There’s data, there’s headlines, and there are month-to-month/year-to-year moves that analysts report, and from which investors make decisions. But many times, it’s not just about whether things are up, down, or even sideways. It’s what the information can mean and why it’s important.
Navigating Beyond Short-Term Metrics
Of late in real estate, it’s all about the economy, interest rates, financing terms, bid/ask spreads, transaction volume, new construction pipelines, and a few other “distracting” data points. These are, of course, important pieces of information but many times can be short-term “noise”.
In other words, it prompts one to move their attention to matters that may not matter in the long run. As Warren Buffet once said, “be fearful when others are greedy, and be greedy when others are fearful.”
Multifamily Housing Fundamentals
At RealSource Properties, we see unparalleled and exciting fundamentals for investing in multifamily housing, often referred to as the “golden child” of commercial real estate. Why? Because of its historical ability to show resilience through economic cycles1.
The Retreat at Stillmeadow - Cincinnati, OH
Potential to Outperform
We believe that as the economy recovers from recent uncertainty, multifamily has the potential to outperform. The overwhelming supply/demand imbalance continues to widen despite spikes in construction in certain popular markets over the past years.
This demand imbalance provides a strong backdrop for sustained occupancy rates and the potential for increasing rental rates – albeit maybe not at the same double-digit pace as experienced through the COVID years. Furthermore, the housing affordability gap is now at its highest point in history – owning a home is now 62% more expensive than renting nationally2.
A Look at Supply and Demand
Fundamentals tell us that the supply/demand imbalance will be persistent in the coming years. According to National Multifamily Housing Council the U.S. needs to build 4.3 million more apartments by 2035 to meet the expected demand for rental housing – which includes 600,000 units (total) to fill the shortage from underbuilding that began after the Great Financial Crisis of 2008.
The recent spike in new construction is concentrated in about a dozen “high-growth” markets to meet increased demand. Much of the new construction, in addition to being concentrated in a few markets, is also being developed at the higher end of the rent spectrum, leaving many of the middle market renters out. Additionally, deliveries of new construction are slowing due to the impact of higher construction costs.
Opportunities in Location and Market Stability
As the old saying goes, “real estate is about location, location, location”, and with new development so concentrated in the Sunbelt states, there are many secondary markets that can offer significant investment opportunities.
Within these markets, the potential to amplify returns may exist in the more historically stable Class B property types, supporting the possibility of high occupancy rates, strong rent growth, and increasing property value. This may be a magical formula that when combined with a little patience and a longer-term view makes multifamily real estate an asset class worth consideration.
Focused on Fundamentals
At RealSource we are focused on the fundamentals, not headlines. We believe supply/demand data, the affordability gap, and the historical performance of multifamily real estate are a compelling consideration for the long-term investor today.
Source
1 “How Multifamily Outperformed Other Real Estate Sectors in Past Recessions.” ArborCrowd. May 20, 2020. https://www.arborcrowd.com/real-estate-investing-learning-center/multifamily-outperforms-in-recessions
2 David Gaines, Managing Director, Capital Markets, JLL tells GlobeSt.com Jan 10, 2024 “Class B Apartments Outperforming All Categories”
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Real Estate Risk Disclosure
• There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
• Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
• Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
• Potential for foreclosure – All financed real estate investments have potential for foreclosure;
• Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
• Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
• Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
• Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.
For more information on Emerson Equity, please visit FINRA’s BrokerCheck website. You can also download a copy of Emerson Equity’s Customer Relationship Summary to learn more about their role and services.
Important Disclosure
The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by the issuer, or any affiliate, or partner thereof ("Issuer"). All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM. With respect to any “targeted” goals and performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment. These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified. Past performance is no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.
Securities through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.
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