New York State’s 2025 Budget Advances Affordable Housing Goals

In April, New York State Governor Kathy Hochul announced a landmark budget agreement heralded as a giant step for affordable housing. New York’s FY 2025 Enacted Budget includes several key policy changes that could create thousands of affordable housing units across the state.


SFR East 2024: How Economics and Demographics Shape the Rental Market

IMN’s Single Family Rental Forum (East), the cornerstone gathering of the SFR industry, concluded on May 22, 2024, in Miami, FL. Over three days, 1,800 attendees listened to more than 280 speakers discuss all angles of the SFR industry. On the first day of the conference, Arbor’s Tres Seippel, Director, Construction Management, participated in a wide-ranging panel discussion examining economic and demographic forces influencing SFR and build-to-rent (BTR), which also featured Rick Dalton, President of the Dalton Group, Domonic Purviance of the Federal Reserve Bank of Atlanta, Wade McGuinn, CEO of McGuinn Hybrid Homes, and Heather Williams, VP at Willow Bridge Property Company.


Affordable Housing Market Snapshot — May 2024

As housing costs spiral, rental affordability has become a more urgent issue, burdening a greater number of Americans. With more funding on the way, policymakers and private market advocates are pressing ahead with plans to add units to an increasingly tight housing market.


The Probability Renters Will Keep Renting Hits Record High

The average renter thinks there is a three-in-five chance they will still be in the rental market in 2027, according to the New York Federal Reserve’s recently released 2024 SCE Housing Survey. Compared to last year, the probability of the average renter not becoming a homeowner in the next three years was up 4.3 percentage points, reaching its highest mark since the study began in 2015.

Current Reports

Small Multifamily Investment Trends Report Q2 2024

Small multifamily’s performance continues to conform to pre-pandemic norms typically seen before the historic boom years of 2021 and 2022. In the first quarter of 2024, cap rates and asset prices both improved quarter-over-quarter, Arbor’s Small Multifamily Investment Trends Report Q2 2024, developed in partnership with Chandan Economics, has found. The subsector’s fundamental strength will support steady growth amid tight credit conditions until interest rate relief invites increased investment activity.


U.S. Multifamily Market Snapshot — May 2024

Key fundamentals of the U.S. multifamily remained strong to start 2024. Despite fears of oversupply, rent growth remained stable and vacancy rates remained near historical lows.


Arbor Marketing Campaign Wins Two Awards at Industry Gala

For more than 30 years, Arbor has been committed to building strong bonds with clients that lead to mutual success. This philosophy is at the heart of a unique Arbor marketing campaign, The Art of Growing Financial Partnerships, which received two awards at the 30th Annual Financial Communications Society (FCS) Portfolio Awards Gala in New York City on May 2. The campaign, which was featured in two private jet terminals, used original stained-glass pieces to build brand awareness among high-net-worth travelers.

General: 800.ARBOR.10

Small Multifamily Investment Trends Report Q4 2022

Valuations Flatten as Cap Rates Start to Rise from Record Lows

Key Findings

  • Small multifamily originations reached $80.7 billion in 2022, the highest annual total after 2021’s record high.
  • Cap rates inch higher from record lows, ticking up to 5.1%.
  • Debt yields rise and loan-to-value ratios (LTVs) hold near post-pandemic lows as lending standards remain tight.

State of the Market

During a volatile 2022, the Federal Reserve’s ongoing monetary tightening cycle began to accomplish its intended goal. Inflation came down for six consecutive months through December 2022. Although slowing inflation has generated optimism, the central bank has stated that it may still need to raise interest rates again in 2023.

How changing economic conditions will impact the small multifamily sub-sector is only now beginning to become clear. The Mortgage Bankers Association’s 2023 forecast noted that cap rates appear “to be reflecting past market conditions that have changed significantly over recent months.” If elevated interest rates are sustained, commercial real estate pricing, including within the multifamily sector, is at risk of market fluctuations.

However, as noted in Arbor’s Special Report Spring 2023 by Arbor Chairman and CEO Ivan Kaufman and Sam Chandan, Founder of Chandan Economics, growing storm clouds in the multifamily sector are not reflective of any structural change in the profile of demand or supply but rather are a cyclical feature. Moreover, while multifamily and the small asset sub-sector are not immune from disruption, there are significant supporting factors that should limit distress. Debt underwriting standards have remained tight since the onset of the pandemic, which should curb the scope of mortgage defaults. Further, the structural undersupply of quality affordable housing options will continue to support tenant demand, and Fannie Mae and Freddie Mac will continue to buttress liquidity.

On balance, while the small multifamily sector remains in a fortified position entering 2023, it will likely feel reverberations from ongoing macroeconomic instability.

Lending Volume

The year-end 2022 estimate of new multifamily lending volume on loans with original balances between $1 million1 and $7.5 million — including loans for apartment building sales and refinancing — fell to $80.7 billion (Chart 1).


The 2022 estimate represented a 14.3% annual decline from 2021’s record high of $94.1 billion, which reached lofty highs on a wave of pent-up investment demand and the anticipation of monetary tightening. Looking ahead, Freddie Mac forecasts that overall multifamily origination volume will fall again in 2023, in the range of 4% to 5%.

Even as small multifamily originations came down significantly in 2022, they remained elevated compared to any year other than 2021. 2022’s originations total measured 40% higher than 2020’s mark and 36% higher than 2019’s pre-pandemic record high of $59.2 billion.


