December 2nd, 2025

FHFA Raises 2026 Multifamily Caps — Signal of Rebound Ahead

Federal regulators are boosting multifamily loan-purchase limits for Fannie Mae and Freddie Mac by $15 billion each for 2026, setting the new cap at $88 billion per agency—up from $73 billion this year. The combined $176 billion total represents a 20% expansion and reflects confidence that the apartment-lending market will strengthen after two slower years.

Key Drivers and Market Context

Stabilizing rates and conditions: The FHFA’s higher caps mirror forecasts for lower borrowing costs and more active capital markets in 2026.

Wave of maturities: Roughly $90 billion of multifamily debt will mature next year, much of it originated when rates were under 5%. As banks and CMBS lenders stay cautious, Fannie and Freddie are expected to play a larger refinancing role.

Market share: The GSEs remain pivotal, representing about 40% of total multifamily debt outstanding.

Affordable & Workforce Housing Requirements

At least 50% of GSE multifamily business must target affordable housing.

Loans supporting workforce housing—affordable for middle-income earners such as teachers, nurses, and police—remain exempt from the cap, preserving incentives to finance that segment.

Takeaway:

The FHFA’s expanded caps point to renewed confidence in multifamily credit markets and a potential rebound in agency loan originations next year. With substantial refinancing needs and easing rates, GSE liquidity will likely anchor the 2026 recovery cycle in apartment finance.

The Rent Roll Ep. 6060 — Tertiary Markets Check-In (with Centerspace CEO Anne Olson) 

Smaller “tertiary” metros aren’t just a pandemic blip. Many continue to outpace large markets on rent growth and absorption, helped by structurally lower supply and durable job/population gains.

Supply & rents

Peak construction intensity: ~6% of stock in top-50 markets vs. <5% in tertiary markets.

Today: big markets are <3%; tertiary are already <2%—lowest since ~2012–13.

Result: With demand steady, less new supply → stronger rent growth. Over the last five years, tertiary markets outperformed large markets in every U.S. region (Midwest, Northeast, South, West). Regional averages for tertiary markets hover around ~5% annualized new-lease growth (highest in the Northeast, then Midwest/South, slightly lower in the West).

Top rent-growth performers (5-yr avg)

Sixteen of the top 20 are tertiary, each ~6–8%/yr. Examples called out: Atlantic City, Naples, Knoxville, Lexington, Savannah, Albuquerque, Salisbury (MD), Fayetteville (NC), Grand Rapids, Bakersfield, Fresno, Charleston (SC), Allentown, Providence, Kalamazoo, Manchester (NH). The four non-tertiary on the list are all in Florida (Miami, West Palm, Fort Lauderdale, Tampa).

Capital flows & liquidity

Tertiary markets historically accounted for ~12–14% of U.S. apartment sales volume; since 2020 that share has risen to ~21–24%.

More capital is now targeting high-performing small metros; some investors priced out of major Sun Belt/Midwest hubs are driving to yield in nearby smaller cities.

Not all small markets are illiquid: Charleston (SC) led tertiary peers with $6.7B in 5-yr apartment sales, ahead of Sarasota (FL) and Greenville (SC); other active names include Tucson, Greensboro, Louisville, Bridgeport-Stamford, Savannah, OKC, Colorado Springs, Knoxville, Fort Myers, Birmingham.

Cap-rate gap has narrowed: pre-COVID 60–80 bps → ~40 bps today, with tighter spreads in favored/student/“trendy” small markets (e.g., Charleston, Reno).

Outlook: population & jobs (Oxford Economics)

Big markets still rank high (Austin, Dallas, Orlando, Raleigh, Houston, Charlotte, Phoenix), but numerous small metros are forecast to lead 10-yr growth: St. George (UT), The Villages (FL), Lakeland (FL), Provo (UT), Myrtle Beach (SC), Greeley (CO), Fort Myers (FL), Ogden/Logan (UT), Boise (ID), Port St. Lucie (FL), Reno (NV).

Job-growth leaders similarly skew small: St. George, The Villages, Provo, College Station, Coeur d’Alene, Logan, Myrtle Beach, Fayetteville (AR/NWA), Bend; large-market standouts include Austin, Raleigh, Orlando, Dallas, Charlotte, San Antonio.

Takeaways:

Pipeline collapse in 2025–26 should tighten fundamentals first in supply-light tertiary markets.

Small-market liquidity where 5-yr sales volumes and institutional participation are already proven (e.g., Charleston, Sarasota, Greenville).

Expect cap-rate compression risk where tertiary spreads are already thin; favor metros with durable job drivers (universities, healthcare, manufacturing/logistics).

In rent-controlled jurisdictions, compare real after-capex returns to the risk-free rate; policy shifts can tilt the invest/hold calculus.

For capital raising, semi-liquid ’40-Act structures remain a growing channel into private wealth/DC plans—attractive but operationally intensive.

Summary: The Evolution and Outlook for Non-Traded REITs and Private Capital Channels

Context: Liquidity constraints and higher interest rates are pushing real estate fund managers and investment bankers to explore new, diversified sources of funding. The Weekly Take featured Brent Jenkins of Clarion Partners and Zaahir Syed of CBRE Investment Banking, to discuss trends shaping the non-traded REIT (NTR) market and how private wealth channels are reshaping institutional capital flows.

1. Fund Flows and Investment Strategy

Clarion’s CP-REX Fund has seen steady net inflows even as higher rates strained other funds.The fund’s ability to shift between debt and equity investments has allowed it to capitalize on changing risk-adjusted returns. With property values resetting, Clarion is again favoring equity acquisitions over lending positions.

