Multifamily Financing in the Fog of War

By Thomas Grzebinski

Featured in Multi-Housing News

Disruption. Uncertainty. Volatility. Three dreaded words that make commercial real estate owners, operators and investors cringe. Conflict with Iran has set world markets on edge again and clouded rate expectations and economic projections with the fog of war. For some if not most, it is setting off alarm bells and heightening concern.

This new reality doesn’t mean that the debt market is in some sort of free fall currently, however it does put new stress on the financing climate.  The 10-year Treasury yield reached levels around 4.48% at the end of March, marking an eight-month high before settling near 4.33%-4.31% here in early April – causing an unwelcome return of the “higher for longer” vibe after earlier Q1 improvement but still within this year’s expected range according to the MBA’s 2026 forecast.

Regardless, the debt market continues to flow, and multifamily remains the dominant commercial asset class for both investors and lenders even with these new headwinds. Fundamentals remain sound with strong demand. Residents are not moving because of uncertainty. Many people still cannot afford a new home down payment and are staying in their apartment housing longer as a result. Lenders remain active with ready capital allocated and debt options are abundant. These realities are backstopping owner sentiment in a tough time. Here are some thoughts on how to best navigate in today’s choppy waters.

Structure Dynamics

While interest rates remain elevated for assets refinancing out of pre-volatility loans, the market for permanent debt remains attractive for multifamily properties at this point. Almost any loan for a stabilized apartment property can include full-term interest only pricing, making amortization a choice. Without the interest only element, the current rate environment becomes less attractive for fixed rate permanent debt. However, a five-year interest only non-recourse loan can enhance cash flow and take the sting out of a rising rate benchmark. Furthermore, the definition of stabilized is changing. Many lenders will look at 85% occupancy for newly constructed assets as stabilized if occupancy trends are strong and reflect lease-up velocity. This bodes well for assets retiring construction debt or recently completing a reposition.

Active Lenders

Liquidity for multifamily commercial mortgage originations remains abundant. Agencies have increased their caps for 2026. Life companies continue to grow their allocations and are competing aggressively. CMBS has returned to investor favor, specifically by adding five-year term products and remaining an attractive alternative for maximum dollars with non-recourse terms. Regional banks have returned to active originations and offer both variable and fixed rate options. New and established debt funds continue to arrive and offer flexibility and creativity in loan structures.

Like any cycle, to determine which lender is the best option, borrower conversations need to start with identifying your intention. What are your hot buttons? Is the mission to enjoy cash flow or pay down principal for improved basis? Do you plan to buy out partners or seek to repatriate equity? What is the long-term objective and what will be your exit strategy?

Agencies remain a dominant force in multifamily originations and will continue to offer attractive programs for funding performing assets. Full-term interest only should be expected for assets meeting necessary amortized DSCR. They will favor experienced borrowers and repeat clients. However, for any new borrower seeking their first agency loan, they can expect heightened underwriting scrutiny and thus delays. In a volatile rate climate, this could in theory be a route that comes at an additional cost.

Across the board, life companies and insurance lenders have increased their commercial real estate lending allocations over last year. Their willingness to lock rate at application for up to six months is appealing to many in the current climate, and their prepayment step down options are making longer terms viable. This wave of available capital has insurance lenders pressing harder and flexible as they push to deploy five- to seven-year money.

Wall Street (CMBS) is the source for maximizing dollars and reach. These securitized loans can price at a 1.25x DSCR based on interest only payments and achieve 75% LTV. However, rate volatility will be a concern until closing and can affect proceeds. B piece buyers can further alter terms as underwriting progresses. For max dollars, this is a compelling source to consider. Agencies and other sources are not able to achieve similar loan dollars. However, if you think you might sell near term, CMBS is likely not the best option. There will be a defeasance cost if the loan is paid prior to maturity. For a legacy hold, it remains an attractive option.  In addition, these loans are assumable if a purchaser desires to step into the loan.

Debt funds have become much more diverse in nature and are competitive for owners seeking flexibility.  As an example, a new family office is currently filling a discretionary fund by offering to lock a fixed rate at application for a five-year interest only term.  This product is focused on closing loans on stabilized assets. The key is vetting a debt fund. There is a huge difference in pricing and certainty of closing between controlled-money funds and other funds who rely on warehouse line structures.

Banks have returned to normalized lending patterns and are competing again. They generally remain full recourse lenders and often wider on spread but are more flexible in terms of prepayment structure as well as fees. An appealing option available from a regional bank is the ability to close the loan with a floating rate over the SOFR to take advantage of the current low short-term rates, while also having an option to lock the rate during the loan term and capture a fixed rate for the remaining term. This type of flexibility offers the best of both worlds – floating rate underwriting leading to fixed rate stability; however it needs to be noted that the borrower is responsible to identify the best time to activate the rate lock.

Owner Strategies

For my clients, many who are generational investors, my current recommendation is to focus on tenant lease renewals to forgo the cost of resetting a unit as well as attracting new tenants in a market where uncertainty continues to affect outcomes. Stability and historical performance matter during underwriting. Trying to push to a true market rent is not as important as occupancy and cash flow. Pushing rents too high for existing tenants can be a self-inflected disruptor. Better to take advantage of rent rollover when it happens. Where new class A inventory is coming online and can fetch the top of market rent, existing properties that are well managed can float just under the new class A rents. Generally, there is a significant amount of tenant movement in markets with newly built options. There is a wave of residents that are attracted to new living options in healthy markets.  As that inventory gets absorbed quickly, it provides a rent lift for competing legacy assets that look like a price-conscious alternative.

Investor Perspective

New development remains cost prohibitive. The current challenge is cost in all circumstances. Construction. Labor. Land entitlement. Debt. All higher today, pushing on the premium to build. This makes the value proposition buying existing assets over building something new. Most multifamily assets trading hands are 10-year or older properties, where seasoned performance and under replacement value pricing are enticing investor appetite. Fresh eyes are not as emotionally tied to long term tenants, making rent growth more viable.

In this market, generational holds are becoming timely exits. There might also be a buy opportunity on deck for a seller to transition into after the sale with a 1031 to reset depreciation and avoid a hefty tax consequence. It’s a great market to sell into, with rising construction costs, aging owners, and the step up in basis all while a market exists that is still fueled by abundant debt liquidity. Sellers are also becoming more realistic with market dynamics and values. The bid-ask is aligning.

Options Reign

There is a funding solution for most debt capital needs in what remains a highly liquid marketplace. While the potential for massive economic disruption from the conflict with Iran remains a relevant concern, we have not seen a material impact yet. We shouldn’t expect meaningful improvement in the five-year or ten-year benchmarks anytime soon based upon the uncertainties in the global economy and an ever-growing list of spending demands pushing the government to borrow more. However, any borrower looking to fund a stable asset should continue for the time being to find debt options that work for realistic needs at a price and structure tailored to support healthy performance and long-term stability.