Following the September 2026 interest rate hike, the need for fresh equity to refinance maturing multifamily loans amounts to 6.8 billion US dollars. Loans originated in 2021 and 2022 at low coupons are particularly affected.
An example is 20 Exchange Place, a 54-storey residential tower with 767 units near Wall Street, built in 1929. The property had an occupancy rate of 94 per cent in the second quarter of 2026, and the associated loan is currently being serviced. Nevertheless, the 246 million US dollar Freddie Mac loan, due in February 2027, carries a coupon of 4.01 per cent. The property's projected net operating income for 2025 of 15.5 million US dollars would only allow for a new loan of approximately 183 million US dollars at current market interest rates. This results in a financing gap of around 63 million US dollars. According to comments from the loan servicer, the borrower has already requested capital from investors to cover operating deficits.
Comprehensive Analysis of Refinancing Risks
This situation is increasingly representative. CRED iQ has re-evaluated all multifamily loans from Fannie Mae, Freddie Mac, and Commercial Mortgage-Backed Securities transactions maturing between October 2026 and December 2028 – a total of 136 billion US dollars. The analysis took into account current new issue coupons and the September interest rate increase. It found that almost a quarter (23 per cent) of these loans, and 31 per cent of the total volume, could not be refinanced without new equity. Borrowers would therefore have to raise a total of 6.8 billion US dollars. The average financing shortfall is 15 per cent of the loan or about 25,000 US dollars per apartment.
The increase in the Secured Overnight Financing Rate (SOFR) from 3.62 per cent to 3.85 per cent on 17 September had a direct impact. This rise brought an additional 178 loans worth 4 billion US dollars under the 1.25x debt service coverage test, increasing the equity gap by 846 million US dollars. Every further 25 basis point increase would expand the gap by approximately 1 billion US dollars. Two more interest rate hikes would result in 39 per cent of maturing multifamily loans having a refinancing gap.
Impact on Various Loan Cohorts and Markets
The refinancing gap is concentrated among loans closed at the trough of the interest rate cycle. Loans originated in 2021 and 2022 with an average coupon of 3.35 per cent now face refinancing rates that are approximately 2 to 3 percentage points higher. Of these loans, 46 per cent – and 57 per cent of their volume – require new equity. In comparison, only 15 per cent of loans closed in 2016, 2017, and 2018 are affected, as these benefited from long-standing rental growth rates that cushioned higher interest rates. Another key factor is net operating income: loans that pass the tests saw an average increase in net operating income of 31 per cent since origination, while those failing the requirements experienced an average decrease of 12 per cent.
The largest refinancing gaps are evident in the Western and Sun Belt metropolitan areas. In San Francisco, 70 per cent of maturing multifamily loans show a shortfall. In Atlanta, the shortfall is 55 per cent, and in Denver, 51 per cent. Chicago shows a shortfall of 13 per cent and Los Angeles of 24 per cent. The example of Park West Village in New York City illustrates how quickly a gap can arise. The loan for the 850-unit property, divided across seven conduit transactions, was originally underwritten with 1.34x coverage. By the end of 2025, coverage had dropped to 0.61x due to increased expenses, according to comments from the loan servicer. It was modified by the special servicer in November of the previous year and is due in August 2027.
Most maturing multifamily loans can still be refinanced independently. However, for loans originated in 2021 and 2022, refinancing often means an additional capital injection, which grows with every further interest rate increase. Therefore, further amortisations, term extensions, and so-called 'rescue capital' are expected until 2028.
