The Federal Reserve’s fight to tame historically high inflation is proving costly to multifamily real estate borrowers who are weathering rising interest rates and need more upfront cash to get a deal done.
CoStar analyzed data related to about 3,340 individual multifamily loan securities issued by housing finance giants Fannie Mae and Freddie Mac from January through November of this year. The securities combined totaled more than $74 billion in loans on about 8,500 properties.
The data shows interest rates on the rise. At the same time, the percentage of the loan amount compared to the value of the property, or loan-to-value ratio, fell early in the year and has since settled at about 50%.
The fluctuations in the two figures have combined to make a loan a little more than 10% costlier to borrowers in November than at the start of the year. For example, on a $10 million loan in November, borrowers would have had to provide $890,000 more in cash or expect that much less in a loan approval than they had to in January.
The interest rate increase over the year means that on a $10 million loan, the borrower would owe $171,000 more per year at the November average over the January average.
Combined, a $10 million loan would cost the borrower $1.06 million more in November than in January for the first year of the loan. That's still an improvement from October, when a $10 million loan would have cost the borrower $1.61 million more than in January.