Even as analysts wonder how much momentum remains behind the long run in the current multifamily ‘golden age,’ the sector remains awash in capital after a record amount of money flowed into the multifamily sector in the fourth quarter to cap a record year.
All told, capital sources pumped $174.9 billion into multifamily debt in the fourth quarter of 2017, according to Federal Reserve data released this past week. That was $46 billion more than the total for any other previous quarter.
Coincidentally, that is approximately the same amount of multifamily property sales in the fourth quarter, according to CoStar data. The $46 billion fourth quarter sales total is the second-highest quarterly sales total this century, surpassed only in the fourth quarter of 2015.
According to the Federal Reserve, the total amount of outstanding multifamily debt has now reached $1.31 trillion.
The late-year 2017 volume produced an average per unit price of $138,054. That sales metric has only been higher once before, hitting $142,072 in June 2007.
The abundant capital was primarily provided by Fannie Mae and Freddie Mac, bolstered by significant multifamily lending from U.S. chartered banks and conduit lenders.
All government sponsored enterprises (GSE) boosted their fourth quarter volume 73.5% from the previous quarter, pumping in a combined $48.4 billion.
Freddie Mac’s multifamily business volume in the fourth quarter was more than $27.4 billion. About 49% of capital was designated for acquisitions and 46% for refinance purposes.
Fannie Mae’s multifamily business volume in the fourth quarter was more than $20 billion. The capital was nearly evenly divided for acquisitions and refinancing.
Commercial real estate finance firm Walker & Dunlop Inc. (NYSE:WD) finished 2017 as Fannie Mae’s largest financing partner and the third-largest for Freddie Mac.
Don King, executive vice president, multifamily for Walker & Dunlop, noted several reasons for the fourth quarter financing surge.
For starters, both Fannie Mae and Freddie Mac postponed completing deals at the end of 2016 into 2017 after hitting their financing caps set by overseer the Federal Housing Finance Agency. Just the reverse happened at the end of last year. Neither GSE hit its lending caps before year-end, so both GSEs pulled in additional deals to finish off the year, King explained.
Also, fundamentally, renter demand remained robust. “On a very basic level, from 2010 until today in most markets, but not every market, there has not been enough new supply to match demand,” King said.
In addition, King added, as the retail sector has stumbled, the multifamily sector and its plentiful capital has attracted more investors.
Combined nonresidential CRE and multifamily mortgage originations were up 15% for the full year 2017 over 2016, according to preliminary estimates from the Mortgage Bankers Association. Data for the fourth quarter of 2017 shows a 9% increase in originations over the third quarter, and a 10% increase compared to the fourth quarter of 2016.
Multifamily volume of capital flow in the fourth quarter surpassed the inflow into nonresidential CRE in the fourth quarter, which totaled $120.4 billion. The total amount of debt outstanding though for nonresidential CRE ($2.74 trillion) was twice as high as that for multifamily, according to the Federal Reserve.
“2017 was a record year for borrowing and lending backed by commercial real estate properties,” said Jamie Woodwell, MBA’s vice president of commercial real estate research. “The increase was driven by multifamily lending, particularly for Fannie Mae and Freddie Mac, coupled with overall growth in originations for commercial mortgage-backed securities and other capital sources. Entering 2018, there continues to be strong interest to lend by just about every major capital source.”
U.S. chartered commercial banks pumped $21.5 billion into multifamily properties in the fourth quarter. While that total is more than double the third quarter 2017 volume, it is half the amount pumped in a year earlier.
Issuers of mortgage-backed securities also stepped up their multifamily origination in the second half of last year. More multifamily debt was flowing out of non-agency mortgage-backed deals in the 14 consecutive quarters prior to the third quarter of 2017. The outflow in that time span totaled $123.6 billion. In the last two quarters of the year though, conduits have pumped in $8.7 billion.