The securitisation of commercial real estate debt is experiencing a marked increase in multifamily housing finance within the CMBS and CRE CLO segment. As Parker Umsted, Managing Director and Head of Securitisation at SitusAMC, explained in an interview with Commercial Observer Partner Insights, multifamily properties now account for 70 to 75 per cent of CRE CLO volume. New issuers are increasingly entering this market, whilst conduit transactions focusing on residential complexes are reviving noticeably.
According to Umsted, the growing importance of these loans stems from post-pandemic dynamics. Following a period of historically low interest rates, property prices rose sharply, making home ownership more difficult and boosting demand for rental apartments. The market is currently attempting to rebuild supply, not only in urban centres but also in commuter belts. Compared with other commercial property types, the segment is characterised by high debt service coverage and low default rates.
Structural adjustments and growing requirements
Alongside the expansion of the market, the demands placed on loan structuring have also risen. To limit risks arising from concentration in a single property type, lenders are increasingly embedding covenant tests and minimum occupancy rates into agreements. Whilst multifamily housing was historically heavily anchored in the government agency sphere, loans today are increasingly structured according to uniform industry standards, making their distribution across capital markets more flexible.
CRE CLOs predominantly consist of floating-rate bridge financing for assets that are not yet fully stabilised. Umsted stresses that first-time issuers must not view securitisation as a one-off measure for balance-sheet relief. Rather, this market demands a long-term, programmatic approach alongside established partners.
- —Viable business plans from borrowers as well as demonstrable experience with unstabilised properties
- —High credit quality standards and robust metrics to secure the loan pool
- —Careful calculation of interest rate hedges, as floating-rate debt and interest rate caps significantly affect capital expenditure
The structure of market participants is becoming increasingly diverse. Alongside securitisation REITs and traditional agency lenders, smaller non-bank lenders collaborating closely with major investment banks are establishing themselves. At the same time, demographic trends are underpinning demand: as the average age of first-time buyers continues to rise, the duration of tenants remaining in the rental market is also extending sustainably.
