When investors evaluate opportunities, it’s not enough to ask, What are the returns? The smarter question is, What are the returns relative to the risk I’m taking?
That’s the logic behind the Sharpe ratio—one of the most widely used measures of risk-adjusted performance. And it’s where multifamily real estate consistently shines compared to stocks, bonds, and even other types of real estate.
What the Sharpe Ratio Tells Us
The Sharpe ratio looks at how much return you get for each “unit” of volatility. The higher the ratio, the more efficiently that investment has rewarded investors for the risk they’ve taken on.
In plain language, a higher Sharpe ratio means smoother, steadier returns for the level of risk.
Multifamily’s Historical Performance
History shows that multifamily has consistently delivered strong returns without the rollercoaster ride that comes with other investments.
For example, research comparing public REITs to private real estate (which includes multifamily) found that while long-term returns were similar, volatility was three times higher in REITs. Private real estate posted a Sharpe ratio of about 1.3, compared to just 0.5 for public real estate, meaning investors earned far more return for the level of risk they were taking.1
Looking specifically at multifamily, Origin Investments reported that from 2000 to 2021, private multifamily delivered around 11% annual returns and achieved a Sharpe ratio nearly 20% higher than a traditional stock-and-bond portfolio.2
All of which proves that multifamily hasn’t just kept pace with other asset classes, it has often outperformed them once you account for risk.
Why Multifamily Holds Up So Well
One of the biggest reasons multifamily stands apart is the essential nature of housing demand. While office and retail properties depend heavily on business cycles and consumer trends, apartments are tied to a basic need. People always need a place to live. Even in recessions, this core demand provides a cushion that other real estate sectors often lack.
Another advantage is diversification at the property level. A 100-unit multifamily community doesn’t rely on a single tenant to pay the bills. Even if a few households move out, the overall income stream remains stable. That reliability creates more predictable cash flow than an office building or retail center with only a handful of large tenants.
1. https://www.areswms.com/non-us/accessares/private-market-insights/public-vs-private-real-estate
2. https://origininvestments.com/multifamily-real-estate-hedges-portfolio-against-market-volatility/
Beyond that, rents can adjust upward over time, particularly in inflationary environments, while financing costs are often locked in at fixed rates. This combination helps protect margins and sustain investor returns.
Finally, multifamily has historically shown lower correlation with public markets. Because rental income isn’t driven by daily stock movements, multifamily returns can smooth out volatility in a broader portfolio. Which is precisely why risk-adjusted performance metrics, like the Sharpe ratio, consistently place multifamily ahead of both public REITs and traditional stock-bond allocations.
What About the Risks?
While favorable, multifamily isn’t risk-free. Rising interest rates, poor property management, or local oversupply can all weigh on performance. But compared to sectors that see big swings (like office or retail) multifamily’s fundamentals create a cushion that shows up clearly in historical data.
How CEP Multifamily Approaches Risk-Adjusted Returns
At CEP Multifamily, we design portfolios with this balance in mind:
- Targeting workforce housing, where rental demand is resilient. (See: Why Workforce Housing Is Ideal for Long-Hold Real Estate Strategies)
- Focusing on long-term holds, smoothing out short-term volatility.
- Emphasizing operational excellence, keeping occupancy and cash flow strong. (See: How Operational Expertise Drives Multifamily Returns)
These prioritizations result in investments that are built to maximize returns while carefully managing risk—exactly what the Sharpe ratio is meant to measure.
To get started in multifamily investing, contact our team.
