New Year Challenges and Opportunities for Apartment Owners
Regions Head of Real Estate Capital Markets Troy Marek Explores What’s on the Mind of Multifamily Owners Today
By Troy Marek
As we embark into the new year, apartment owners are continuing to watch interest rates, absorption of the recent surge in new unit deliveries, as well as any impacts of the recent elections. Three things remain certain: housing affordability is a critical issue across the country, rents are forecasted to start rising again this year, and the government sponsored entities (GSEs) Fannie Mae, Freddie Mac and HUD/Ginnie Mae remain the top sources for apartment community financing today.
Interest rates still top-of-mind
The industry enjoyed some reprieve during the latter part of 2024 when the Federal Reserve announced a half percentage point cut in interest rates in September, a quarter percentage point cut in November, and another quarter point reduction in mid-December. These rate cuts were welcomed by apartment owners after the extended period of record high rates that impacted everything from real estate valuations, bid and ask pricing spreads, and finance availability. However, recent data released for October and November showed a slight climb in inflation, pushing upwards to 2.6% in October and 2.7% in November.
In December, the Federal Reserve forecasted just two rate cuts in 2025. Of course, this is a ‘wait and see’ situation. Whatever happens, however, will have an impact on loan availability and pricing, the number of multifamily property sales, and new construction starts and completions.
Demand for rental housing is strong
Demand for rental units remains heightened, due in part to homeownership costs continuing to rise. While 2024 brought a bit of a softening in the apartments sector because of the surge in new unit deliveries, the effects of that construction boon will start tapering off this year. In turn, owners are looking forward to rents increasing again, though rent rate growth isn’t likely to meaningfully pick up until later in 2025. And while new supply will abate, unit deliveries are market specific, thus rent growth won’t occur uniformly. Rent growth in the markets still experiencing new supply deliveries will lag behind the others.
Affordability a major issue
The affordability of housing is still a problem across the country, impacting most markets. In the rental housing arena specifically, the costs associated with building affordable units prohibits a lot of new development. A suite of solutions is needed to address the problem. With the elections now behind us, industry insiders are watching to see if any new legislation or incentives are introduced to help address the issue. In the meantime, the preservation of the nation’s existing supply is critical.
Eyes on insurance
Insurance has added significant pressure to owners over the past few years. Major storms and weather events have resulted in expensive damage to real estate. In turn, premiums have risen dramatically and increased operating expenses. Some insurance providers have begun leaving weather prone states altogether. While premiums had stabilized somewhat in 2024, the recent Helene and Milton hurricanes may result in additional hikes.
Top finance providers
Government sponsored entities (GSEs) – agencies Fannie Mae, Freddie Mac and HUD/Ginnie Mae – remain the top finance providers serving apartment owners today. The suite of loan offerings among these three agencies covers all major multifamily types from affordable and workforce, to market-rate and class A communities, while serving a range of borrower needs including loans for acquisition, refinance and new construction. This diversity in programs means borrowers are likely to find a loan that aligns with their specific goals and rental community type.
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News, developments within agency lending programs
Following are some new developments coming out of the agencies of note to borrowers:
Fannie Mae & Freddie Mac
2025 volume caps for multifamily purchases by Fannie Mae and Freddie Mac will be $73 billion for each entity, or $146 billion total. 50% of each agency’s 2025 lending activity must support mission-driven affordable rental housing, yet there are some exclusions to the caps. One such exclusion is workforce rental housing, with this exclusion promoting affordable housing preservation. Additionally, the caps may be increased by FHFA, pending market variables, but not decreased.
Notably, Fannie Mae and Freddie Mac recently introduced sponsor-initiated affordability programs. These benefit borrowers willing to self-impose, or designate, a percentage of their apartment community’s rental units be affordable. At least 20% of a community’s rental units must be available at 80% AMI (area median income) or less for the borrower to be eligible to receive pricing benefits from the two agencies. Participation in these programs is anticipated to pick up because of the clear benefits to borrowers.
?HUD / Ginnie Mae
HUD has released proposed changes to debt coverage requirements that are designed to improve incentives for borrowers and make it a bit easier for them to obtain financing. A loan program benefitting from this is HUD’s 221(d)(4), which serves borrowers looking to finance construction or substantial renovations of market-rate, affordable and rental assistance multifamily properties.
Explore the range of agency loan options
Regions Bank is a licensed Fannie Mae Delegated Underwriting and Servicing (DUS) lender, Fannie Mae Small Loans lender, Freddie Mac Optigoò Small Balance Loans lender, Freddie Mac Optigoò Conventional Loans lender, and a MAP and LEAN FHA/HUD lender and servicer.
About the Author
Troy Marek is head of Real Estate Capital Markets for Regions Bank, a nationwide multifamily and senior housing real estate lender. Visit Regions Real Estate Capital Markets online at https://www.regions.com/commercial-banking/real-estate-banking/real-estate-capital-markets. ?
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