Operators are Running Out of Time Amid Rising Pressure

Rick Martin
May 22
3 min read

James Eng, of Old Capital recently held a webinar and did his usual outstanding job of summarizing the current state of affairs. He essentially stated what we all anticipated - that the clock is ticking for multifamily real estate operators who purchased properties in 2021–2022 using short-term bridge loans. Many of those assets are now reaching maturity, and with extensions exhausted, debt costs rising, and capital tight, owners are being forced to act—refinance, sell, or face foreclosure.

Operators Are Out of Time

According to agency lenders, sponsors can no longer delay. Many have postponed refinancing, returning capital to investors, or initiating new acquisitions—but now extensions are running out. Deals financed with 2–3-year bridge loans are at maturity, and many sponsors are confronting hard decisions as loan performance deteriorates and lenders lose patience.

Foreclosures Are On the Rise

Over 40 foreclosures have occurred recently across Texas alone, with concentrations in San Antonio and Houston. Most follow the same pattern:

Acquired in 2021–2022 with a bridge loan
One extension was used, but occupancy fell and revenue dipped
Refinancing or a profitable sale became unviable
Lenders foreclosed, unwilling to grant further extensions

Where Are Deals Getting Done?

Despite the challenges, certain types of assets are still trading:

Loan Assumption Deals: Properties with assumable fixed-rate loans (in the 4% range) are attractive. Buyers know the terms and can secure positive leverage despite cap rate compression.

Assets Priced Below Replacement Cost: Investors are targeting deals trading below the cost to build new (e.g., $200–$225K/unit vs. $250K/unit construction cost in DFW).

The majority of successful sales involve newer Class A or A- assets. In contrast, older workforce housing (Class C) represents a smaller share of transactions.

Inside Recent DFW Transactions

A review of 56 deals (50+ units) reveals:

Rate Locks: Many buyers are securing 5–7 year agency debt in the 5.25%–5.7% range.
Loan Restructuring: Sponsors are often assuming non-recourse bridge loans or entering modified terms.
Occupancy Issues: Many distressed assets had occupancy below 70%, requiring significant investment and time to stabilize.

Volatility & the 10-Year Treasury

The 10-Year Treasury has fluctuated sharply—from below 4% to above 4.5% in a matter of days. This volatility has made it difficult for borrowers to time refinances or lock favorable rates.

For many, the 4.25% Treasury yield represents a break-even threshold. Some refinances that looked viable at 4% became cash-in refinances when rates bounced back. Borrowers are increasingly locking rates as soon as they see a favorable dip, unwilling to gamble further.

Lender Sentiment: A Mixed Bag

Agency Lenders (e.g., Walker & Dunlop)

Defaults remain low (<1%).
Fannie Mae and Freddie Mac are active and competitive.
2025 is seen as a strong entry point due to rent growth and absorption of 2024’s record new supply.

Bridge Lenders (e.g., Arbor)

The current downcycle is longer than usual (30+ months). Normal cycles last no longer than 18 months, so this has been unusual.
Many bridge loans have been modified to temporarily cap borrower payments around 5%, deferring the balance.
Arbor took back $197M in REO in Q1, expecting up to $500M to work through.
Their ARO (assets in receivership) often involve sub-50% occupancy and require 12–24 months to stabilize.

New Entrants (e.g., BSP)

BSP is acquiring an agency platform and currently operates as a bridge lender.
They originated $340M in Q1 2025 but are now seeing early-stage distress and starting to take back assets.

Supply & Demand Insights from Institutional Owners

Two major REITs shared similar views:

New Construction Starts are falling dramatically (down 80% in Austin).
Rent vs. Own Gap is sustaining multifamily demand.
Renewals are trending up (~4%), even as new leases are flat or slightly negative.
Development Costs are expected to rise 2–5% due to tariffs, but general contractor margins are shrinking as competition increases.

Financing Landscape: What’s Working

Here’s a breakdown of the current lending environment:

Loan Type	Typical Use	Current Rates	Timeline
Bank Loans	Sub-$5M deals, quick closes	6.5% for strong borrowers	45 days
Freddie Mac SPL	Small balance, stable assets	6.0–7.5%	60 days
Fannie Mae	Larger, stabilized assets	5.25–5.75%	60–90 days
Non-Recourse Bridge	Rehab or distressed opportunities	SOFR + 2.5–3.5%	Varies (securitized)

What’s Next

Operators must act—many are out of options and time.
Distressed deals are shifting hands, often with loan assumptions or restructured bridge loans.
Interest rate volatility will continue to challenge underwriting and timing of transactions.
Lenders remain active, but are working through a significant backlog of REOs and modifications.
2025 will be a transitional year, offering both challenges and selective opportunities for well-capitalized investors.

As we move deeper into the year, the market will reward those who are prepared, flexible, and ready to move when windows open. The opportunity is there—but the clock is ticking.