Original Article: June 11, 2019 GlobeSt.com
Multifamily continues to be the top target asset class for investors. According to a new report from AppFolio, most investors are planning to allocate capital to multifamily investments this year, followed by office and industrial asset classes. Of the investors surveyed, 68.3% said they are planning to put investment dollars in multifamily, while 45.5% said office and 32.7% will put capital toward industrial assets.
“Right now, we’re experiencing a housing shortage in the US, so there is plenty of demand for multifamily housing,” Nat Kunes, SVP of investment management at AppFolio, tells GlobeSt.com. “Where there is demand, investors follow. It’s a safe choice for them and has a lot of return on capital. There’s also a great deal of incentives for development and investment in the multifamily space, with tax credits for affordable housing and green programs. Multifamily is also something that won’t fluctuate the way that commercial real estate might. When the economy is down and commercial businesses close, people still need places to live, that doesn’t change. Of course there are market swings in multifamily, but there’s generally a demand for it on some level or in some market.”
Investors are also planning to hold assets longer. According to the report, most investors are considering a long-term hold strategy to capitalize on rising rents.
“Rents continue to increase but the property valuation doesn’t,” says Kunes. “Sure, the pricing of real estate valuations is growing, but it’s not growing nearly as fast as rent, so it makes sense to hold onto properties for longer periods of time right now. Should the situation reverse itself, if property value skyrocketed, then there would be more reason to buy and sell. As long as rent increases and there’s rental demand, long-term hold strategies will benefit property owners, driving up their revenue. But it all depends on the asset class. So, with multifamily and industrial real estate, because there’s so much demand, it’s becoming much more favorable to buy and hold. However, in retail it’s not as favorable, because there is less demand.”