The Monthly Multiple: December 2021

January 7, 2022

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Quick Stats:

  • Per NCREIF, Apartment assets as a whole exhibited a 1.29 Sharpe Ratio (a measure of risk-adjusted return) for 5-year holds during the period 1987-2016.
  • In August, New York had 8,201 new multifamily lease signings, up 64% year-over-year.
  • Wages for the bottom quartile of American workers are growing 70% faster than for those in the top quartile.

Multifamily Reigns Supreme

Winter is here. The Solstice has come and gone, inflation is still dominating headlines, and another COVID variant has ruined holiday parties from coast to coast. While many economic indicators remain positive, the national economic mood is not exactly exuberant.

What does this mean for real estate investors? The Fed recently signaled it would accelerate decreasing asset purchases while also possibly raising rates more aggressively in 2022. While the Fed is unlikely be overly aggressive in tightening monetary policy in the near future, the tug of war between inflation and interest rates may prompt volatility as the public markets digest the recent heat from the economy and the Fed’s response. Pandemic anxiety could muck up “return-to-office” plans while general economic trepidation may continue to suppress travel and brick-and-mortar shopping, putting the hospitality and retail CRE sectors on unsure footing. Amid all this confusion, a reliable old friend stands tall among asset classes: Multifamily.

Multifamily has historically stood out for low volatility, and recent data show that the asset class is holding up quite well over the last 20 months, capturing the surge of rental rate growth across the country. EquityMultiple offers private real estate investments, which potentially bear lower correlation to public equities. Still, public REIT performance gives a useful snapshot of sector performance. As of the end of November, apartment REITs are up 52% YTD, dwarfing returns in the stockmarket*. Multifamily REIT performance tells us something else at the same time: diversification pays off, especially as markets across the country remain in varying degrees of flux as the pandemic plays out.

Apartment Assets… But Where?

Well, all over. Across the nation as a whole, average rents reached pre-pandemic highs in the third quarter of this year. Annualized rent growth is expected to reach 4.7% over the next two years. That said, data shows that gateway markets may have the most lingering slack from the pandemic slowdown: New York and San Francisco in particular were hit hard, recovered more slowly than other Tier I and Tier II metros and, as of June were just starting to turn around. Urban areas are on the mend, but New York City in particular is on the ascent (like the great soothsayer Jerry Seinfeld predicted). NYC saw an influx of 1,700 people within first two months of 2021. In August, New York had 8,201 new multifamily lease signings, up 64% year-over-year and the highest figure since 2008.

Still, the dual threat of sustained inflation and a resurgence of COVID lockdowns means that migratory patterns and demand dislocations could remain in flux for some time. Two familiar theses come to mind: diversification is key, and multifamily is potentially a great bet in unsure times.

apartment reits vs other assets

Consider the Capital Stack

Inflation favors equity investments. Bond yields may rise some, but we can expect a persistent low-yield environment for some time. Inflation and the omicron surge have investors leery. As a real estate investor, you may be inclined to seek relatively safe options: debt and preferred equity positions that offer shorter terms and more protections. This is reasonable. However, equity investments (particularly in multifamily) offer a timely opportunity. Sustained inflation benefits borrowers; a locked-in rate is eroded, in real terms, by persistent inflation, potentially hurting real returns of an investor in a CRE debt or preferred equity position. In a JV equity investment, on the other hand, an investor may be able to capitalize on inflation: rents increasing commensurate with prices, and exit pricing reflecting both rent growth and priced-in increases in building costs.

*Source: NAREIT, Bloomberg

Further Reading

NMHC Research Foundation – Explaining the Puzzle of High Apartment Returns
The Economist – Wages Are Surging Across the Rich World
Wall Street Journal – Soaring Rents Make It a Great Time to Own an Apartment

New From The EquityMultiple Team

Investing In Multifamily Real Estate

The EquityMultiple perspective on a steady asset class that has become even more of a focus in our deal flow in recent months.

Multifamily REIT Dividends vs EquityMultiple Investments

apartment reits vs EM investments

Speaking of multifamily REITs… how does EquityMultiple’s multifamily offering differ, and how do returns stack up? Read on…

IR Insights – Doing Your Due Diligence 

Hans Matta of our Investor Relations Team walks through key elements of EquityMultiple’s offering pages and what to look for.


“Where possible, focus on shorter leases; focus on sectors with shorter lease terms such as hotels, (US) apartments and self-storage. During periods of higher inflation, this allows for rents to mark-to-market more often, thus benefitting the investor.”

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