Multifamily Lending: Large Projects Dominate Credit Flows – This Year Through July, 1.1 Million Apartments Financed by $100 Billion in New Loans

Multifamily mortgage lending appears to be on course in 2016 to edge out last year’s record volume of lending, with originations totaling near $200 billion. This total will be comprised of many low-balance loans on small buildings joined with a relatively few high-balance loans on very large transactions. Overall, the bulk of 2016’s lending reflects loans of at least $10 million, placed in high-cost markets or secured by large rental properties.

Examining multifamily loans in CoreLogic’s public records data for 2016, we found that one-half of these loans were for amounts of less than $700,000. But the average loan was $3 million in amount, and there were loans for more than $100 million originated this year. This is far more loan-size variation than we see in the single-family market, and reflects the fact that rental properties can vary from several apartments to more than a thousand. And the increase in multifamily construction over the last few years, especially of high-end apartments with a variety of amenities for residents, has supported an increase in large-balance lending. Through July of this year, about $100 billion in multifamily loans were made by lenders, and while most of the loans were for less than $1 million, loans of $30 million or more comprised 36 percent of the dollar volume of originations (Figure 1).

There is a similar pattern when comparing loans made by the number of apartments in the property. While about 30 percent of the 1.1 million apartments financed during the first seven months of 2016 were in properties with 50 or less apartments, 58 percent were in properties with more than 100 apartments, even though these properties accounted for only 7 percent of the number of loans made (Figure2).

Given the volume of financing so far this year, lenders are well on their way to making loans that finance more than 2 million apartments and around $200 billion in originations during 2016, especially since there is a pickup in loan closing activity toward the end of each year. That has been the case during the fourth quarter of each year since 2010, with the fourth quarter accounting for an average of almost one-third of the dollar volume of originations for the calendar year (Figure 3). We expect to see a similar flurry of loan closing activity this year, as 2016 closes in on a record dollar volume of originations.

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