The resilience of refinancing activity is one factor that has kept small multifamily originations at an elevated level. During the fourth quarter, loans originated for the purpose of refinancing accounted for 69.0% of small multifamily lending activity (Chart 2), despite higher financing costs. For 2022 overall, refinancings accounted for 69.4% of small multifamily lending activity, up from 63.5% in 2021.

Arbor Small Multifamily Price Index

As measured by the Arbor Small Multifamily Price Index2, small multifamily asset valuations were flat in the fourth quarter of 2022, growing by 0.2% (Chart 3).

However, prices rose by 10.1% year-over-year (Chart 4).

Multifamily properties, which have an average lease of one year, have demonstrated an ability to withstand inflationary pressures due to their positive cash flows. Still, benchmark interest rate increases in the year ahead will be critical for small multifamily pricing. If Treasury yields remain elevated, new multifamily buyers will increasingly require higher property-level yields — a condition that could be satisfied through either strengthening cash flows or declining asset values.

Cap Rates & Spreads

As benchmark interest rates climbed in 2022, an inflection in small multifamily cap rates seemed likely to follow. Even as the cost of capital reached its highest levels since before the 2008 financial crisis, small multifamily cap rates approached new all-time lows as recently as the third quarter of 2022. However, cap rates have now shown some sensitivity to softening economic conditions. National average cap rates for small multifamily properties climbed to 5.1% in the fourth quarter of 2022, rising 13 bps from the prior quarter (Chart 5). This was the largest single-period increase since 2009.


The small multifamily risk premium, a measure of additional compensation that investors require to account for higher levels of risk, is best measured by comparing cap rates to the yield on the 10-year Treasury. The average small multifamily risk premium fell in the fourth quarter of 2022, sliding down to 130 bps. Even as cap rates rose last quarter, Treasurys rose faster, causing this spread to narrow by a substantial 60 bps. At the end of the year, the small multifamily risk premium sat at its lowest level since the third quarter of 2007 (Chart 6).


The cap rate spread between small multifamily assets and the rest of the multifamily sector, a measure of the risk unique to smaller properties, remained flat between the third and fourth quarters of 2022, holding at 36 bps (Chart 7).

Expense Ratios

Expense ratios, measured as the relationship between underwritten property-level expenses and effective gross income, have increased over the past two years — reflecting that when operating costs surge, it still takes time for rent rolls to adjust. After rising to a high of 43.5% at the end of 2021, expense ratios improved in 2022, dropping 95 bps during the fourth quarter to finish the year at 41.3% (Chart 8).


Rent Collections

On-time rent payments in small multifamily properties remain at healthy levels. At the start of January 2023, an estimated 81.0% of units had paid their full rent on time — improving 89 bps from the month prior (Chart 9). After a brief dip during the pandemic, on-time payment rates have been above 80% for 15 consecutive months. Despite mounting economic anxiety and a bear market for equities, rental households have maintained their ability to pay rent. As a result, small multifamily owners’ property-level cash flows have built-in security.

Leverage & Debt Yields

While the equity side of the capital stack is just now beginning to reflect the changing economic landscape, the debt side has been signaling the prudence of a conservative adjustment to risk-taking. LTVs have slid substantially this year as lenders have increased their risk requirements. While small multifamily LTVs did rise by 8 bps to land at 65.4% in the fourth quarter of 2022, they remain lower than at any point during 2020 and 2021 (Chart 10). Moreover, current small multifamily LTVs sit 234 bps lower than at the beginning of 2022 and 523 bps lower than their first-quarter 2021 peak (70.5%).

Debt yields for small multifamily loans averaged 7.9% in the fourth quarter of 2022, rising a substantial 17 bps from the previous period (Chart 11).


The inverse of debt yields, the debt per dollar of net operating income (NOI), fell for small multifamily loans. Small multifamily borrowers secured an average of $12.58 in new debt for every $1 of property NOI, down 28 cents from the previous quarter.

Together, these LTV and debt yield trends indicate that underwriting standards have remained conservative amid increased economic uncertainty. To protect against distress, lenders are building in larger equity and property-income cushions.


The small multifamily sector remains in a resilient position heading into 2023, even as it faces cyclical challenges from a high-interest rate environment. The combination of a rent-by-necessity tenant base and declining access to affordable homeownership should continue to strengthen tenant demand. Balance sheet asset valuations are likely to show some sensitivity to higher interest rates. If Treasurys remain elevated, cap rates will need to rise to restore sufficient risk premiums. However, thanks to the strength of the labor market, renters have maintained their ability to pay their rent. As long as property-level cash flows remain stable, the scope of distress within the small multifamily sector should remain limited. While the year ahead may present challenges, the small multifamily sector boasts stabilizing fundamentals that should allow it to absorb business cycle headwinds.

For more small multifamily research and insights, visit

1 All data, unless otherwise stated, are based on Chandan Economics’ analysis of a limited pool of loans with original balances of $1 million to $7.5 million and loan-to-value ratios above 50%.

2 The Arbor Small Multifamily Price Index (ASMPI) uses model estimates of small multifamily rents and compares them against small multifamily cap rates. The index measures the estimated average price appreciation on small multifamily properties with 5 to 50 units and primary mortgages of $1 million to $7.5 million. For the full methodology, visit

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