1

Multifamily Economic and Market Commentary

MAY 2023

Small Multifamily Properties Are a Key Source of Rental Housing in Many Places

Small vs. Large Multifamily Estimated Market Performance as of Q1 2023 

Statistic Small 

Multifamily 

(5-50 Units)

Large Multifamily 

(51+ Units)

Asking Rent $1,350 $1,685

Rent Growth (Year over 

Year)

+2.4% +2.7%

Vacancy (%) 5.0% 7.5%

Vacancy Growth (Year over 

Year)

+0.5% +2.0%

Source: CoStar, Inc. Note: Excludes Federally Assisted, Seniors, Military, Vacation, Corporate, 

Student and Manufactured Housing Communities

Although large multifamily properties, defined as properties with more than 50 units, are usually what come 

to mind when thinking of an apartment building, in most areas of the country small multifamily properties, 

defined as properties with between five and 50 units, are the predominant property type of multifamily. For 

instance, in Portland, Maine, a metro with fewer than 70,000 residents according to the 2020 U.S. Census, 

data from real estate provider CoStar, Inc. shows that there are 80 conventional small multifamily 

properties, compared to 34 conventional large multifamily properties. 

There are several reasons for this phenomenon. Outside of more expensive metros, including coastal areas, 

land costs tend to be cheaper, making single-family rentals a more predominant form of rental housing. In 

addition, historically, there hasn’t been as much demand for large apartment buildings in some of these 

locations. Instead, smaller properties were constructed. Also, in the suburbs of larger, more populous 

metros, local zoning restrictions have, in many instances, put limits on the number of units and height of 

structures to help ensure that the properties were more of a fit architecturally with their surroundings, 

making small multifamily properties a likelier choice for developers. Hence, small multifamily properties are 

an important source of rental housing in many smaller markets.

Small Multifamily Units More Affordable than Larger Multifamily Units

According to data from CoStar, small multifamily properties remain more affordable than large multifamily 

properties. As shown in the table below, although year-over-year average asking rent growth as of first quarter 2023 

was 2.4% and 2.7%, respectively, for small and large multifamily properties, rents at small multifamily properties 

continued to be lower overall. The average asking rent for an apartment in a small multifamily property was $1,350 

as of first quarter 2023. By contrast, the average asking rent for an apartment in a large multifamily property was 

about 25% higher at $1,685 per month. 

The relative affordability of a unit in a 

small multifamily property likely had an 

impact on the average vacancy rate, with 

the average vacancy rate in a small 

multifamily property rising just 0.5% year 

over year as of first quarter 2023 to 5.0%. 

By contrast, the average vacancy rate 

rose more sharply at large multifamily 

properties over the same time period, 

with the average vacancy rate increasing 

by 2.0 percentage points to 7.5%. 
2

Multifamily Economic and Market Commentary

Sales Volume Remained Elevated in 2022

According to MSCI Real Assets, which tracks 

multifamily property transactions of $2.5 million 

and greater, sales of small multifamily properties 

totaled an estimated $23.4 billion in 2022, with an 

average sale price of $6.9 million, consisting of 

just over 103,000 units. As shown in the adjacent 

chart, while 2022’s volume was on par with 

2021’s volume of $23.0 billion, it was above 

2019’s pre-pandemic volume of $17.8 billion, 

when just under 83,000 units exchanged hands. 

CoStar, which also includes transactions below 

$2.5 million, recorded an average sales price of 

$2.9 million. Nevertheless, CoStar data shows a 

similar trend with $33.7 billion in sales in 2022 on 

just over 207,000 units, slightly below 2021’s 

$34.9 billion but well ahead of its 2019 prepandemic recorded volume of $26.0 billion on an 

estimated 231,000 units.

Small Multifamily Property Sales Q1 2018 – Q1 2023

Source: CoStar Portfolio, Inc., MSCI Real Assets - Based on sales of properties and 

portfolios priced $2.5M or greater, with at least 10 units.

* Preliminary

 $-

 $5

 $10

 $15

 $20

 $25

 $30

 $35

 $40

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2018 2019 2020 2021 2022 Q1

2023P*

$ Billions

MSCI Volume ($) CoStar Volume ($)

MSCI Sales (#)

Many Small Units in Just a Few Markets

A few metros have an exceptionally high number of small multifamily units. As shown in the table below, Los Angeles 

has the highest number of small multifamily properties – 55,000 containing 665,000 units. However, as properties in 

New York City are slightly larger on average with 15 units per property, New York City actually has the highest number 

of units with 675,000 units in 46,000 properties. The San Francisco-Oakland, Chicago, and San Diego metros round out 

the top five. In fact, the top five combined have an estimated 1.8 million units in about 145,000 properties. 

