As multifamily debt activity surges, investor confidence builds

The new year has brought a new wave of positivity for investors and lenders alike. The recent National Multifamily Housing Council (NMHC) conference brought together industry leaders to discuss these shifting winds and how evolving macroeconomic conditions, capital market dynamics, and investor priorities have reshaped the industry over the past year.

The discussions point to a market that will be recalibrating in the year ahead around discipline, creativity, and long-term fundamentals. Several key themes emerged at the conference: compressed margins, selective capital availability, and the importance of deal structuring creativity.

Margins remain compressed

Economic growth has moderated and created more of a balanced, yet still complex, outlook for commercial real estate. Elevated cost pressures, labor shortages, and insurance increases are all weighing on property performance and compressing margins. Although the pace of operating expense growth has slowed, multifamily owners are sitting at a 39% increase over pre-pandemic levels.²

The good news is that inflation has eased from its recent highs and has offered some pricing relief. At the same time, multifamily portfolio owners report that despite ongoing affordability challenges, consumer resilience has supported rental demand, driven largely by higher earners.³

For owners and investors, this type of environment translates to conservative forecasting as well as the importance of stress-testing assumptions. Underwriting to aggressive rent growth or rapid cap rate compression is a thing of the past. It’s been replaced by a practical focus on in-place cash flow, expense control, and durability across cycles. Continuing the theme of realism, instead of waiting for big interest rate cuts, investors are doing more planning around a normalized rate environment.

Capital is flowing, but selective

Risk repricing is now happening and helping deals move forward. Debt and equity capital is available yet selective. Financing high-quality assets with experienced sponsors and well-capitalized platforms is happening, with lenders prioritizing transparency, downside protection, and alignment.

Dan Baker, Executive Vice President at KeyBank Real Estate Capital, stated, “2025 was a good year, and heading into 2026 there’s a tremendous amount of capital in the market. It’s a great time to be a borrower, with all the major capital sources — banks, life insurance companies, and agencies like Fannie Mae and Freddie Mac — actively lending.”

It’s important for borrowers to note, however, that lenders are placing importance on the sponsor strength, common-sense business plans, and conservative leverage. Equity investors are also recalibrating return expectations that reflect realistic cost of capital expectations.

Together, these trends have created a market with tempered deal flow in which execution matters more than momentum.

Creativity wins in deal structuring

Deal structures are also shifting and are getting more creative. Preferred equity, joint ventures, mezzanine capital, and structured recapitalizations are playing an important role, as sponsors look to address near-term maturities or seek to reposition their assets rather than pursuing a sale.

These types of financial solutions mean that alignment among stakeholders is important, particularly in scenarios where there is refinancing pressure or changing business plans. In many cases, the goal is to preserve optionality and position assets for stronger performance.

For owners facing maturities of lower-rate loans, being proactive and engaging with lenders early in the process is critical. Whether through refinancing, capital infusions, or asset-level repositioning, starting the process early can help borrowers avoid having to react under tight time constraints.

Supply and demand fundamentals vary by market

Overall, national multifamily market fundamentals are relatively healthy, with the supply pipeline continuing to fall, and tours and applications up noticeably year-over-year. Performance is highly variable depending on the geographic market.

For example, elevated new supply in certain Sun Belt areas has meant more vacancies and downward rent pressure in the near term. However, markets like Dallas and Atlanta are rapidly recovering and absorbing the new supply of apartments.

What is most important is for investors to implement proactive strategies that are tailored to the asset and its location. Educated guesswork is necessary for owners, with a focus on submarket dynamics, delivery timelines, and competitive positioning.

Over the longer term, demographic tailwinds such as household formation, lifestyle flexibility, and barriers to homeownership, all continue to support demand for rental housing. Those strong fundamentals are driving sustained investor interest.

Operational focus

Another major change happening now is a renewed emphasis on operations. With rent growth moderating around already slim margins, value creation is driven by on-site execution. Properly managing expenses, improving resident retention, and using technology to enhance efficiency are essential strategies for improving operating income. Many owners are prioritizing cost control, building balance sheet strength, and achieving measured growth over rapid expansion.

In this type of environment, discipline differentiates one investor from another. Those investors who can show consistent performance, clear governance, and who can understand risk management are better positioned to attract capital and navigate volatility.

The year ahead

We expect 2026 to be a more active deal-making year, building on the momentum from the fourth quarter of 2025 that saw multifamily loan originations rise 22% year-over-year.⁴ While bid-ask spreads persist, increased clarity around rates, valuations, and performance is helping buyers and sellers to find common ground. Assets with high leverage, aggressive underwriting, or operational challenges might face pressure, but well-capitalized owners will have flexibility.

Optimism is permeating the dialogue, and it was palpable at NMHC. It is clear that the multifamily market will continue as a core allocation for institutional and private investors; lenders and borrowers have more interest rate guidance; and overall, deal flow has returned to multifamily investing.   

Samantha Miller, Senior Vice President in KeyBank’s Multifamily Mortgage Banking division, remarked on the overall sentiment at the conference. “There is a lot of capital ready to be deployed into multifamily, and market participants are cautiously optimistic. Debt capital markets and bank lending for multifamily appear open for business, and we expect strong lending terms and increased acquisition activity through 2026. If you’re ready to move forward, now is an excellent time to engage the capital markets, get quotes, and explore the range of creative multifamily financing solutions available.”

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To discuss the current market environment and building the right capital stack on your next deal, connect with our real estate capital experts or reach out to your KeyBank mortgage banker directly.

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