Multifamily housing is a type of residential structure with more than one dwelling residence in the same building.
Subscribe to JCORE Newsletter & Blog
Get new content delivered directly to your inbox. When you sign up, you will also received our Passive Investor Guide.
TYPES AND CLASSES OF U.S. MULTIFAMILY INVESTMENT OPPORTUNTIES
CORE: Stabilized real estate. Typically new assets in top quality locations. Tend to be the lowest yielding, institutional quality assets.
CORE PLUS: Similar to core, but with a small value
add component and/or less favorable location to the investment. Should trade with a slightly higher yield.
VALUE ADD: Most tend to be older assets requiring varying degrees of renovation, whether it be repairing deferred maintenance or upgrading the interiors to take advantage of raising rents, or mis-managed assets requiring repositioning.
OPPORTUNISTIC: Can be a more comprehensive value add with significant asset repositioning and higher risk. Can be new construction or redevelopment.
CLASS A: Generally a core asset. Newly constructed or fully renovated, which is well-located with high-end finishes and fixtures, and full spectrum of amenities.
CLASS B: Positioned somewhat lower than Class A.
Potentially a combination of any of the following factors: age, inferior location, limited amenities, deferred maintenance, basic fixtures and finishes. Generally a value add strategy of varying degree.
CLASS C: Inferior age and/or location with original/ outdated/low-end finishes and fixtures, and possible deferred maintenance and/or substandard management, possible value add or an opportunistic strategy.
U.S. MULTIFAMILY SECTOR OVERVIEW
SIZE OF THE MARKET
Multifamily* rental housing is a common form of housing in the U.S., especially in urban areas, with most of these assets renter-occupied. The multifamily sector includes 14.5 million units across the 62 largest metro markets in the U.S. (population > 1 million).
The portion of the multifamily sector that is of most interest to domestic and international investors is professionally managed rental communities with at least 150 units. The
National Multifamily Housing Council (NMHC) estimates that the total value of U.S. multifamily rental properties is more than $3.3 trillion.
Real Capital Analytics (RCA) divides commercial real estate owners into four major groups: institutional, public companies (predominantly publicly traded REITs), private buyers and international (all types of companies).
Private buyers own 68% of the multifamily market (based on value). These buyers include entities of all sizes, businesses and domestic and international capital partners, and high net-worth firms and developers, primarily focused on individual metros or regions within the U.S.
Institutional ownership of multifamily assets has been rising over the past few decades, and this trend is expected to continue. For example, 25 years ago, multifamily assets represented only 11% of the NCREIF Property Index; retail, office and industrial all had substantially higher market shares. Today the multifamily sector represents 24% of the total and is second only to office for total market value.
Institutional owners include investment managers, pension funds, equity funds, insurance companies and sovereign wealth funds (SWFs). The majority of multifamily assets in the U.S. are owned by domestic privately held companies. Currently only about 4% of multifamily holdings are owned by non-U.S. companies.
In the past few years, direct investment by offshore investors of all types (from large SWFs to high net-worth individuals) has averaged approximately 6% of the total. International investors are very active in the sector indirectly through investment funds, REIT stock purchases and equity investment in companies. **According to recent study by NMHC and MBA
If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com