Where banks’ multifamily exposure is causing the most ‘acute risk’

In this podcast, Fitch Ratings’ Brian Thies and Christopher Wolfe discuss the asset class’s increasing refinancing challenges following several years of massive growth.

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After experiencing massive growth in recent years, the multifamily sector is now facing increasing refinancing challenges – and leaving some banks with significant exposure.

Bank lending in multifamily real estate has grown by about 32 percent since the end of 2019, according to Fitch Ratings. The jump has been driven by soaring investment activity in the sector, but default risk is growing, as PERE explored in the April cover story. Some banks have been left exposed – and rent-controlled and oversupplied parts of the country are facing the most acute risk.

“[Multifamily] is an asset class that has maybe flown under the radar a bit” in terms of refinancing risk, Brian Thies, director of North American banks at ratings agency Fitch Ratings, said on PEI Group’s Spotlight podcast.

“It’s a class within CRE that has seen significant growth over the last four years. And as such, most of that was underwritten at extremely low interest rates. So now, as a lot of that is coming up for refinance, it’s doing so at significantly higher rates. I think where we see the most acute risks at the moment are in the rent-stabilized and rent-controlled space.”

In the above episode, Thies, along with Fitch Ratings’ head of North American banks Christopher Wolfe, discusses which banks have the most significant multifamily exposure and how they expect a significant number of multifamily loan maturities to play out over the next 12-24 months.