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Strong Locations Remain Key

Overall returns are more important factor than current returns for investors when considering multifamily deals.

Despite the continued demand to increase multifamily holdings, investors remain strategic in where—and how—they are placing capital. Survey respondents reported that the most important considerations when deciding whether or not to invest in a multifamily property are the property location (84 percent rating either “critical” or “very important”) and investment returns (81 percent), followed by sponsor track record at 69 percent.

Investors, sponsors and developers are all looking for that edge that will help them achieve the outperformance that they’re looking for today, and location is a big part of that, notes McAuliffe. The technology available today allows investors to really lean into data and analytics that will provide greater market insights. For example, investors are looking at inbound and outbound population growth, job growth, wage growth and rate of change in household incomes to help pinpoint locations at the submarkets and micro markets that are more likely to outperform, he adds.

Respondents hold mixed views on whether they are more likely to invest in a private (506c) offering versus a fund. Overall, 17 percent said they were extremely or very likely to invest in a fund, 41 percent somewhat likely and 42 percent not likely to invest in a fund. That mixed response shows that there is no one-size-fits-all approach for investors. Some investors like the excitement of picking a home run that is going to outperform the market, while others prefer the ability to spread capital over multiple assets to create diversification and to mitigate risk, says Lebenhart.

Investors are most likely to focus on the overall deal return (53 percent) versus 10 percent who focus on current return and 37 percent who view them both equally. Ashcroft Capital has recognized demand among its investor base for different structures, which prompted the firm to modify its investment structures in 2019. The company now offers an class-a investment that is structured to deliver current returns and cash flow with some future upside and a class-b investment that aims to deliver lower current returns and greater future upside. “Some investors want the passive income coming in every month, while others are investing more longer term and want the overall higher return,” says Lebenhart.

When asked how respondents are communicating multifamily asset performance to investors, nearly half are having one-on-one conversations (53 percent) or are communicating through email (51 percent), while 28 percent use video calls and 20 percent through investor portals.