturing multifamily loans in the region, according to industry figures interviewed for this story.

And inflation data reported last week may cause the Federal Reserve to continue delaying cuts to its benchmark interest rate, economists say.

But experts add that Boston is in good shape compared to other markets. Rents have remained relatively strong due to the area’s high housing demand and the low pace of new construction that gives borrowers more leverage when negotiating refinancings, limiting the amount of distress that might be visited on the local multifamily sector.

“Boston is doing well,” said Jackie Meagher, a mortgage banker and senior director at Berkadia, a provider of CRE financing, brokerage and loan servicing. “We continue to see strong supply-and-demand dynamics in Boston.”

Doug Ressler, manager of business intelligence at Yardi Matrix, agreed that Boston isn’t facing any major crisis when it comes to multifamily lending – at least compared to other markets.

“Atlanta is the poster child for oversupply of [new apartments],” he said. “A lot of Atlanta’s development occurred before 2020 and before recent interest rate hikes.”

Some Observers Concerned

In general, higher debt-service payments, combined with falling property values in some geographic areas of the country, may well lead to loan delinquencies and defaults – but they should be few in numbers, Ressler said.

And Boston should hold up much better than other areas of the country, Ressler said.

Nonetheless, some local experts are somewhat concerned about the local supply-and-demand dynamics.

Jeff Myers, Boston research director at commercial brokerage Colliers, said the regional multifamily vacancy rate recently rose to its highest level in three years, or 5.9 percent, as of the fourth quarter of 2023.

About 8,700 new units came on market last year in Greater Boston, but net absorption was only 6,900 units, according to Colliers’ data. The bottom line: Boston’s supply of new housing, even if small compared to other markets, is having an impact on vacancy rates.

And this year another 10,000 new units are expected to come to market in the region, he noted.

All of this could lead to a further rise in vacancy rates and a softening in rent prices, perhaps hurting some property values in the process.

The condition of the local multifamily market, as measured by vacancy rates, is not nearly as bad as that facing the office market in Boston, where post-COVID vacancy rates are running at 20 percent and higher in many buildings, thanks to the rise of remote working.

But there are still risks for the local multifamily sector, Myers said.

“It’s very real,” said Myers of market vulnerabilities. “I’m not saying it’s the end of all things multifamily. But there are causes for concern.”

Myers said he’ll be closely monitoring the local economy, and specifically jobs growth in the Boston area, to gauge whether today’s relatively strong demand for higher-rent properties can be sustained.

Local Borrowers Have Leverage

Matt Pieniazek, chief executive of the Darling Consulting Group, an asset and liability management consulting firm, agreed that economic factors are key, particularly higher interest rates and inflation in general that are putting added “cost pressures” on multifamily borrowers across the country.

The key is whether borrowers have the leverage to raise apartment rents to offset increased debt-service payments and building-maintenance costs, he said.

Concerned about market conditions and falling property values in some geographic areas of the country, some banks are asking borrowers to put more equity into deals when renegotiating loans, adding to the financial pressures facing building owners. Banks are tightening lending standards in other ways as well, industry figures say, although a nation-wide Federal Reserve survey earlier this quarter shows the pace of that tightening slowing down.

Fortunately, many borrowers – and lenders – have ways to kick the maturing-loan can down the road, if they so wish.

Berkadia’s Meagher said many borrowers are being helped via standard “3+1+1” bridge loans that allow them to automatically extend their three-year loans for an extra year or two – at their earlier, lower interest rate.

Meanwhile, other types of bridge loans are being negotiated, as well as some longer-term loan deals.

“It’s really on a case-by-case basis,” Meagher said of loan deal-making. “We’re having different discussions with different [borrowers] all the time.”