San Diego Multifamily Lending 2026

Credit for this content belongs to Krystle Moore of Pacific Shore Capital from her weekly email blast. We are grateful for her continued insight into multifamily commercial lending in San Diego. We have expanded in a few areas for further clarification.

The multifamily real estate market has entered a new phase, especially here in California. After years of ultra-low interest rates and robust rent growth, lenders are now underwriting deals much more conservatively and that shift is reshaping how acquisition and refinance financing looks across the sector.

While multifamily remains one of the strongest long-term asset classes for steady returns and wealth preservation, the rules of the game have quietly changed.

What’s Shifting in Multifamily Lending?

Over the last several quarters, lenders have moved away from simpler underwriting models based on near-term performance and future rent optimism. Instead, they’re placing greater emphasis on future cash flow durability. This means they want to see evidence that a property will produce stable income even under conservative scenarios.

According to recent data from Trepp, a leading provider of commercial real-estate analytics, lenders are increasingly relying on Discounted Cash Flow (DCF) analysis. DCF models project a property’s expected cash flows over time and discount them back to present value. This essentially stress-tests properties under tighter rent growth and higher expense assumptions.

This shift is especially impactful in San Diego due to several market realities:

• Slower rent growth in many metros compared to the early pandemic surge (-.3% growth in 2025).

• Higher operating costs, including insurance, labor, and utilities

• Regulatory constraints, such as state and local rent-control laws that limit annual increases

In the current underwriting climate, lenders are no longer assuming that rents will “catch up” over time. They want to see durable cash flow today or very close to it.

A Market of Winners and Losers

Another key trend emerging from industry data is that multifamily performance is not uniformly strong or weak — it’s polarized.

Roughly:
– About 40% of properties are still showing strong NOI (Net Operating Income) growth
– A significant portion are flat or experiencing declines

This means asset quality and submarket fundamentals matter more than ever. A well-run property in a desirable submarket with strong demand will continue to outperform. Conversely, properties that were overleveraged or reliant on aggressive rent assumptions are now feeling pressure from tighter underwriting standards and rising costs. 

For owners whose properties need significant upgrades, have rents well below market, or still require SB 721 compliance, this shifting environment is an important moment to reassess strategy. Before committing to costly renovations in a tighter lending climate, start with a complimentary rent survey and valuation from our team to see what your property could achieve at market levels, what it may cost to get there, and how that compares to its value today as-is. That insight can help you decide whether improving, holding, or selling makes the most financial sense.

Why This Matters for California Investors

For many owners and investors, particularly in San Diego, the biggest risk today isn’t buying; it’s refinancing.

Here’s what investors are discovering:

• Refinance proceeds are often lower than expected

• Debt Service Coverage Ratio (DSCR) requirements are tighter

• Lenders are more cautious on larger loan balances

• Conservative rent and expense assumptions are shrinking loan sizes

In practice, this means deals that worked in 2021–2023 underwriting environments may not work today under 2025 loan profiles.

What Works in This Environment

Properties and deals that are most likely to get funded today tend to share a few common characteristics:
 Strong in-place cash flow that doesn’t depend on future rent spikes
 Conservative leverage (lower loan-to-value ratios)
 Realistic expense assumptions that account for higher insurance, utilities, and maintenance
 Clear operational business plans, rather than optimistic “rent velocity” plays

In short, lenders want to see a property that can stand on its own right now — not one that relies on rent growth that may or may not materialize.

Multifamily in California Isn’t Broken — But It’s No Longer Forgiving

The market has stabilized, but in a way that requires discipline and underwriting sophistication. Investors who understand how lenders are underwriting today — not three years ago — will be best positioned to:
 Protect equity
 Navigate refinances
 Capitalize on acquisitions while others pull back

This transition is normal after a period of loose lending conditions, but it does require updated expectations and strategy.

Need Help Evaluating Your Deal?

If you’re approaching a refinance, evaluating a new acquisition, or simply want to understand how today’s lenders will view your property, reach out and start a conversation.