The Bridge Loan Trap: Navigating Multifamily Defaults
Do you remember the crash of 2008, where the housing market was blamed for making home loans issued to borrowers with poor credit histories? Of course, this caused massive foreclosures throughout the country. Here we go again, except this time, we can blame the commercial lending practices.
Multifamily real estate is now facing similar issues, particularly for investors with bridge loans. Many of these short-term and variable-rate loans are expiring, and they need to convert to institutional financing.
Investors planned to refinance these loans upon property stabilization, but rising interest rates have made refinancing costly and sometimes unattainable, leading to higher default rates. Reports show that distress in multifamily commercial mortgage-backed securities (CMBS) has surged, with delinquency rates nearly tripling in early 2024.
Banks are employing various strategies to mitigate potential losses, including increasing provisions for credit losses, reducing exposure to commercial real estate loans, and offloading distressed assets.
Despite these challenges, we may see an opportunity ahead for investors.
If there are no other black swans out there, lower rates would boost property values and ease the refinancing process, which is currently on hold for most owners in this situation.
Investors seeking value-added opportunities might find prospects in acquiring some of these distressed assets at lower prices, especially if they're able to find alternative financing solutions or have cash available.
Regardless, great opportunities could lie ahead for those who are watching closely. Let us know if we can help!
Randy Hubbs
Designated Broker / Asset Manager
Founder of Investment Housing Specialists / Equity 1st Home Group
Co-Founder of Legacy Investors.US
