Major Apartment Developers Struggling to Get Loans Amid Tight Lending Market

By Holly Dutton

Some of the most well-known multifamily developers are struggling to get loans for their projects, as lenders pull back amid shaky market conditions. The Houston-based developer Howard Hughes has been having a difficult time getting financing for its new multifamily projects, after getting rejected by dozens of lenders for a new apartment project in a Houston suburb. The billionaire developer Ross Perot Jr. has also said that commercial real estate firms are having a hard time getting construction loans. While apartment rental prices shot up during the pandemic, rising interest rates have led to high borrowing costs and supply chain issues and inflation have made operations more expensive, cutting into profits. Added to that, prices for apartment properties have dropped more than 20 percent over the past 12 months, according to Green Street.

The hesitation by lenders comes at a time when many economists and industry leaders—and even Elon Musk—are ringing the alarm about impending doom for the commercial real estate market. By the end of 2025, about $1.5 trillion in commercial mortgage debt will come due, but amid a number of factors including high borrowing costs and a decline in property values due to remote work, the risk of default has increased. Meanwhile, the multifamily industry is dealing with soaring property insurance costs, which shot up 26 percent year-over-year, according to the National Multifamily Housing Council, and plummeting sales numbers. In the first quarter of this year, sales of multifamily properties dropped by a staggering 74 percent. While the multifamily sector was once looked at as the darling of the pandemic era, posting record-setting numbers in 2021, it looks like those days are over, and a more muted year lies ahead for the industry.

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