How Private Credit Helps Multifamily Developers Persist Until ‘26
Leste Group's Ricardo Gennari on debt strategies that fit the current climate.
With economic uncertainty continuing to impact the multifamily construction market, investors are increasingly looking for ways to help them persist until 2026. In particular, tariffs on materials such as aluminum, steel, lumber and gypsum are raising building costs. Developers will need to absorb those price increases until their projects are ready to go to market.
Private credit to the rescue
Approximately 14 percent of mortgages backed by multifamily properties are scheduled to mature in 2025, according to the Mortgage Bankers Association’s 2024 Commercial Real Estate Survey of Loan Maturity Volumes. This looming wave of maturities represents a significant refinancing need across the multifamily sector, particularly as property owners contend with a more challenging interest rate and liquidity environment. However, as traditional banks continue to work through their commercial real estate exposure, they remain reticent to support borrowers during transitional periods.
This dynamic has provided an ideal environment for private credit managers, often less constrained by traditional banking regulations, to play a more significant role in providing capital infusions to sponsors and developers of new multifamily projects as well as the refinancing of existing properties that require loans for repairs, renovations, and other costs—projects that can no longer be postponed in light of tenant demands and competitive pressures.
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Advantages of private lending
According to a recent report from the St. Louis Fed, commercial real estate lending by U.S. banks slowed to an 11-year low in the fourth quarter of 2024 due to such factors as higher prices for land, labor and materials as well as rising interest rates. This sharp contraction reflects a confluence of macroeconomic and sector-specific headwinds that have dampened banks’ appetite for CRE exposure.
Adding to the pullback, forthcoming Basel III Endgame regulations are expected to significantly increase capital requirements for banks with commercial real estate exposure—particularly for construction and transitional loans. These changes, set to take effect in the coming years, are already influencing bank behavior by raising the cost of holding such assets on their balance sheets. As a result, many traditional lenders are reducing their appetite for CRE risk, especially in the multifamily segment. This regulatory shift further opens the door for private credit providers to step in with flexible, bespoke financing solutions to meet borrower demand. Private lenders have demonstrated greater flexibility and more willingness to take calculated risks than traditional banks, but this risk requires greater due diligence to ensure financing is being offered to reliable investors. However, the payoff comes in the form of higher yields and lower volatility for lenders.
Market to market
Going forward, the need for private credit will increasingly vary by market. According to the Avison Young midyear 2025 multifamily outlook, major cities such as San Francisco, New York and Los Angeles are continuing to be faced with higher construction costs, which will limit new supply. As a result, the need for loans to complete or refinance projects should fall in those markets.
On the other hand, Sun Belt cities with lower construction costs such as Atlanta, Denver and Austin have been experiencing a rise in multifamily development projects, according to the report. Flat or falling rents projected in those markets over the near term will likely result in a greater need for bridge loans to give developers more time to improve their financial situation. However, Miami has continued to buck this trend with occupancy rates remaining around 95 percent.
Build-to-rent development
With the cost to purchase single-family homes remaining out of reach for many Americans, and housing starts falling to their lowest level since 2020 when the pandemic limited construction, build-to-rent has become a more attractive option for some investors. As opposed to single-family rentals, BTR developments typically include 50 or more homes or townhomes that are professionally managed, with community amenities such as pools, gyms and clubhouses.
According to a recent Yardi Matrix Multifamily National Market Report, BTR is forecast to rise from 6.3 percent of multifamily completions in 2025 to 6.8 percent in 2026—up from less than 2 percent in 2019. The cities projected to lead the BTR charge over the next two years are Phoenix, Dallas, Atlanta, Austin, and Charlotte.
Multifamily moving forward
While the rising cost of materials—driven by inflation, supply-chain disruptions and international trade policies—is affecting a growing number of developers, many remain undeterred by the shortage of apartment inventory across numerous regions in the country. This imbalance between supply and demand is providing a compelling incentive for developers to absorb these elevated costs in order to move forward with construction projects and bring new housing units to market.
According to recent RentCafe data, competition among renters is intensifying, with an average of nine prospective tenants competing for every available listing, with Miami remaining the “hottest renting spot” in the country.
At the same time, the ongoing impact of international tariffs on building materials—such as steel, aluminum, and lumber—continues to complicate budgeting for developers, who are now more inclined towards short-term construction loans to help them complete their projects on time. For private lenders, this presents a strategic opportunity. Those with the capital and foresight to selectively fund well-positioned multifamily developments can benefit from strong borrower demand and attractive yields. By adopting a long-term investment perspective, private lending institutions can not only support critical housing development but also position themselves to capitalize on favorable market dynamics in today’s undersupplied rental landscape.
Ricardo Gennari is managing director of real estate credit at Leste Group, a global independent alternative investment manager.