Market Number of Small Properties Number of Units Average Units

Los Angeles 55,000 665,000 12

New York 46,000 675,000 15

San Francisco-Oakland 16,000 185,000 12

Chicago 16,000 210,000 13

San Diego 10,000 110,000 11

Top Five Metros for Small Multifamily as of Q1 2023

Note: Excludes Federally Assisted, Seniors, Military, Vacation, Corporate, Student and Manufactured Housing Communities

Source: CoStar, Inc. 
3

Multifamily Economic and Market Commentary

Cap Rates Ticked Up

With rising interest rates increasing the cost of 

financing and pushing some would-be buyers out of 

the market, capitalization rates for small multifamily 

properties have begun to increase. According to MSCI 

Real Assets, the average cap rate for small 

multifamily property sales increased to an estimated 

5.2% in first quarter 2023 from a low of 4.7% as of 

second quarter 2022. CoStar data also shows a 

similar trend with its average cap rate for small 

multifamily rising to 5.8% in first quarter 2023 from 

5.2% over the same timeframe. 

Price Per Unit Exceeds Pre-Pandemic Levels

According to data from MSCI, the average price-perunit declined to a low of about $202,000 back in first 

quarter 2021. However, the average price-per-unit 

then rose by about 31% to an estimated $264,000 by 

fourth quarter 2021. Although the price-per-unit 

appears to be declining, it remains above prepandemic levels. According to preliminary data from 

MSCI, the price per unit fell to just under $245,000 

which is still slightly above the $237,000 per unit 

recorded as of fourth quarter 2019.

CoStar data shows an even stronger disparity. CoStar 

estimates that the first quarter 2023 price-per-unit is 

$197,000, which is still 37% higher than the prepandemic fourth quarter 2019 price-per-unit of 

$144,000, indicating that investors are still willing to 

pay up for small multifamily – at least for now.

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

CoStar MSCI

Small Multifamily Sales Price per Unit

Source: MSCI Real Assets; Based on sales of properties and portfolios 

priced $2.5M or greater, with at least 10 units.

.

* Preliminary

Source:CoStar,MSCI Real Assets - Based on sales of properties and portfolios 

priced $2.5M or greater, with at least 10 units.

*Preliminary

Small Multifamily Average Cap Rate

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

MSCI

CoStar

A Slower Start to 2023

MSCI Real Assets preliminary data for first quarter 2023 shows small multifamily property sales totaled just $3.2 

billion, while CoStar recorded preliminary sales of $4.6 billion. While these figures may change as additional 

transaction data becomes available, CoStar estimates that sales for first quarter 2023 totaled $5.7 billion, indicating 

that 2023 is off to a slower start. This is consistent with the increase in cap rates for small multifamily recorded over 

the past few quarters.
4

Multifamily Economic and Market Commentary

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Private/Other CMBS Investor Driven

Government Agency Insurance International Bank

National Bank Regional/Local Bank

Composition of Small Multifamily Lenders 

January 1, 2018 – December 31, 2022

Lending by Smaller Banks Jumped in 

2022

As shown in the chart on this page, most 

small multifamily property lending 

continues to be done by regional, national, 

and some international banks, with these 

three entity types alone providing about 

60% of financing for small multifamily 

properties annually from 2018 to 2021. 

However, the share of financing provided 

by banks appears to have increased sharply 

by 9 percentage points in 2022 with banks 

providing about 72% of financing. Most of 

this is due to smaller regional and local 

banks that expanded their market share to 

provide an estimated half of all financing 

for small multifamily properties. By 

contrast, the share of financing provided by 

the government agencies category, which 

includes Fannie Mae and Freddie Mac, 

declined by 6 percentage points in 2022 to 

15%. 

Source: MSCI Real Assets; Based on sales of properties and portfolios priced $2.5M or 

greater, with at least 10 units. 

Agencies Stepped in During Pandemic

Market segmentation in 2022 stands in sharp contrast to the market segmentation in 2020, during the height of 

the pandemic. In 2020, banks of all types provided an estimated 58% of all financing to small multifamily 

properties, pulling back in a period of uncertainty, compared to 64% in 2019. By contrast, the government 

agencies category, which includes Fannie Mae and Freddie Mac, financed an estimated 29% of the lending 

volume for small multifamily properties in 2020 – compared to just 21% in 2019 – stepping in when lenders 

perceived increased credit risk. 

Interestingly, the pullback from perceived credit risk seems to have been from larger national and international 

banks whose market share declined to an estimated 21% share of lending volume in 2020 from 29% in 2019, 

prior to the pandemic. Smaller regional and local banks, which tend to have longer-standing client relationships 

in localized markets, appeared to have maintained their market share at 37% of lending volume, consistent with 

their pre-pandemic market share.
5

Multifamily Economic and Market Commentary

Originators for Small Multifamily Grow

As shown in the chart on the left, based on the MSCI 

index of unique lenders, banks appear to remain very 

interested in small multifamily assets. The index 

shows that the growth in the number of originators for 

small multifamily assets has outpaced that for large 

assets since 2015. 

