Refinancing risk will bring apartment acquisition opportunities

This story was originally published on Multifamily Dive. To receive daily news and insights, subscribe to our free daily Multifamily Dive newsletter.

Dive Brief:

• A $120 billion maturity wave is going to hit commercial real estate loans maturing before the end of 2026 with an in-place debt service coverage ratio below 1.20x, according to a new report from Trepp. 

• The data firm said that multifamily loans are the “largest slice of upcoming maturity volume” and “a key hunting ground for acquisition opportunities” for apartment investors. “For opportunistic buyers, that means the potential for discounted entry points, even in otherwise strong markets,” Trepp said.

• A significant portion of apartment loans maturing over the next 18 months are tethered to legacy sub-6% coupons and have DSCRs under 1.20x, making them unlikely to refinance at par without an equity infusion or a meaningful rebound in net operating income.

Dive Insight:

The South Atlantic region has $9.4 billion in maturing securitized multifamily debt — the most in the nation. Nearly 70% of those loans carry a current debt yield under 7%. “Value-add investors willing to recapitalize and reposition older Sun Belt multifamily may find an opportunity to acquire below replacement cost,” Trepp said.

In the West South Central region, there is $6.7 billion in maturing securitized multifamily loans. Around $1.2 billion has in-place coupons below 6%, while over $250 million is tethered to debt yields above 13%.

“Core, core-plus and value-add investors with regional expertise can selectively target acquisitions, whether by buying distressed paper or direct acquisitions where in-place net operating income stability supports permanent financing for better-capitalized sponsors,” Trepp said.

The Pacific region has $4.6 billion in securitized multifamily maturities, with $1.4 billion priced under 6% and nearly 90% at sub-10% debt yields. Mid-Atlantic apartment debt comes in at $2.5 billion, with around 14% at double-digit debt yields.

“While high-quality locations and resilient tenancy limit distress volume, few assets can refinance cleanly without some basis reset, creating opportunities for bridge lenders, structured equity and core-plus or value-add investors,” Trepp said.

The Mountain region has $2.5 billion in maturities, while the East South Central contains $1.05 billion. Only $109 million in the Mountain region carries debt yields above 15%, which Trepp said reflects “healthy levels of leverage and/or high in-place cash flow.”

While investors may still covet multifamily, not all properties are in a position to refinance. “For those seeking to deploy capital into discounted assets or provide rescue capital to strained sponsors, the next 12 to 18 months may be a window of opportunity,” Trepp said.

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.