Trouble Brewing in Multifamily as Nonaccruals and Newly Late Loans Stack Up

U.S. Multifamily Two Year Historical – Q1 2023

Banks are holding a substantial amount of non-performing multifamily loan mortgage loans in 2023, following a significant surge in distress as we rolled into the new year.

Dive into the BankProspector dashboard to find out which banks are holding the most non-performing notes now.


Sizable demand for multifamily assets over the past few years appears to have kept this space solid overall, especially with fast rising rents.

U.S. Multifamily 30-89 Day Late Two Year Historical – Q1 2023

However, hyperinflation, rocketing interest rates, and more constrained credit and capital markets may now be catching up the multifamily sector as well.

Multifamily loans performance erased all of its gains by the end of 2022. With a sizable amount of late and nonaccrual stage loans in the works we may see more institutional and mid sized investors holding out for even better deals, and cherry picking their favorites.

There are also over $1.1B in 30 day plus late loans, the highest figure in over 2 years and more than double what it was 2 quarters ago.

Multifamily REO

Multifamily REOs have stayed steady since the final quarter of last year, now a pool of just over $27M.

This is the least multifamily REO we’ve seen banks holding in two years. However, the massive pool in late and defaulting loans along with difficulty in securing financing, and higher mortgage rates could mean a significant increase here. Or at least a steady pass through from default to selling off REOs.

Of course, bank failures and the mass shuffling of assets between institutions is also a major factor. It is essential to follow where they are flowing to and to identify who is willing to sell off the paper assets they’ve picked up at bargain basement prices.

Looking Ahead

Multifamily debt and income properties are still highly desirable, perhaps even more so today given the outlook for other areas of the economy and other asset classes.

However, the data does seem to suggest that distress is present. For a variety of reasons, far more borrowers in this space could fall into default. That could spike further if many are unable to refinance loans at maturity, as well as if continued migration trends cause high vacancy rates in once prime financial and business hubs.

Now’s the time to watch this sector. This market is heavily dependent on economic conditions; as a growing number of tenants struggle to make ends meet amid relentless inflation, rising unemployment, and mounting credit card debt, many will undoubtedly fall behind on rent.

If multifamily owners with newly late loans can’t get caught up this quarter, we can expect to see a new wave of nonaccruals over the next several months.

Log in now to see which banks are holding the most distressed multifamily loan notes…

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