KBRA releases research that analyzes the underlying demand and supply metrics for multifamily securitizations in 25 of the largest metropolitan statistical areas (MSA) as we observed multifamily vacancies were trending higher as well as a record number of units under construction. In total, the 25 MSAs represent $189.1 billion or two-thirds of the $287.8 billion of multifamily assets in Freddie Mac K-Series, commercial real estate collateralized loan obligation (CRE CLO), and conduit transactions.

The analysis ranks various supply and demand metrics to derive a score for each MSA to provide a relative assessment of the current risk environment, hereafter referred to as the “risk score”. A higher risk score for an MSA indicates that relative to the other MSAs, it is weaker. MSAs with the highest risk scores include Detroit, Chicago, and Denver, while Houston, San Diego, and Las Vegas rank at the lower end. The study, which also reviewed each MSA’s exposure to maturing loans through 2025, found that on average 8.6% of securitized multifamily loans (totaling $15.9 billion) in the 25 markets are scheduled to mature by next year.

Key Takeaways

• The MSAs with the highest risk scores are characterized by negative demand—due to factors such as low employment and population growth through 2025—as well as having more affordable homeownership, which could limit multifamily demand.
• The Detroit MSA had the highest risk score, followed by Chicago and Denver. While all three MSAs were weighed down by low employment growth, both Detroit and Chicago also had negative population growth during this period as well as relatively more affordable home ownership.
• Las Vegas had the lowest risk score and was one-third lower than the two next lowest (San Diego and Houston), which had the same scores. Las Vegas primarily benefited from its demand metrics including current and forecast employment and population growth.
• Securitized multifamily exposure to any one of the top 25 MSAs is relatively low and ranges between 1.1% and up to 8.6% for New York.
• By transaction type, Freddie Mac had the most exposure (23.6%) to the top 10 MSAs with the highest risk score compared to CRE CLO (19.7%) and conduit (13.4%).
• Multifamily maturities as a percentage of balance maturing in 2024 and 2025 by MSA ranged between 3.3% (Phoenix) and 17.4% (Seattle), with an average of 8.6%.
• Of the 963 transactions in the study population, just 45 (less than 5% of population) deals had exposure to 2024-25 maturities in excess of 5% of the pool balance within the top 10 highest risk scoring MSAs.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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