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HNW Investors Are Giving Preference to Multifamily and Office Properties, AppFolio Survey Finds

The survey, conducted in April, found 68.3 percent of respondents were looking at multifamily acquisitions.

If a new survey is an accurate barometer, two words—modernization and multifamily—sum up the key issues weighing on the minds of high-net-worth (HNW) individuals and other property investors.

The survey, conducted in April by AppFolio, a Goleta, Calif.-based provider of real estate and investment management software, showed that the No. 1 challenge facing accredited property investors is finding a good investment manager to handle fund and syndicate allocations.

And it’s not that these investors are laboring to find an investment management firm that’s good at what it does. It’s more about working with an investment manager that fully embraces technology. In other words, they’re seeking an investment manager that’s up-to-date rather than old-school.

The survey also shed light on the property types that investors prefer most. In first place was multifamily, with 68.3 percent of the investors surveyed signaling that they’re eyeing investments in this asset class. Office ranked second (45.5 percent), followed by industrial (32.7 percent) at No. 3. Investors could choose more than one property category.

In all, 101 U.S. investors, including HNW individuals, were questioned for the email survey. Among those investors, real estate represented nearly one-fourth of their portfolios.

“While there’s a bright outlook in the real estate market, the industry is not always a passive, low-risk investment. Respondents indicated they prefer to be highly involved and growth-oriented, even if that means taking on greater risk and a higher price,” AppFolio noted in a report about the survey results.

In a Q&A with NREI, Nat Kunes, senior vice president of investment management at AppFolio, took a deep dive into the survey’s findings.

This Q&A has been edited for length, style and clarity.

NREI: What are the key takeaways from the survey data?

Nat Kunes: There’s a movement toward a more on-demand investment experience. Instead of sitting around and waiting for quarterly reporting from their investment management firms, these investors really want more interaction, more frequent updates—something that’s in the palm of their hands. So, they want, on a mobile device, to quickly see the status of their investments.

We also saw that almost a third of the investors were looking for an investment manager that was more tech-forward, more modern, in their approach to management. They were struggling to find someone like that.

In addition, we found that one of the top concerns for them was interest rates, and that the overwhelming majority of the investors were growth investors (73.3 percent), as opposed to value investors or index-type investors.

NREI: Interest rates and the current political landscape were the two biggest concerns for investors. What does that tell you about the mindset of investors right now?

Nat Kunes: When we had conversations with some of these investors, usually what they would say is that right now they’re in a wait-and-see mode. They’re monitoring interest rates and the political landscape, but it’s not affecting their investment strategy just yet.

NREI: What is your sense of investors’ keen interest in multifamily properties?

Nat Kunes: There’s a housing shortage in the U.S., so it’s a very attractive segment to invest in right now. Even if there were another recession, that would be a segment that would fare fairly well. It’s a very safe place to put money and it’s getting good returns right now. Another thing that’s really helping in the multifamily space is there are so many different programs in place to incentivize new developments and retrofits.

NREI: What’s driving investors’ interest in the office sector?

Nat Kunes: There’s an indication that there’s a shortage of office space in certain markets. The desirability now [for] people to work close to where they live means the office landscape is changing. Office parks are being built close to residential areas, so that they can capture walkability and appeal to that next generation of worker. Investors are seeing that and are investing in office properties that are aligned to that next generation of workers.

NREI: What are you hearing from investors about the industrial sector?

Nat Kunes: Traditionally, industrial meant large warehouses that were separate from the city. Now you’re finding that people are trying to embed industrial properties in the fabric of locations to position goods for last-mile delivery. Institutional investors were doing massive industrial complexes; now, a lot of smaller investment management firms (and, therefore, individual investors) are able to capitalize on smaller industrial spaces.

NREI: What, if anything, surprised you about the survey results?

Nat Kunes: The biggest surprise was just how difficult investors said it was to find a good investment manager (31 percent). Everybody wants to find a good investment manager, but because of the shift toward modern technology, toward on-demand service, the investment management industry as a whole has not really kept up that well with this demand. These investors are struggling to find an investment manager that shares their ideals and their needs. I knew that would be a challenge, but I didn’t necessarily think it would be the biggest challenge.

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