JPMorgan and Citigroup launch multifamily-only offerings, signaling growing investor confidence in rental housing
Wall Street is introducing a new approach to the commercial mortgage-backed securities (CMBS) market with offerings backed entirely by apartment properties rather than a mix of commercial real estate assets.
Following JPMorgan Chase’s $734.2 million multifamily-focused CMBS transaction, Citigroup is preparing a second apartment-only deal valued at approximately $816.9 million. The back-to-back offerings suggest growing confidence in multifamily housing among institutional investors.
Traditionally, conduit CMBS transactions combine loans secured by various property types—including offices, retail centers, hotels, industrial buildings, and apartments—to diversify investment risk. However, the new offerings from JPMorgan and Citigroup focus exclusively on rental housing, marking a notable shift from the standard market structure.
Industry experts believe apartment-only securitizations could become increasingly common as investors continue favoring multifamily properties. Rental housing is generally viewed as easier to evaluate, benefits from government-backed financing programs, and continues to see strong demand as rising home prices keep more Americans in the rental market for longer periods.
According to market data, Citigroup’s upcoming transaction represents only the second publicly offered single-property-type conduit CMBS deal outside of Fannie Mae and Freddie Mac in more than five years. JPMorgan’s offering earlier this year was the first. Similar single-sector offerings have not yet emerged for office, retail, or industrial properties.
The growing interest indicates that many investors are now willing to accept less diversification in exchange for greater exposure to the multifamily sector, which has historically experienced lower default and loss rates than several other commercial real estate categories.
Market analysts believe the nearly identical structures introduced by two major investment banks within a short period could signal the beginning of a broader trend in commercial real estate finance.
Another factor supporting demand is the changing role of Freddie Mac in the securitization market. The agency has reduced its issuance of higher-risk B-piece bonds and is retaining more multifamily loans on its own balance sheet. As a result, investors who traditionally purchased these securities are increasingly partnering with private investment banks to create apartment-focused CMBS transactions.
Even with this shift, Fannie Mae and Freddie Mac continue to dominate multifamily lending in the United States. Together, the two agencies typically account for 40% to 50% of annual apartment loan originations and have the capacity to provide up to $150 billion in financing each year. Industry observers believe the new private-label products will complement rather than replace agency financing by serving borrowers who require greater flexibility or higher loan amounts than agency programs typically allow.
Credit rating agencies have noted that private apartment-only CMBS transactions generally carry higher leverage than comparable Freddie Mac securitizations. Despite this, multifamily housing continues to attract investors because of its historically stable performance and relatively low credit losses.
Experts also point out that assembling enough apartment loans to create a profitable CMBS offering remains challenging. Lenders often need to accumulate more than $500 million in loans before issuing securities, exposing them to interest rate movements and market volatility during the holding period.
The financing structure is expected to be especially competitive for smaller apartment loans, where agency pricing may be less aggressive than it is for larger institutional transactions.
Rating agencies have also highlighted several risks associated with the new deals. Citigroup’s transaction consists entirely of five-year, interest-only refinancing loans, meaning borrowers will not reduce principal during the loan term. This structure increases refinancing risk at maturity. In addition, every loan in the portfolio represents a refinancing rather than a property acquisition, limiting the amount of new equity entering the projects.
On the positive side, Citigroup’s loan pool is considered more diversified than JPMorgan’s earlier transaction, with its largest ten loans representing a smaller percentage of the total portfolio.
For apartment owners, these new CMBS products provide another source of fixed-rate financing, particularly for properties that may not qualify under Fannie Mae or Freddie Mac lending guidelines. They also offer greater flexibility and, in some cases, higher loan proceeds than traditional agency financing.
Real estate investment firms have already used CMBS financing successfully for apartment projects with unique operating models, such as properties combining short-term and long-term rental agreements. In these situations, private CMBS financing can provide a practical alternative when agency loans are less suitable, giving borrowers additional options in an evolving multifamily lending market.
Source: Original reporting by Mark Heschmeyer, CoStar News.
