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Article Via wealthmanagement.com

Multifamily’s outperformance within the commercial real estate sector is spurring highly favorable debt alternatives and high property prices. 

Andrew Foster | Nov 08, 2021

“The most contrarian thing of all is not to oppose the crowd but to think for yourself” —Peter Thiel

The commercial real estate markets have provided more questions than answers these last few years. Whipsaw price changes in equity REITs demonstrated the evolving thinking of investors as demand shock was followed by the government and Fed’s shock and awe style interventions in the economy. Much industry chatter focused on the future of office, retail, and hospitality properties as well as those surrounding businesses that benefit from their success. One thing most Analysts can agree on is that multifamily has been outperforming for years and investors continue to clamor for exposure, creating highly favorable debt alternatives and high property prices. 

The outlook for the asset class is buttressed by a growing economy, nationwide housing shortage, and supply chain issues, which are making it impossible for supply to keep up with demand. The flip side of that equation is fewer affordable housing options for communities across the country and continued necessity for policymakers to ease costly regulatory burdens which constrain supply. While there aren’t loud calls being made about bubbles nor anticipated multifamily performance problems, the commercial real estate industry’s fortunes are being increasingly tied to multifamily.

CBRE’s 2021 midyear outlook explains, “multifamily real estate was relatively resilient during the 2020 recession, with a smaller drop in investment volumes than most other mainstream asset types. The sector’s investment appeal was characterized by its solid market performance, with low vacancy rates and high rental collection rates. Despite the negative impact of lockdown measures and remote working arrangements on many urban/CBD properties, investment volumes remained strong in H1 2021, with increased pricing in many regions.”

Figures don’t lie but liars figure 

A look at some numbers and analytical perspectives is instructive to demonstrate these points but also in thinking about where multifamily is heading in 2022 and beyond. 

Transaction volume has accelerated considerably. Real Capital Analytics reports here, “Commercial property deal volume surpassed $450 billion for the first three quarters of the year, a level never before reached. The last time deal volume approached this mark was 2007, when entity-level deals in the office and retail sectors bolstered total activity. In the third quarter of 2021, the apartment and industrial sectors constituted some 60 percent of total activity. It was a record quarter for apartment deal volume, with the quarterly total higher than the average annual totals for the sector from 2008 to 2011.”

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