Multifamily investors see the light as capital environment improves
There’s light at the end of the tunnel for investors and developers in the multifamily sector. Demand has far exceeded supply of affordable capital for multifamily housing the last few years — but that’s rapidly changing, to the delight of borrowers in this sector. Some of the market’s most significant challenges, like elevated interest rates, limited capital availability and overarching economic uncertainty, began to improve throughout 2025, according to panelists at the recent Bisnow Multifamily Annual Conference Midwest (BMAC) in Chicago.
Samantha Miller, senior vice president of multifamily mortgage banking at KeyBank, addressed the improving capital environment at the event on a panel titled ‘Multifamily Capital in Transition: Navigating Debt, Equity and Valuation Shifts.’ Miller observed that the resurgence of traditional bank capital was the biggest theme of the year. Additionally, she noted that borrowers are generally seeing a more compliant market with more options available to them, including increased activity from private debt sources. Other factors contributing to more open debt markets include the expectation for lower interest rates in the second half of the year, and that borrowers are experiencing more willingness from their lenders to find solutions for transactions in distress.
Multifamily debt market expands
Miller and the other panelists agreed that in 2025, the amount of debt capital offered under competitive terms significantly increased compared to previous years. Bank capital, which had pulled back in 2023 amid rising and volatile interest rates, has returned to the market. The return of bank debt1 has not only provided more debt capital availability, but borrowers began to see more favorable terms on both investment deals and new construction loans. “It definitely feels like we have seen a turn, especially from quarter four of last year,” says Miller. “I think banks were still on the sidelines, and today, we are seeing really aggressive quotes from banks, coupled with other lending sources, like life companies and agencies really leaning in. It has been a really strong time in the capital markets.”
High demand for multifamily investments alongside rate stability has supported the resurgence of debt capital. The activity is happening across banks and private capital; some are even observing signs of increased CMBS dealmaking. Miller says that there has been a significant increase in traditional bank lending deal volume, estimating that KeyBank is up 30% to 50% this year, while agency activity is up 25% this year. On the CMBS side, Miller says that she is seeing more opportunity for multifamily CMBS originations than is traditional for this real estate product type. She noted that while in the past multifamily might typically have represented 10% of CMBS originations, there are signs that it is beginning to expand and may reach up to 20% or 30% of the total CMBS pool. “It speaks to an expansion of the multifamily market. We’re just seeing more and more multifamily debt,” says Miller. “People are finding other alternatives outside of the agencies, and I think we are seeing other lender types step up, which is great. It means that the multifamily market is operating efficiently.”
Fixing the broken balance sheet
While the market is beginning to improve, many multifamily borrowers are continuing to manage income challenges that emerged in 2023 and 2024.2 In many cases, the borrower’s ability to operate the property was not at fault for the distress. Variable rate debt, coupled with interest rate increases, led to underperformance of multifamily investments. In addition, many borrowers faced refinancing hurdles as rates increased significantly on maturing loans.3 As a result, there has been an increase in defaults. Miller estimates that the bank’s own special servicing is up significantly over the last couple of years. “A lot of that is just deals that are upside down not for underlying fundamentals, and not for the sponsor doing anything wrong.”
The good news: Miller observes that in cases of distress, borrowers are not just handing back the keys, and banks are actively working with customers to repair broken balance sheets. “We’re really seeing healthy negotiations happen,” she said. “The big difference is that there’s a lot of capital on the sidelines willing and ready to be deployed if any of those deals did hit the market. There is no liquidity shortage or shortage of capital to step into those positions.”
Optimism for next year
While the market has seen significant improvements this year in capital availability, the panelists agreed that interest rates were the biggest factor impeding deal activity. Although interest rates fell steadily in the second half of 2024,4 the FOMC declined to decrease rates in the first half of 2025. Amid the great rate debate over the last two years, Miller had held strong that rates would not decrease this year. However, during the panel discussion, she did for the first time predict a reduction in rates, which came to fruition with the FOMC’s decision on September 17 to lower its benchmark interest rate by 25 basis points.5 “I do think we’re finally at a point where this time next year (2026), rates will be lower than they are today, and I have not said that for three years,” she says. “So, I feel like we’re finally at that crux.”
Miller also predicts that terms and feasibility will improve over the next year, too. Agency loans in particular have been challenging due to factors like fraud prevention6 and property condition. Miller expects that next year, all of that will stabilize as well. “I think we’re going to start to see some pullback in some of the difficulty to work with them. A year from now, I hope it’s easier to do a loan with the agencies than it is today,” she says.
The post-pandemic capital environment has been the most significant challenge for multifamily investors since the liquidity crunch following the Global Financial Crisis, but the market is beginning to stabilize. With bank capital, private debt sources and the agencies all committed to supplying capital to the multifamily market this year and the expectation of lower interest rates, multifamily borrowers are finally seeing the light.
Connect With Us
To discuss the current market environment and what financing options are best for your next multifamily housing project, connect with Samantha Miller or reach out to your KeyBank mortgage banker directly.
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Visit www.key.com/rec, where you can find our expertise in multifamily, affordable, CRE market commentary and more.
About KeyBank Real Estate Capital
KeyBank Real Estate Capital is a leading provider of commercial real estate finance. Its professionals, located across the country, provide a broad range of financing solutions on both a corporate and project basis. The group provides interim and construction financing, permanent mortgages, commercial real estate loan servicing, investment banking, and cash management services for virtually all types of income-producing commercial real estate. As a Fannie Mae Delegated Underwriter and Servicer, Freddie Mac Program Plus Seller/Servicer, and FHA approved mortgagee, KeyBank Real Estate Capital offers a variety of agency financing solutions for multifamily properties, including affordable housing, seniors housing, and student housing. KeyBank Real Estate Capital is also one of the nation’s largest and highest rated commercial mortgage servicers.
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