The commercial data provider looked at which multifamily borrowers were most impacted by COVID-19
Accommodations and empathy have been the name of the game in the commercial real estate industry throughout the coronavirus pandemic. GSE lenders have been no different, taking an accommodating approach and granting forbearances, modifications and extension requests.
In a recent report, Trepp looked at how GSE lenders are assisting multifamily borrowers with forbearances. The commercial data provider has been actively monitoring CMBS and agency loans impacted by COVID-19. According to Trepp’s database, 1,692 Fannie Mae and Freddie Mac non-securitized and agency CMBS properties thus far have been flagged for having requested or granted forbearances.
“Those properties back a combined allocated loan balance of $12.8 billion, with 63.7% of the requests coming from Freddie Mac financing ($8.15 billion) and 36.6% from Fannie Mae loan purchases ($4.65 billion).”
The report added that almost 80% of the loans mature in 2025 or later, which may give markets time to recover.
Trepp says small balance loans (SBL) account for 18.5% of total forbearance requests, yet they were more likely to initiate dialogues asking for assistance, even before any signs of distress. These loans usually finance apartments with 100 units or less, making them more susceptible to the impact of the coronavirus dislocation.
“Each tenant experiencing job losses or other financial hardships will have a disproportionately larger stress on the property’s rent collection and cash flow. Due to their smaller loan sizes of up to $6 million, SBLs are also more commonly used as federal financing support for affordable or rent-stabilized housing as well as multifamily properties supplying more basic amenities. This gives them more exposure to lower/moderate-income or hourly paid tenant bases that have been especially hard hit by business layoffs and closures.”
Trepp also found low-rise and apartment co-ops make up around 60% of loans with forbearance needs since they are the largest multifamily subtype by debt size.
Student housing has also been deeply affected, as many universities and colleges have opted to move forward with online curriculums through to 2021, leaving student housing units empty through the fall. There’s also concern around senior living communities, given the greater health risk and vulnerability of older residents.
“According to Fannie Mae and Freddie Mac data, those property subtypes have had greater relief needs as 6.59% of the $30.5 billion in senior living loans and 5.84% of the $22.2 billion in student housing loans have requested forbearances. Though the two subtypes only comprise 8.5% of the total outstanding Fannie and Freddie universe, they represent more than a quarter of the total forbearance volume.”
From a regional standpoint, a significant portion of troubled loans are coming from major metropolitan areas, largely due to denser populations and the financing needs in those areas. Trepp says those areas have also had the most severe lockdown restrictions.
With loan reporting, Trepp says there is a time lag, with the most recent data primarily reflecting loan performance prior to the COVID-19 crisis.
“Overall, data on agency loans with forbearance requests show that the multifamily sector was stable and exhibited healthy credit fundamentals heading into the lockdown. At the moment, about 65% of the loans are reported to be current on payment and 85% of the loans have occupancies exceeding 80%.”
The data suggests that most borrowers should be in a position to continue making their monthly payments, keeping overall default rates contained.