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The Banks are Back: Commercial Banks Now Biggest Lenders in Multifamily

The Banks are Back: Commercial Banks Now Biggest Lenders in Multifamily

This is part one of a four-part series on multifamily bank lending

Financial benchmarks in most areas of real estate remain below pre-recession highs, but the apartment industry is one exception to the rule. Apartment sales volumes are back to peak levels. Prices have jumped to all-time highs. Cap rates have dropped to long-time lows. And with demand high and funds uniquely accessible, apartment construction has surged to the highest levels since the 1980s.

The boom has hardly gone unnoticed. Nor is it necessarily unjustified – given that apartment fundamentals are at historically strong levels due to a confluence of robust tailwinds.

But amidst all the noise, an interesting subplot has emerged and garnered remarkably little attention. Who is fueling the boom? At first, it was Fannie Mae and Freddie Mac. Not anymore. Not after their new boss, the Federal Housing Administration, ordered the GSEs (government-sponsored enterprises) to tap the brakes on their wildly profitable multifamily lending arms. Fannie and Freddie drove the first leg of the boom from 2008 to 2012. They’re still big players, of course, but the GSEs have actually lost multifamily market share since the start of 2013.

chart1The GSEs have given way to … the banks. Since the start of 2013, banks have funded 82.5 cents of every new dollar, on net, loaned for multifamily housing, based on data from the Federal Reserve. That marks a reversal from prior years, when banks were negative contributors. Without the banks pivoting to infuse cash, the apartment transactions market likely wouldn’t be where it’s at now – since most deals require financing.

If the re-emergence of banks doesn’t sound especially remarkable, remind yourself that we’re talking about a beleaguered industry. Overall, bank lending remains below the peaks set in 2008. Banks have been widely criticized for not lending more – piling up cash reserves instead of loosening up lending standards. Of course, the banks took those steps to comply with new regulations and to avoid inviting another round of multi-billion-dollar lawsuits that sprout from the era of looser lending standards. Indeed, overall bank loan volumes remain below the peaks set in Q2 2008.

But even within the banks, multifamily is different. Very different. No one can accuse banks (as a group) of being too conservative when it comes to multifamily (defined as 5+ unit properties).


Since Q2 2008, multifamily loan volumes have ballooned 32.9% up to all-time highs ($281 billion) on bank balance sheets, according to FDIC filings. No other bank loan category has grown faster over that time period. And it’s not even close.

Multifamily now comprises 3.5% of all outstanding bank loans. That’s still relatively small, but it’s the highest level since 1992.
Clearly, banks have targeted multifamily as a lower-risk space to park cash and still generate some yield.

We’ll explore this trend in more depth in three upcoming articles.

  • #1: What kind of banks are most aggressively lending to multifamily? The answer may be a surprise.
  • #2: Is multifamily the next bubble? There’s a lot of chatter around this topic given the surge in bank lending. What does the data tell us?
  • #3: With multifamily lending increasingly crowded and with yields shrinking, how can lenders successfully evolve their strategies?




(Image source: Shutterstock)

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