At a glance
- Free rent was used to fill it, which suggests the rent roll behind that occupancy figure is thinner than the percentage implies.
- For allocators in funds that own multifamily debt or recently built apartments, the diligence question shifts from occupancy to the concession schedule.
- Nearly $250 billion of multifamily loans mature through 2028, and more than a quarter of the floating-rate loans made in 2020-22 fail a looser 0.8 debt-service coverage test, according to Yardi Matrix.
Brookfield walked away from the Beaudry, a $600 million, 785-unit apartment tower in Los Angeles that opened less than four years ago and is about 95% occupied.
Free rent was used to fill it, which suggests the rent roll behind that occupancy figure is thinner than the percentage implies. Occupancy counts occupied units; it does not count the dollars those units pay.
For allocators in funds that own multifamily debt or recently built apartments, the diligence question shifts from occupancy to the concession schedule. How much of the rent roll is free or discounted, when those months roll off, and what coverage the property shows once they do are the questions that decide whether a loan refinances or is handed back.
Nearly $250 billion of multifamily loans mature through 2028, and more than a quarter of the floating-rate loans made in 2020-22 fail a looser 0.8 debt-service coverage test, according to Yardi Matrix.
The 0.8 is the lenient version of the coverage test, in which net operating income covers 80 cents of every dollar of debt service. A borrower that fails even that bar has three ways out: new equity, a sale, or handing the asset to the lender.
Brookfield took the third. In a walk-away the lender takes the asset and the equity behind it is written off.
Lenders are still originating against apartments. Affinius Capital lent $226 million to refinance House 55, a 43-story, 295-unit building in Brooklyn owned by a Lonicera Partners and Rabina joint venture, and Benefit Street Partners lent $47.6 million on a 170-unit mixed-income property in Prospect Lefferts Gardens. The contrast suggests the constraint on the Beaudry was coverage, not lender appetite.
A building that opened less than four years ago has not had a full cycle to work off its concessions, and its first refinancing may arrive before the discounted leases roll to market rent.
Whether the Beaudry's next owner can fill the remaining units at market rent, and how quickly, is the question the free-rent months deferred.
Reported by The Wrap desk from Yardi Matrix and Daily Network newsroom data query. Published . Corrections