EquityMultiple Growth Update – Q1, ’22

March 2, 2022
By EQUITYMULTIPLE Staff

Looking Back at 2021

In this edition of our Quarterly Review, we would like to look back at the year that was, and talk a bit about some of the major efforts underway at EquityMultiple in the new year. 

2021 saw the economy and real estate market fundamentals improve in a number of ways:

  • Multifamily rents grew 13.5% year over year, more than double any previous year¹.
  • Apartment absorption counted nearly 600k units, around 50% more than the previous annual high¹.
  • Real GDP grew by 5.7% in 2021, the highest annual figure since 1984²
  • The U.S. added a record 6.4 million jobs in 2021³

After focusing on our existing portfolio and bolstering underwriting standards in 2020, we were able to source a variety of compelling investments across the country and across sectors in 2021. We are delighted to report that 2021 was also a banner year in terms of distributions paid to investors. Here are a few highlights from the past year:

  • Distribution growth — EquityMultiple returned over $79M to investors in 2021, more than doubling our 2020 volume. 
  • Positive exits  — investments exited in 2021 generated a weighted average 18.7% net IRR to investors*
  • Origination volume — EquityMultiple closed nearly $116M in new investments in 2021, by far our highest volume year on record and a testament to growing demand for our broadening investment portfolio.
  • Growth in new investor matriculation — we welcomed more investors to our investor network than in any prior year.

Looking Ahead in 2022

We believe this is an exciting time for real estate investors, and indeed an exciting time for any self-directed investor seeking to attain new levels of diversification. Market dynamics are far from placid, however. Inflation is now a persistent menace. The pandemic appears to be phasing into endemic territory, but nothing is certain and new strains may be lurking just out of sight. Uncertainty in monetary policy may rankle capital markets. What we know for certain: investors will need sources of stable yield, and investors may benefit from inflation-hedged assets. 

While we maintain a broad investment thesis to afford investors maximum opportunity for diversification, here are a few areas of focus in our origination:

  • Debt offerings: as CRE deal volume increases and traditional lenders tighten lending standards, demand for private debt capital should broadly increase, creating opportunities for us and our investors. While inflation can hurt real returns for creditors, private CRE debt may be insulated by relatively short hold periods and the backing of inflation-hedged assets. It is also important to note the lower volatility that foundation debt offerings may provide when building a portfolio in this space. 
  • Expansion of note offerings: yields on savings and fixed-rate instruments remain historically low, and rising prices may send real returns on these products into negative territory. Our note investments, which we view as alternatives to savings accounts, were in high demand in 2021. In 2022, we will expand this category of our investments to give yield-focused investors more options. 
  • Continued focus on Multifamily: the same demographic trends that buoyed multifamily before the pandemic are still in play. Particularly in ascending Tier II and Tier III metros, rents continue to rise along with knowledge sector job growth and tightness in single-family markets. In our interpretation of historical performance data, Multifamily is well positioned to weather volatility. During periods of “quasi-stagflation,” Multifamily assets have historically outperformed stocks and bonds4
  • Keep an eye out for alternatives: While Multifamily attracts a lot of attention, investments with exposure to other major sectors (like Industrial) and more specialized property types (like campgrounds) provide unique risk and return profiles. Campgrounds will specifically benefit from increased travel and leisure while low operating costs for these properties potentially protect them against downdrafts in demand. 

Investment Performance

Not every investment turns out to be a home run. In private commercial real estate investing, skilled management can deliver excellent risk-adjusted returns, but conversely unforeseen challenges and timing delays can compromise time-weighted returns. The realities of the COVID era have generally challenged developers and operators. We are proud to report that EquityMultiple’s investments exited in 2021 yielded an 18.7% weighted average net IRR to investors*. Between the start of the pandemic (March, 2020) and the end of 2021, EquityMultiple’s exited investments have yielded a weighted average 16.7% net IRR to investors*. Of the 43 investments exited between March 2020 and the end of 2021, only one (2.3% of investments) resulted in a loss of investor principal*. 

IRR (internal rate of return) is not the only measure of CRE investment performance, however. As EquityMultiple has put greater focus on preferred equity and cash-flowing fund investments in recent years, the annualized yield, or “cash-on-cash” return may be a more telling metric for some investor portfolios. 2021 was a strong year for EquityMultiple investments by this metric as well. Cash-flowing EquityMultiple investments yielded a 14.2%* net annualized average return in 2021, the highest figure for any year in our history. This speaks to our focus on cash-flowing investments, and prioritization of contractually obligated distributions, interest reserves, and investments with healthy DSCR and/or robust rent rolls. 

What We’re Up to This Year

Returns are critical, and focusing on quality deal flow and asset management remain paramount. We are also deeply focused on evolving our technology and services. Here are a few areas of focus for us in the new year:

  • Personalization — as our deal flow increases and our investment offerings broaden, investors may benefit from more guidance in terms of portfolio construction. We are striving to surface recommendations that truly fit your strategy. We also want to ensure that investors are able to thoroughly diligence and participate in offerings that are most appealing to them. As demand increases for EquityMultiple investments, funding timelines shrink and investments may become oversubscribed quickly. We are developing processes and tools to provide options that offer access to investments that best fit your portfolio.
  • Wallets and automated reinvestment — EquityMultiple strives to provide a robust wealth generation ecosystem. We recently rolled out reinvestment on our short-term note offerings as a step in this direction. In the second half of this year, we plan on introducing a “wallet” feature to allow for better cash management and smoother deployment of capital, as well as further reinvestment options.
  • Adding critical investor support services — EquityMultiple is adding headcount across all teams. Most critically, we are invested in bringing on seasoned, passionate professionals to our Investor Relations and Asset Management teams. In late 2021, we brought on board Eyan Mitchell as Managing Director of our Investor Relations Team. Meet Eyan in the video below.

 

As always, please let us know if you have any questions at ir@equitymultiple.com. To view live investments, please log in to the EquityMultiple platform.


¹Source: Yardi Matrix (as of 1/6/22)

²Source: Bureau of Economic Analysis (as of 1/27/22)

³Source: Bloomberg (as of 1/7/22)

4 Source: Berkadia (as of 2/8/22)

*As of 12/6/21, includes all distributions from cash-flowing investments and principal repayments issued since 1/1/21. Past performance does not guarantee future results.

**Source: In.com as of 12/13/21: “Introducing the Inc. 5000 Fastest-Growing Private Companies in America” — https://www.inc.com/inc5000/2021

This document is for informational purposes only and is not an offer or solicitation to purchase or sell securities. Investing involves risks, including the potential for principal loss. There is no guarantee that the strategies and services will be successful or outperform other strategies and services. Certain assumptions may have been made in connection with the analysis presented herein, and changes to the assumptions may have a material impact on the analysis or results.
Past performance is no guarantee of future results. The investments discussed herein may be unsuitable for investors depending on their specific investment objectives and financial position. Investors should independently evaluate each investment discussed in the context of their own objectives, risk profile and circumstances. 
All opinions expressed herein constitute  judgement as of the date of this article and are subject to change without notice. Statements made are not facts, including statements regarding trends, market conditions and the experience or expertise of EquityMultiple, are based on current expectations, estimates, opinions and/or beliefs of EquityMultiple. Such statements are not facts and involve known and unknown risks, uncertainties and other factors. Past events and trends do not predict or guarantee or indicate future events or results.

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