Permanent Debt Abounds. Where Should You Turn?
Multifamily is pretty liquid for borrowers. Here's a detailed breakdown of a few key options.
Rate volatility, banking sector disruptions, running out of extension options and a constantly shifting economic landscape over recent years have made this a challenging cycle to plan and price for optimized debt. Improving benchmarks from last summer became more volatile again at year end but are holding as the year begins in the 4 percent to 4.25 percent range—a more manageable climate that sparked a busy year end in 2025.
Maybe the greatest challenge of this cycle has been the hesitation brought on by the hope of potentially more rate decline improving the cost of borrowing. That remains to be seen, with geopolitical and economic uncertainties still prevalent. But unlike other challenging real estate cycles, debt liquidity remains abundant from a plethora of capital sources active in today’s marketplace.
Multifamily borrowers have access to the widest range of capital sources. For many, the retreat of established banking relationship during the volatility of recent years has made surveying the full field of lenders more important than ever before. Each source has an appeal. Once you have outlined your investment goals and asset metrics, there will be different reasons to select different lenders.
So, as you look to the year ahead, here is a refresher on the potential options to consider for a 2026 permanent debt strategy.
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GSEs: The most recognizable source for multifamily permanent debt remains Fannie Mae and Freddie Mac. Their five- and 10-year programs typically close within a 60-day window, which means they offer relative flexibility for closing on near-term maturities. This timeline can compress for repeat borrowers or extend for new borrowers. Their DSCR requirements range from 1.25 to 1.55, and they are comfortable going as high as 80 percent LTV in some cases. They are pricing their loans anywhere from 105 to 160 bps over a corresponding treasury, with variations for asset quality, submarket location and sponsor qualifications. Their best terms are reserved for assets that meet their affordability requirements, which can include interest-only components to maximize cash flow. Rate buydowns are also available to increase proceeds.
Life companies: These time-tested lenders are a consistent source for non-recourse, fixed-rate permanent debt and are pricing competitively against other options. Known for their rate lock at application, relatively seamless closing process after application and, thus, certainty of close, life companies remain a preferred option and compete favorably with the GSEs when leverage requirements are at 65 percent or less. Expect them to close in 60 to 80 days or less. Since they are more conservative on leverage, they will reward lower LTV loan requests with their best terms and options. Their DSCR requirement begins at 1.25, and they are pricing at favorable spreads from 125 bps to 175 bps over a corresponding treasury, with all-in rates for five- and 10-year loans reaching into the low to mid-5 percent range. For some 10-year loans, life companies can offer prepayment flexibility after year five, allowing for a hybrid version of a five-year/10-year loan carrying a consistent fixed rate. Insurance company lenders can be creative when they are motivated to win a desirable deal with a strong sponsor.
HUD: HUD really stands out as an attractive option for permanent, long-term debt when time is on your side. These 35-year loans have the longest closing timeline of any option, somewhere between six to nine months, which means they require substantial planning and a lengthy underwriting timeline. These loans do, however, underwrite to a lower DSCR at 1.15 and offer a 35-year amortization schedule with the ability to get up to 85 percent LTV, making them an attractive option to secure the highest amount of proceeds.
While a 35-year term may seem daunting, prepayment step-downs starting from 10 percent at year one, dropping a percentage each year after, ending with no prepayment penalty after year 10 can be more appealing than the yield maintenance or defeasance terms from other sources. Generally, HUD loans rate guidance is around a 10-year deal, with an approximately 150 bps spread over the 10-year US Treasury as a benchmark. Ultimately, HUD is not your lender—just the guarantor of a Ginnie Mae bond generated by an approved source. But after HUD provides approval, it’s sold into the investment market as federally- backed securities. This requires loan insurance as part of the overall cost of the loan. Still, for anyone with enough lead time, the max proceeds far outweigh the additional costs. HUD has also improved various loan underwriting and management requirements that make it a less cumbersome debt option.
CMBS: Securitized loans can often be a good option for a permanent, fixed rate non-recourse execution if the borrower can stomach a higher rate and potential re-trades during the closing process. They can also be the best option for a borrower looking to maximize proceeds in a fixed rate structure without the lead time and requirements of a HUD loan. CMBS loans typically close at or before 90-days after application. These loans are pricing anywhere from 200 to 250 bps over a corresponding benchmark. Their willingness to go full-term interest only can also be appealing but will come with a price. One of CMBS’ major drawbacks includes rate assignment at the closing of the transaction, which can dramatically alter final terms. They are also known for a rigid servicing protocol. Depending on the provider, the B piece of the securitization can upend and extend a smooth closing. Ultimately, these loans provide top proceeds but with a heavy lift and the most uncertainty.
Banks: The rate volatility of recent years has undermined banks in their pursuit of new permanent loan originations. They are at their most competitive when funding variable rate loans in the current cycle, where they price off SOFR, also an improving benchmark. On fixed-rate loans, they are often pricing 30 to 50 bps higher than the GSEs and life companies. They can be an excellent fit for a dynamic acquisition transaction where a near term exit is desired with their ability to provide flexible prepayment and expedited closing terms. Permanent loans from banks still require recourse covenants, making them the least compelling option in the current marketplace. Banks will also often require deposit relationships. They are more active and accessible again and offer a compelling option, especially for their seasoned relationships.
As we begin anew for 2026, the biggest consideration for a known maturity is early anticipation. If you know a maturity is on the horizon, start your discussions now. Review the options against your investment goals, and keep an open mind to non-traditional, alternative sources. In a competitive marketplace, each lender can best serve different outcomes.
Tom Dao is a principal at Gantry.
