Multifamily Lending Soars, Single Family Rental Market Frays

Multifamily Lending Soars, Single Family Rental Market Frays

October 20, 2016
Last year saw $249.8 billion in mortgages for apartment buildings with five or more units

Last year saw $249.8 billion in mortgages for apartment buildings with five or more units, according to the newly released the Mortgage Bankers Association's (MBA) 2015 Annual Report on Multifamily Lending

The 2015 total represented a 28 percent rise from the 2014 level, even though 63 percent of the nearly 2,900 multifamily lenders active in this market only originated five or fewer of these loans. The top five multifamily lenders in 2015 by dollar volume were JP Morgan Chase and Company, Wells Fargo, Berkadia, CBRE Capital Markets Inc. and Walker & Dunlop.

“Multifamily mortgage borrowing and lending set a new record in 2015,” said Jamie Woodwell, MBA’s vice president of commercial real estate research. “Demand for mortgages was driven by strong property fundamentals, increasing property values, a robust transaction market and low interest rates.  Supply of mortgage capital came through record levels of lending by banks, Fannie Mae, Freddie Mac and life insurance companies. As we look at 2016 and 2017, those factors appear to remain in place.”

But while multifamily lending was on the rise, average single family rental returns dropped to a nine-year low for homes purchased this year, according to data from ATTOM Data Solutions, which found that the average annual gross rental yield—monthly rent, annualized, divided by median home price—was 8.7 percent for properties purchased in the first seven months of this year down from an average of 8.8 percent for the same time period in 2015. This year’s numbers were the lowest level recorded since 2007, when the average gross rental yield was 7.3 percent across the 473 counties analyzed for this survey.

ATTOM Data Solutions also found that 2.7 percent of all single-family homes that sold in the first seven months of 2016 were purchased by institutional investors, up from a 2.1 percent share during the same period last year. However, 68 percent of the counties analyzed for this study reported year-over-year increases in the share of institutional investor purchases.

“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “After a drop-off in single family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again. Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single family homes—one in every four single family homes—these single family rental investors will be an important and likely growing force in the real estate market for years to come.”