AmveStar Capital
Why Multifamily?
Explore why institutions and private investors have long made multifamily real estate a part of their portfolios.
A COMPELLING ASSET CLASS
The Case for Multifamily
First, unlike business products that have a useful shelf life but eventually get replaced, multifamily communities aren’t going anywhere. Additionally, one should consider who already invests in multifamily real estate, and how much due diligence and risk mitigation they have done to determine that investing in multifamily is right for them.
For example, AAA rated life insurance companies hold a significant portion of their portfolio in multifamily real estate, both on the debt and equity sides. These are some of the most conservative investors in the world. They want to grow their money, but they absolutely have to do so cautiously as they have guaranteed benefits that they have to pay out. Also, university endowments and pension funds use multifamily real estate on the equity side to safely preserve principal while generating steady returns.
Furthermore, commercial lenders are by far the biggest investors in apartments. They do so on the debt side, and it is typical to find them financing 70% - 80% of the money to purchase these properties through first lien mortgage financing. They research the quality of the market, submarket, and operator long before they ever put their money into the deal. Additionally, many of their profits are reinvested back into multifamily ownership in the form of equity investment or direct ownership on their own platform.
PERFORMANCE THROUGH CYCLES
Key Benefits of Multifamily Private Equity Real Estate.
- A core holding of many family offices and institutions seeking cash flow, solid returns, and diversification.
- Low Correlation with traditional assets reduces one’s overall portfolio risk – if the stock market falls, it tends to be more resilient.
- Has delivered equity-like returns with much lower volatility over the past 20 years, providing an attractive risk-return profile.
PRIVATE COMMERCIAL REAL ESTATE (1)
Attractive Risk Return Profile
Morningstar Direct, NCREIF, as of December 31, 2022
(1) Includes income generating commercial properties encompassing warehouses, multifamily, office, hotel and retail. Excludes residential homes.
A COMPELLING RISK-RETURN PROFILE
Multifamily Vs. Other Real Estate Sectors
10-YEAR ROLLING RISK-ADJUSTED MULTIFAMILY RETURN VS. OTHER COMMERCIAL REAL ESTATE SECTORS.
| REAL ESTATE SECTOR |
AVERAGE 10 YEAR ANNUAL TOTAL RETURN |
AVERAGE 10 YEAR RISK |
AVERAGE RISK ADJUSTED RETURN |
|---|---|---|---|
| Multifamily | 9.36% | 6.58% | 2.07 |
| Industrial | 8.92% | 7.12% | 1.91 |
| Office | 7.15% | 8.77% | 0.97 |
| Retail | 9.28% | 6.55% | 1.72 |
| NPI | 8.27% | 7.04% | 1.51 |
OUT OF ALL OF COMMERCIAL REAL ESTATE, THE MULTIFAMILY SECTOR HAS THE HIGHEST AVERAGE TOTAL RETURN WHILE BOASTING THE SECOND LOWEST EXTENT OF DISPERSION OVER THE 25 YEAR HORIZON OUTLINED IN THE SOURCE ABOVE.
Source: NCREIF, Clarion Partners Investment Research, a Franklin Templeton Company. Analysis averages 10-year returns, risks-adjusted returns, each Quarter from Q1 1988 to Q1 2021 using rolling annualized total returns and standard deviations of 12-month returns.
RENTING VS. HOMEOWNERSHIP
Renting Expected to Continue to be Less Expensive than Buying a Home.
Source: CBRE Research, CBRE Econometric Advisors, Freddie Mac, U.S. Census Bureau, Realtor.com®, FHFA, Oxford Economics, Q1 2024.
Note: Does not include estimates for homeowner's or renter's insurance. Assumed down payment of 10% with prevailing and forecast interest rates.