The Federal Reserve's efforts to rein in historically high inflation have come at a steep price for multifamily real estate borrowers, who must now contend with increased interest rates and a greater requirement for down payments in order to close deals.
From January through November of this year, housing finance giants Fannie Mae and Freddie Mac issued a total of 3,340 unique multifamily loan securities, which CoStar evaluated. More than $74 billion in loans on around 8,500 properties were represented by the securities.
Interest rates are increasing, as seen by the statistics. Loan-to-value ratios, which measure how much a borrower is borrowing in relation to how much their home is worth, dropped at the start of the year and have since leveled off around 50%.
Borrowers would pay about 10% more for a loan this November than they did at the beginning of the year due to changes in both statistics. For a $10 million loan in November, for instance, applicants would have had to put down $890,000 more in cash or lowered their expectations by that amount compared to a loan application submitted in January.
If a borrower took out a loan of $10 million in January of this year, they would have to pay $171,000 more per year in interest by November.
A borrower would pay an additional $1.06 million in interest during the first 12 months of a $10 million loan if the deal was closed in November instead of January. Even so, this is a marked improvement over October, when a $10,000,000 loan would have cost the borrower $1,61,000,000 more than in January.
