THE CASE FOR MULTIFAMILY

Why is multifamily real estate a favored investment?


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.

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MULTIFAMILY INVESTMENTS
RISK RETURN PROFILE

IN COMPARING RETURNS FROM MULTIFAMILY INVESTMENTS TO STOCKS, MULTIFAMILY ASSETS HAVE HISTORICALLY RETURNED NEARLY THE SAME AS STOCKS BUT HAVE HAD SIGNIFICANTLY LESS VARIANCE, MAKING IT HISTORICALLY A BETTER INVESTMENT ON A RISK-ADJUSTED BASIS.


Source: Thompson-Reuters.

REAL ESTATE INVESTMENTS
RISK / RETURN PROFILE



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 OUTLINES 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.

LOW COSTS AND STRONG REGIONAL ECONOMIES HAVE PRESENTED OPPORTUNITIES



PROJECTED POPULATION GROWTH 2020 - 2030

Connecticut
0.5%
New York
2%
National
5%

SOUTHEAST

Tennessee
8%
South Carolina
11%
North Carolina
11%
Georgia
17%
Florida
30%

Source: United States Census Bureau

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VERTICALLY INTEGRATED MULTIFAMILY.