Financing Multifamily Real Estate in 2025: Navigating Change

During the past two years, the market for financing multifamily real estate has faced rising interest rates, elevated inflation, and a pullback in lending by regional banks. Despite these challenges, the sector has demonstrated resilience, buoyed by a surge of private credit and a more stable interest rate environment.

After a couple of challenging years, the market outlook for 2025 is more optimistic, said Jonathan Pratt, Capital One’s senior vice president of agency finance.

“As regional banks have pulled back, we’ve seen an influx of private credit into the market, which allows new acquisitions to get done; but more than that, it enables folks to restructure problematic deals,” he told participants in the recent Multifamily Finance in 2025: Balance Sheet, GSEs, LIHTC and Beyond webinar, hosted by GlobeSt. and sponsored by Capital One.  

In this environment, investors—especially those who have the resources to move quickly—can acquire distressed assets at significant discounts to their replacement cost. This has led to increased activity in both acquisitions and in the restructuring of deals that were initially underwritten during more optimistic market conditions.

“Interest rates stabilized after the rapid increases of 2022 and 2023, and since then have moderated slightly, spurring activity,” Pratt said. “We've seen this reprieve, and people are taking this opportunity to capitalize on new acquisitions of distressed properties that have come to market, and they're also using this opportunity to restructure,” he said. 

A key area of equity investment is the core-plus market, or stabilized properties with reliable tenants and less risk, especially if they can be acquired at a discount to their replacement cost, Pratt added. At the same time, acquisitions done a few years ago, before rates increased, may now be overlevered, and owners may be looking to sell.

 

Persistent Demand for Affordable Housing

Growing demand for affordable housing nationwide continues to influence the market. In some areas, supply is so scarce that it’s reaching crisis levels, said Ed Delany, Capital One’s senior capital officer for community finance. 

“There's significant bipartisan movement toward strengthening the Low Income Housing Tax Credit (LIHTC), which will make it a lot easier to get more affordable rental housing done,” he said. The LIHTC is a federal program that provides tax credits to investors for building or renovating affordable housing. 

Government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, along with the Federal Housing Administration (FHA), remain critical sources of liquidity for multifamily finance.

FHA financing provides some key benefits, such as non-recourse loans and 40-year terms at competitive fixed rates. However, processing times can be lengthy, particularly for new construction. “Early engagement with lenders is critical to align loan processing with the development timeline”, the panelists said.

 

Private Credit Fuels Options 

As traditional banks have retreated from the multifamily market in recent years, private credit providers have stepped in. Debt funds are now competing aggressively, with spreads tightening significantly over the past year. This has created more options for sponsors, especially when agency or FHA financing is not a fit.

Panelists emphasized the value of a “one-stop shop” approach, where borrowers can access construction loans, agency takeouts, tax credit equity, and bridge financing under one roof. This integrated model streamlines execution, enhances certainty of closing, and enables creative problem-solving for challenging deals.

Capital One’s platform exemplifies the new landscape, offering direct lending, repo financing, and a robust brokerage business. The ability to provide both senior and subordinate debt, as well as bridge financing, allows lenders to tailor solutions to complex capital needs. 

 

Complex Transactions and Agency Partnerships

For projects where timing, property type or other constraints create roadblocks—Capital One teams leverage FHA, Freddie Mac tax-exempt loans, forward commitments, and multiple tax credit partnerships to close complex transactions with simultaneous closings across multiple entities.

When faced with over-leveraged or struggling assets, panelists described two options: sell or refinance. The key is to quickly assess the possibilities—agency, bank, life company, debt fund—and pursue the most efficient path. Creative solutions may involve:

• Recapitalizing with new equity (common, preferred, or co-GP)

• Converting market-rate deals to mission driven to unlock new financing sources

Another option to consider: partnering with nonprofits, which often have access to grants, tax abatements, and additional subsidies. These partnerships can be mutually beneficial because for-profit developers can provide balance sheet strength and execution capability. 

“A nonprofit partner with at least 50% ownership can get grants from the Federal Home Loan Bank Board and often their local municipalities, [that they can invest] into the transaction to help boost the capital,” Delany said. “On the flip side, if you're a nonprofit and you're struggling to get your deal done because you don't have the balance sheet—that's where the for-profit partner can come in. So these are marriages that often endure after one transaction, and [the partners] learn that they can work together on a consistent basis.”

 

Sourcing Distressed Opportunities

Distressed opportunities are highly sought after, but the volume has not matched early investor expectations. The best approach is proactive networking, leveraging relationships with lenders, brokers, and other market participants. Integrated platforms with visibility into both performing and nonperforming assets can help connect capital with opportunity.

In addition, lenders like Capital One can offer a full suite of financing solutions—balance sheet lending, agency and FHA executions, tax credit equity, and brokerage services—supported by a deep balance sheet and extensive industry relationships. Unlike traditional brokers, Capital One often participates directly in the investment, providing both flexibility and certainty to clients.

 

Conclusion: Outlook for Multifamily Finance

The challenges facing the multifamily finance sector in 2025 have tested the market's resilience, yet have also spurred innovation in deal structuring and financing. The enduring need for affordable housing, coupled with bipartisan momentum for regulatory reform, suggests that creative public-private partnerships will play an increasingly vital role.

“We have had reasons to be slightly optimistic in the beginning of 2025,” Ryan Young, head of Capital One’s Southern California relationship team, told webinar participants. “We largely had strengthening fundamentals, growing investor profits, record [capital] raised for both debt and equity, plus a stabilizing interest rate environment. I think that the perpetual supply-demand imbalance and a need for affordability is as important now as ever before.

As traditional sources of capital evolve and private credit continues to expand, integrated platforms that offer one-stop solutions, deep expertise, and flexible capital will be best positioned to navigate uncertainty and capitalize on emerging opportunities.”

 

Learn more about Capital One Commercial Real Estate solutions.