Multifamily Real Estate Tailwinds Sustaining Amidst Macroeconomic Uncertainty

Venture capital fund managers and their portfolio companies breathed a (very large) sigh of relief when the FDIC said that it would cover all uninsured losses resulting from the Silicon Valley Bank collapse last weekend. 

They weren’t the only ones in private markets circles; multifamily real estate investment funds did as well. That’s because some of the buildings they own often have significant exposure to the tech industry, so the prospect of massive job losses from a flood of ‘failed’ (through no fault of their own) VC-backed start-ups would have presented a significant risk to their rental income streams. 

This admittedly very brief panic amongst multifamily investors was a blip on what has generally been a solid market for a while now. Fundamentals have been strong recently, as the disparity between the total cost of home ownership and renting in certain markets has risen. Inflation in the United States remains elevated, and multifamily units can often raise rents to combat dents in profits from rising inflation. The National Multifamily Housing Council and the National Apartment Association suggest that there is a shortfall of 600,000 units that need to be built to address the current gap between demand and supply, adding support to the prevailing strong rental yield environment (building a building is hardly an expeditious endeavour). 

We’ve seen plenty of opportunistic real estate fund launches in the past 12-18 months as these fund managers look to capitalise on the aforementioned tailwinds in the space. Like we’re seeing in other private markets sectors at the moment, the smaller, nimbler manager raising quick money from friends and family and family offices is deploying that capital quicker to take advantage of the impact of the current macroeconomic environment on their sector. 

There are headwinds, of course; inflation makes building materials more expensive, for one. So, those real estate investors looking to get something off the ground (pun intended) face that challenge. And there’s a backlog of construction projects that remains as a consequence of the COVID pandemic, which needs to be navigated. 

But these challenges should, to an experienced real estate investor, be very manageable. The ones that are looking to deploy capital into multifamily opportunities will be glad that the banana-skin-that-could-have-been due to the collapse of SVB never turned into anything much, much more serious. 

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Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here. 

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