Multifamily real estate – largely consisting of apartment buildings and other residential rental communities – is often considered the bedrock of commercial real estate investing.
The appeal is straightforward: housing is a basic human need, so there’s a built-in demand for apartments regardless of the economic climate. People might cut discretionary spending when times are tight, but they will strive to keep a roof over their heads. This fundamental demand contributes to the stability that multifamily assets are known for.
For instance, even during economic downturns, apartment occupancy tends to remain relatively high (often in the mid-90% range in many markets). As of late 2024, the U.S. national multifamily vacancy rate was around 4.9%, slightly below the long-term historical average of 5.0% (yieldpro.com).
This indicates that even with economic fluctuations and a surge of new apartment construction, most units remain filled – a testament to the persistent need for rental housing.
What really sets multifamily apart is its track record of strong performance. Over the decades, multifamily investments have delivered excellent risk-adjusted returns.
In fact, since the inception of a major industry benchmark in 1978, the apartment sector has achieved the highest risk-adjusted returns among all core real estate property types. (clarionpartners.com)
This means that when you account for both the returns generated and the volatility or risk taken, multifamily comes out on top as one of the steadiest, most rewarding real estate sectors. It makes sense: rental housing provides steady income (rent checks every month) and has inherent resilience (people need housing in good times and bad).
Large institutional investors have taken notice as well – multifamily now represents the largest share of investment volume among commercial property types in recent years. (clarionpartners.com)
For example, multifamily comprises roughly 27% of the NCREIF Open-end Diversified Core Equity (ODCE) index, which is a reflection of how heavily institutions like pension funds and endowments weight apartments in their real estate portfolios. (clarionpartners.com)
Current trends in the multifamily space underscore its strengths.
The early 2020s have seen both challenges and opportunities for apartments. The COVID-19 pandemic initially caused a brief uptick in vacancy in 2020 as urban renters relocated and economic uncertainty set in. However, the recovery was swift: by 2021 and 2022, many markets experienced record-high rent growth as demand surged back. Developers responded by building a significant number of new units – 2024 alone saw around 450,000 new apartments completed in the U.S., a multi-decade high. (yieldpro.com)
Even so, renter demand kept pace. Net absorption (the net increase in occupied apartments) in late 2024 was the highest on record for a fourth quarter, meaning more people are renting apartments than ever before. With vacancy now low and new construction starts moderating, analysts expect rent growth to pick up again moving forward. (yieldpro.com)
On the demand side, multiple factors are driving renters: high homeownership costs (many would-be buyers are priced out of the housing market and remain renters), demographic trends (millennials and Gen Z forming new households), and urbanization in many regions. On the supply side, while construction has been robust, it is uneven; certain high-growth metros still face housing shortages, which should bolster rents and occupancy there.
Falcon Capital’s strategy in the multifamily arena is to leverage these favorable fundamentals while carefully navigating the risks.
We target apartment communities in locations with strong job growth, desirable amenities, and signs of unmet housing demand (for example, cities with low vacancy and limited new construction in the pipeline). Our approach often involves value-add initiatives – acquiring well-located but underperforming properties and then improving them.
This could include renovating units, enhancing common areas, or upgrading management practices. The goal is to make the property more attractive to tenants, thereby increasing occupancy and allowing for higher rents over time. Such improvements not only boost the property’s income but also its market value, creating appreciation for investors on top of the regular cash flow.
We also take advantage of the favorable financing environment for multifamily. Government-sponsored enterprises (Freddie Mac and Fannie Mae in the U.S.) actively support the apartment market with loan programs, which can offer stable financing terms even when other credit markets are volatile.
By combining prudent property selection, operational improvements, and smart financing, Falcon Capital aims to capture the enduring strengths of multifamily investing – steady income and long-term growth – while delivering enhanced returns through active management and expertise.