A looming wave of $669 billion in multifamily loans maturing between 2024 and 2026 will pose a significant challenge for current multifamily property owners. Without lower interest rates, refinancing will lead to substantially higher costs. And who will bear these increased costs? Renters, private investors, and the property owners themselves.
As the cost of ownership and debt servicing is unlikely to drop, what’s the solution? Owners will either need to bring in a large amount of new capital or increase the property’s gross income through higher rents and additional charges like pet rent, trash valet, paid parking, coin-operated laundry, or storage fees.
Many apartment complexes acquired in the last five years are sitting on low-interest rates, around 3-4%. However, unlike a 30-year mortgage, these loans come due after five years, requiring investors to refinance, extend the loan, or sell the property. Multifamily loans typically have a five-year balloon payment, sometimes with an option to extend—but those extensions come at a cost.
Think interest rates are tough when buying a single-family home? Imagine the strain on large apartment complexes carrying $20-40 million loans. Capital calls—where syndicators ask private lenders for more funds to avoid foreclosure—are becoming more common.
Investor Perspective: For those investing in these large assets, multifamily properties offer some of the best asset class benefits, including tax advantages, potential distributions, and proceeds from property sales.
However, challenges in this space have been on the rise over the last two years, and they are expected to intensify due to rising interest rates. Even if rates drop slightly, refinancing will still come with higher rates and costs, coupled with increased monthly debt obligations.
On the flip side, these pressures may present opportunities for multifamily buyers as distressed assets go up for sale, face foreclosure, or allow investors to come in as equity partners.
I share this to help consumers understand the broader picture. If you’re renting in a large apartment complex, those rent hikes aren’t simply greed-driven. They are based on real financial pressures—short-term financing structures and rising costs.
When you own, you gain more control over your investment, with the security of a fixed 30-year mortgage, potential for refinancing, and an asset that appreciates over time.