In addition, while both components of the market saw 

the number of unique originators fall over the past two 

quarters, overall, the number of small multifamily 

originators remains 20 percent higher than in 2015.

0

50

100

150

200

250

300

350

15Q1 16Q1 17Q1 18Q1 19Q1 20Q1 21Q1 22Q1

Small MF Lenders

Large MF Lenders

Lender Momentum Index – Unique Lenders (Q1 2015-Q4 2022)

Source: MSCI Real Assets; Based on property and portfolio sales 

of $2.5 M or greater, with at least 10 units.

Most Loans are for $3 Million - $6 Million

As shown in the adjacent table, loan size for small 

multifamily properties varied quite a bit in 2022. 

However, only 18% of loans in 2022 were $10 million or 

higher, and these tended to be in high-cost areas such 

as New York and Los Angeles. 

As might be expected, loans for small multifamily 

properties tend to be smaller, with an estimated 32% of 

loans coming in under $3 million. However, 37% of 

loans fall in the $3 million to $6 million range. As a 

result, just under 70% of loans in 2022 for small 

multifamily properties were for $6 million or less, which 

is consistent with the GSEs’ small balance lending 

program guidelines.

Fannie Mae Finances Small Multifamily

As shown in the adjacent chart, over the last five years, 

Fannie Mae has financed an estimated $15.8 billion for 

small multifamily properties. As shown on the previous 

page, as lenders pulled back from financing in 2020 due 

to the pandemic, Fannie Mae provided just under $5 

billion in financing for just under 37,000 units. 

In 2022, as many lenders returned to the small 

multifamily lending market, Fannie Mae’s acquisitions 

of small multifamily loans dipped to $2.5 billion, which 

financed more than 24,000 units.

0%

5%

10%

15%

20%

25%

30%

35%

40%

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Share of Loans

Billions

Loan Volume Sales Loan Volume Refi

Share of Loans

Small Multifamily 2022 Lending Volume and 

Share of Loans by Size

Source: MSCI Real Assets; Based on property and portfolio sales 

of $2.5 M or greater, with at least 10 units.

Source: Fannie Mae Annual Mortgage Report, Table 1B. Available at: 

https://www.fhfa.gov/PolicyProgramsResearch/Programs/AffordableHousing/Pages/Fann

ie-Mae-Housing-Goal-Documents.aspx

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

2018 2019 2020 2021 2022

Number of Units

Lending Volume ($B)

Fannie Mae Small Multifamily (5-50 unit) Financing 

Volume and Number of Units Financed (2018 – 2022)
6

Multifamily Economic and Market Commentary

Small Multifamily Properties Are an Important Source of Rental Housing

While the number of units in large multifamily properties has been growing over recent years, overall, there are 

still many units in small multifamily properties. According to the most recent data from the Rental Housing 

Finance Survey, which collects data for rental properties at a property level, there were an estimated 8.2 million 

units in just over 490,000 small multifamily properties in 2021, showing that small multifamily remains an 

important segment of the rental housing market.

0

5,000

10,000

15,000

20,000

25,000

Small MF (5-50 Units)

Large MF (51+ units)

Cumulative New Properties, Small Multifamily 

vs. Large Multifamily (2010- YTD 2023) 

Cumulative New Units, Small Multifamily vs. Large 

Multifamily (2010-YTD 2023)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Small MF (5-50) Units

Large MF (51+) Units

Fewer New Units Completed in Small Multifamily

As shown in the below-right chart, the number of units completed in large multifamily properties has vastly 

outpaced small properties since the start of 2010, with an estimated 4.2 million units completed in large 

properties compared to just under 415,000 units in small properties. Given high construction costs, we expect 

this to be an ongoing trend.

Nevertheless, as shown in the below-left chart, the number of new small multifamily properties completed has 

been nearly on par with the number of new large multifamily properties. From the start of 2010 through April 

2023, an estimated 19,100 new small multifamily properties have been completed, compared to 22,400 large 

multifamily properties completed during the same time period. We believe this indicates that investors remain 

interested in small multifamily properties.

Source: Dodge Data & Analytics SupplyTrack

Note: YTD 2023 indicates 2023 year to date data through April 2023
7

Multifamily Economic and Market Commentary

Tanya Zahalak

Multifamily Economics and Strategic Research – Economics – Advisor 

Multifamily Economics and Strategic Research

May 2023

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the views of Fannie Mae or its management.

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