Millennials have added to the strong demand for rental homes in recent years, and apartment values are up significantly from their Great Recession trough. Property owners have been able to tap into the equity created by value growth through new originations. Multifamily originations in 2019 will likely remain at a similar volume to last year.
Multifamily lending is concentrated in high-density metropolitan areas. (Figure 1) Using CoreLogic’s public records data for 2018, we identified the largest metros by multifamily lending volume. The five largest metropolitan areas by population are also the five with the largest amount of multifamily lending, with the New York and Los Angeles metros topping the list. The ten largest by dollar volume accounted for about 40 percent of multifamily lending during 2018, and the 15 largest represented one-half of apartment lending in the U.S.
Loan sizes vary greatly, reflecting differences in property values, building size, number of parcels securing the loan, and lien priority. Multifamily loans averaged about $100,000 per apartment during 2018 in our public records data. (Figure 2) Thus large projects, especially in high-cost metros, accounted for the largest loan sizes. About 40 percent of the dollar volume of originations were loans of $30 million or more, and about one-half were loans of $20 million or more.
Loan sizes vary so much because there is wide variation in building size and amenities. We observed more than two million apartments financed during 2018. (Figure 3) About 3-in-10 apartments were in buildings with 50 or less units, and about the same number were in large properties with more than 300 units.
The strength in rental home demand and increase in property values should lead to an origination volume in 2019 that is close to 2018’s level. With close to 90 percent of the dollar amount of multifamily debt outstanding originated since 2011 and unlikely to refinance during the coming year, originations will be driven by new acquisitions, refinance of older loans, and placement of mezzanine debt.
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