Institutional investors have long understood the merits of holding private real estate in their portfolios. In fact, most endowments, pension funds and asset managers allocate 10% – 15% of their investment portfolio to real estate. They have relied on this asset class to:
Over the last 25-years, multifamily real estate provided the highest average annual total returns of any commercial real estate sector with the second-lowest level of volatility.
Multifamily outperforms all other real estate asset classes.
Delivering superior risk adjusted returns to investors.
The multifamily sector has four unique features that drive superior risk-adjusted returns when compared to other commercial real estate categories:
Housing is a necessity and a basic human need that will always be in demand. The national occupancy rate for stabilized multifamily assets closed out 2019 at just over 95%.
Multifamily properties produce monthly rents, with the risk of default spread among multiple tenants. A single tenant represents a relatively small percentage of overall income, and minor changes in occupancy will not significantly impact cash flow.
The unique use of depreciation and cost segregation to accelerate depreciation capture produces the most favorable income tax treatments of any asset class. Provisions in the Tax Cut and Jobs Act of 2017 effectively shelters all property income (and more) through the life of an investment.
When you spread small increases across 50 or 100 or 200 tenants on a property it can create huge increases in cash flow that create even bigger increases in value.
