Apartments, Senior Housing: Showcase in Resilience
Strong demand dynamics are helping multifamily withstand high interest rates and other challenges, writes Troy Marek of Regions Bank.
At 2025’s mid-year mark, the apartments and senior housing/healthcare real estate sectors are performing well. Fundamentals are holding strong, reflecting the ongoing resilience of both critically important asset classes. Recent occupancy numbers for both apartments and senior housing contribute to the positive outlook.
With the prospects of homeownership increasingly out of reach for so many Americans, demand for rental housing is expected to rise over the coming years, at the same time the recent influx in new supply slows down.
In the senior housing space, recent NIC MAP research shows an increase in occupancy rates to 87.4 percent, or 621,000 occupied units, during the first quarter. This data showcases the high demand in the sector, which is undoubtedly attributed to the ongoing wave of Americans aging into the senior housing and long-term care arena.
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Like all real estate, both the multifamily and senior housing sectors are heavily impacted by interest rates. Last week, the Federal Reserve announced it would continue to hold rates steady—at least for the time being. Any future cuts will be predicated on what transpires with employment and inflation data. Industry experts are watching tariffs as well as they have the potential to influence both, and subsequently, any future rate decisions made by the Fed.
Rates remain the key driver of lending volume. This was demonstrated in early April when the 10-year Treasury rate dropped, resulting in loan deal flow surging over the following several days. Many borrowers secured rate locks, capitalizing on the situation. Similar upticks in financing activity are expected when rates next dip back down.
In the interim, the agencies with loan programs supporting the two sectors (i.e., Freddie Mac, Fannie Mae and HUD), are committed to their mission of providing liquidity to sponsors who meet their respective requirements. Freddie Mac and Fannie Mae, whose loan purchase caps for 2025 multifamily loan production rose slightly and are set at $73 billion each, are focusing 50 percent of their lending activity in support of the affordable rental arena. The FHFA may also increase the 2025 caps, if the market becomes larger.
The agency outlook
A number of property owners looking to finance or refinance their existing rental communities through Freddie Mac and Fannie Mae programs are still primarily seeking shorter-term five-year loans. Should rates stabilize in the low 4 percent area, seven- or 10-year loan options are likely to become more popular. Some borrowers are also selecting seven- or 10-year loans today with flexible pre-payment options, allowing them to refinance based on the loan’s back-end structure.
Notably, both agencies are innovating their offerings to address market demand and conditions. The goal is to increase volume with good sponsors and sound credit. For example, both are looking to enhance their lease up or near-stabilization programs, capturing deals a little bit earlier in the property’s lease up phase. This allows borrowers to secure agency loans while their properties are at slightly lower occupancy than historically required for an agency loan. The agencies are also utilizing 35-year amortization more frequently. Historically, that would have been used around “Capital A” affordable deals, but today it’s being applied with more frequency in the conventional space with the right sponsor.
In senior housing/healthcare, the dramatic increase in unit demand from aging baby boomers is helping loan prospects. The appetite of the agencies, as well as of alternative lenders such as life companies, to finance properties has increased.
One key area of concern however is the senior housing/healthcare sector’s ability to meet expected demand in the coming years. New construction projects face ballooning costs, as well as high barriers to entry across many U.S. markets. These dynamics are likely to lead to a boost in the rehabilitation and enhancement of existing communities over the coming years.
While both multifamily and senior housing remain strong real estate classes, players in both sectors will be monitoring policy shifts, interest rate activity and the overall performance of the economy. Increased certainty in these areas should provide an added boon to both multifamily and senior housing.
Troy Marek is head of Real Estate Capital Markets for Regions Bank, a nationwide multifamily and senior housing real estate lender.
