The Case for Multifamily

While real estate in general is a great choice as an alternative investment, the multifamily sector offers certain significant advantages over other classes of real estate:

HISTORICAL RETURNS

Apartments have a long track record of having the highest risk-adjusted investment returns compared to other property types. This sector has also proven to be the most resilient during economic downturns, delivering superior returns during recessionary periods.  History tends to repeat itself. 

REDUCED RISK

By their very nature and contrary to other property types, apartments offer greater flexibility and adaptability to changing market conditions. Apartments have hundreds of separate leases that continually renew, while office, retail, and industrial properties may have just a few or even a sole tenant. Office buildings can experience 20% to even 100% vacancy loss with the exit of a single tenant.  Contrarily, an apartment property's diverse lease structure not only minimizes vacancy exposure in down cycles, rent increases can be captured more easily during strong market conditions.  The inherent diverse lease structure allows for monthly upward adjustments, compared to other property types that may have untouchable long term leases in effect.      

OPPORTUNITY DIVERSITY

Multifamily properties can vary more widely in terms of vintage, size, quality, and location.  This creates a broad spectrum of opportunities and investment strategy options that are not as prevalent in other sectors. Multifamily property ownership is also highly fragmented and available in more diverse markets, which increases the number of opportunities to purchase from many smaller, less sophisticated operators. Here is where we find the best deals.  

STRONG RENTER DEMAND

Market fundamentals for apartments are expected to remain positive on a cumulative basis over the next five-to-seven year period. Demographic indicators for the renter profile point to ongoing higher demand versus new supply for apartments, creating conditions for strong fundamentals and continued revenue growth in most locations. A stalled economy may not benefit the office or retail sectors, as businesses may delay expansion plans or even reduce their operations. 

RENT VS OWN DYNAMIC 

Home ownership has peaked. Lending requirements are more strict and prohibitive compared to the period leading up to the housing crash. The true costs of home ownership are also now more understood by the renter demographic, thereby eroding the “pride of ownership” mentality so prevalent prior to the housing collapse. The recent economic downturn has also created more awareness on the ever growing indirect costs of home ownership, namely utilities, insurance, and property taxes. The perceived value of home ownership has been reset.