2. Thematic and Sector Focus

Clarion follows long-term global themes such as demographics, trade, and manufacturing to guide its strategy. Current focus areas include industrial, rental housing, student and senior housing, and outdoor storage, alongside traditional core industrial and multifamily holdings.

3. Retail Capital as a Growth Engine

Non-traded REITs tap private wealth and retail investors rather than institutional JV capital. These vehicles require significant distribution infrastructure and investor education, often supported by large partners like Franklin Templeton, Clarion’s affiliate. The appeal for individuals: access to institutional-grade diversification, income, and inflation protection once limited to large investors.

4. Market Evolution: Non-Traded REITS 1.0 → 3.0

The early NTR era was marred by high fees and limited transparency. “NTR 3.0” models—such as Tender Offer and Interval Funds under the ’40 Act—emphasize liquidity, leverage limits (~33%), and better disclosure. These semi-liquid structures provide quarterly redemption opportunities (~5% of NAV) while maintaining a focus on long-term investing.

5. Liquidity and Retirement Capital Integration

The next frontier is integrating these structures into defined contribution (DC) plans like 401(k)s. This $12–14 trillion market has been largely untapped due to daily liquidity and valuation requirements. New wrappers around funds such as CP-REX are being designed to mirror mutual fund-style liquidity while maintaining exposure to private real estate.

6. Fund Structures Explained

Public REITs: Traded on exchanges; values fluctuate with markets.

Non-Traded REITs (NTRs): Privately placed; values tied to underlying assets.

Tender Offer & Interval Funds: Governed by the ’40 Act, providing structured, periodic liquidity.

Closed-End vs. Open-End: Closed funds have fixed lives (≈10 years); open-end funds are “evergreen,” allowing ongoing capital flows and redemptions.

8. Broader Market Outlook

Real estate allocations are rebounding as rates stabilize and investors rebalance portfolios.

Large institutions—pensions, endowments, and foundations—are expected to increase commitments after several years of under-allocation.

The private capital channel will likely drive the next phase of REIT and fund growth, with non-traded and semi-liquid vehicles playing a central role.

Takeaway: The conversation underscores a structural shift in real estate capital formation—from reliance on institutional mandates to a broader, democratized investor base accessed through non-traded, semi-liquid vehicles. Transparency, liquidity, and education are the new competitive differentiators as managers position for growth in the $20-trillion private wealth and retirement ecosystem.

Freddie Mac’s Largest Risk-Sharing Deal Faces Market Resistance

Freddie Mac encountered choppy waters as it brought its biggest multifamily structured credit risk (MSCR) deal to market. The offering, totaling $323.9 million in notes backed by $20.94 billion of multifamily loans, priced on November 20 at spreads of 175 bps (M-1), 275 bps (M-2), and 450 bps (B-1) over SOFR — in line with guidance from Bank of America and Wells Fargo, the deal’s bookrunners.

Despite the solid pricing, Freddie had to significantly downsize the M-2 tranche to $56.9 million from the initially planned $172.8 million, shifting the remainder into a reinsurance transaction to get the deal across the finish line. Market participants noted that investor demand was noticeably weaker than in past MSCR offerings, which had often been multiple times oversubscribed. The soft reception reflected broader risk-off sentiment across the CMBS market amid equity volatility and macro uncertainty.

Evolving Model and Growing Dependence on MSCR

Freddie’s reliance on MSCR transactions marks an ongoing evolution in its multifamily risk-distribution strategy. After discontinuing the sale of B-pieces from its traditional K-Series deals earlier this year, the agency has leaned more heavily on MSCRs to transfer credit exposure. These transactions complement its growing use of Multifamily Participation Certificates (Multi PCs) — fully guaranteed, single-asset securities — that Freddie retains on its balance sheet.

The MSCR 2025-MN12 deal was notable as only the second in the series to carry credit ratings and the first to earn a grade from a major agency, Fitch Ratings, expanding its eligibility for certain institutional investors. Morningstar DBRS rated the previous issue, MSCR 2025-MN11, in July.

Even after the downsizing, MN12 remains the largest MSCR to date in both note size and reference-pool volume. Combined, Freddie’s three 2025 MSCR offerings have reached $836.8 million in notes referencing approximately $43 billion of loans — a record year for the program. The agency has signaled it aims to continue quarterly issuance, with potential for the 2026 volume to double if its multifamily lending cap increases as expected.

Structure, Ratings, and Credit Performance

Freddie retains the first-loss position (up to 1% of loan exposure) as well as the senior tranche and a 5% vertical slice of each class. Fitch assigned a BBB rating to the $125.7 million M-1 tranche (protected by 3.5% credit enhancement) and a BB to the smaller M-2 tranche (2.13% enhancement). The $141.4 million B-1 tranche was unrated. Morningstar’s prior July issue received the same M-1 and M-2 ratings, along with a B for the subordinate B-1 class.

Fitch highlighted Freddie’s strong multifamily performance history — a mere 0.02% loss rate across $840 billion of cumulative issuance — and praised the deal’s diversification, with the 10 largest loans representing just 10.8% of the total pool. However, the agency noted that its underwritten net cashflow was about 10% lower than Freddie’s own estimates on 82 loans (roughly 17% of the pool). Fitch also observed that ratings are constrained by both Freddie’s and the account holder’s credit quality — in this case U.S. Bank (A+), which posed no current limitation.

Key Takeaway

Freddie Mac’s record-sized MSCR 2025-MN12 highlights both the scale of its multifamily portfolio and the growing complexity of distributing credit risk in a cautious market. While investor appetite cooled relative to prior offerings, the transaction underscores Freddie’s commitment to adapting its securitization model amid shifting capital markets and regulatory frameworks.