A vibrant construction site showcasing the development of multifamily apartments.
The multifamily construction market is under economic strain, pushing investors to seek private credit solutions to maintain their projects amid rising costs of materials. With a looming wave of mortgage maturities and tightened budgets, traditional financing options are scarce. Private credit providers are stepping in to support new projects and refinancing needs. Despite current challenges, demand for multifamily units remains strong, particularly in regions like the Sun Belt, as construction growth continues in a competitive rental market.
Amid rising economic uncertainty, investors in the multifamily construction sector are increasingly looking towards private credit solutions as a means to sustain project development through 2026. Various factors, including tariffs on essential building materials and high inflation, have led to escalating construction costs. This has become a critical challenge for developers who are forced to absorb these costs until their projects are market-ready.
According to the Mortgage Bankers Association’s 2024 Commercial Real Estate Survey, approximately 14% of mortgages backed by multifamily properties are set to mature in 2025. This approaching wave of maturities highlights the urgent need for refinancing in the multifamily sector, particularly in an environment characterized by high interest rates and liquidity issues.
Traditional banks have shown hesitance in supporting borrowers during these transitional periods, largely due to ongoing challenges within the commercial real estate (CRE) market. The lending from U.S. banks for commercial real estate experienced an 11-year low in the fourth quarter of 2024. This decrease is attributed to surging prices for land, labor, materials, and the ever-rising interest rates. The combination of economic and sector-specific challenges has deterred banks from engaging in new lending within the multifamily construction sector.
The recent implementation of Basel III Endgame regulations is anticipated to amplify the capital requirements for banks involved in commercial real estate, particularly in the realms of construction and transitional loans. This regulatory shift is further tightening traditional lenders’ appetite for risk in the multifamily sector, paving the way for private credit providers.
Private credit managers are stepping into the void left by traditional banks, offering capital for both new multifamily projects and the refinancing of existing properties that require loans for much-needed repairs and renovations. As the rental market remains undersupplied, borrowers facing financing challenges are presenting compelling opportunities for these private lenders.
An analysis of the multifamily outlook predicts that major cities like San Francisco, New York, and Los Angeles are grappling with high construction costs, which are stunting new supply. In contrast, regions in the Sun Belt, including Atlanta, Denver, and Austin, are experiencing a surge in multifamily development due to comparatively lower construction costs. These distinctions create varied market dynamics that influence both construction efforts and financial options across different locales.
Rent fluctuations across various markets may result in increased demand for bridge loans from developers seeking flexibility during this period of change. While Miami has maintained occupancy rates around 95%, a predominance of potential renters is stimulating competition, with an average of nine prospective tenants vying for each available listing. This high demand indicates developers’ motivation to continue pursuing new construction projects despite rising material costs.
The data shows that over 550,000 multifamily units were completed in 2024, with the most significant concentration of deliveries occurring in the top ten metro areas, totaling 204,333 units. The Dallas-Fort Worth area emerged as the most active market, completing 33,276 units across 127 projects, representing a 27.9% increase from 2023. Following closely behind, Austin added 25,217 multifamily units, a remarkable 35.8% increase year-over-year.
Atlanta’s growth was steady, contributing 23,596 units, matching the delivery levels of 2023. Miami saw a drop of 5.7% with 16,507 units but demonstrates ongoing activity as significant construction projects are currently underway. The robust demand for apartments fuels this momentum, solidifying Miami’s status as an important player in the ongoing multifamily construction landscape.
The rising material costs driven by inflation and international trade policies have not deterred many developers from initiating new construction projects. The ongoing transformation of the multifamily market includes a growing trend towards build-to-rent (BTR) properties, projected to increase from 6.3% of multifamily completions in 2025 to 6.8% in 2026. Cities like Phoenix, Dallas, Atlanta, Austin, and Charlotte are forecasted to lead this growth, indicating a shift in how residential needs are met amidst the evolving economic climate.
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