Warning signs of distress in the multifamily lending market flashed more brightly in the final quarter of 2023, amid concerns that a wave of new construction had hurt some landlords' ability to raise rents.
During the fourth quarter, the volume of multifamily loans that were at least 30 days past due or in nonaccrual status at US banks rose to $3.46 billion, up 43.1% from the previous quarter and an 81.2% increase year over year. The fourth-quarter total was the highest since the second quarter of 2013, when it stood at $3.71 billion, but the delinquency ratio at that time was significantly higher, at 1.5%, compared to 0.6% at the end of 2023.
The fourth-quarter delinquency rate was up from 0.4% in the third quarter and 0.3% a year earlier.
Net charge-offs on multifamily loans at US banks also rose in the 2023 fourth quarter to 0.11% of average loans, compared to 0.03% in the third quarter and 0.02% a year earlier.
Top lenders
Banks' commercial real estate lending has come under heightened scrutiny in recent years, though investors and regulators have focused primarily on the office sector, which has experienced weak demand as more people worked from home.
While demand remains much stronger in the multifamily sector, high levels of new construction in some markets — especially in the Sun Belt — have weakened landlords' pricing power and hurt their ability to make loan payments.
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As of year-end 2023, the largest multifamily lender among US banks was JPMorgan Chase & Co., with a loan book worth $101.16 billion, up 26.9% year over year, according to S&P Global Market Intelligence data. The rise in multifamily exposure was driven by the company's acquisition of failed First Republic Bank in May 2023.
New York Community Bancorp Inc., which overhauled its management team and completed a $1.05 billion equity raise in the first quarter to shore up its balance sheet, had the second-largest multifamily loan portfolio, at $37.43 billion. The delinquency ratio in New York Community's portfolio stood at 1.13% at year-end, up 101 basis points from a year earlier. The bank's portfolio of loans on buildings that include rent-regulated units has faced special pressure following a 2019 rewrite of New York City's rent laws.
Citigroup Inc., M&T Bank Corp. and Citizens Financial Group Inc. had the highest delinquency ratios on multifamily loans among the top US bank lenders in the sector, and all reported delinquency rates at the end of 2023 that were higher than a year earlier. Relative to average loans, net charge-offs remained stable in all three banks' portfolios.
