Billionaires are placing their bets on apartments.
The wealthiest investors in the world investing in the U.S. is nothing new. And neither is multifamily investing among the world’s elite investors.
The latest billionaire to demonstrate his faith in the American apartment space is Amancio Ortego, the founder of the clothing brand Zara. He purchased a multifamily property in Chicago for $231M. He also happens to be the 13th richest person across the globe. He’s not the only billionaire to make a multifamily purchase in recent months - billionaire Eyal Ofer of Global Holdings Management Group bought a $30M Manhattan apartment building. This is a continuing trend among the world’s elite investors, including David Rubenstein who raised $240 million last year to buy multifamily properties, and billionaire Tom Steyer who has also made some multifamily investment moves.
These are some of the world’s top investors, with the track record to prove it. So if they’re putting these large amounts of capital into a certain asset class, it serves anyone interested in growing wealth to pay attention.
But the multifamily space’s performance in the past- and recent challenges- make this decision more complex than it might initially appear. Below, we’re diving into the trends that have made multifamily a beacon - or an “investment on a hill” - for these massive investors, despite the economic storms and turbulence multifamily investors may have experienced.
Mass Exodus From Offices
Where are these billionaires coming from?
Many of these investors are fleeing the apparent collapse of the office space. Before the COVID pandemic, offices were seeing massive expansion and investment. Investors were able to make sizable profits by investing in buildings located in booming urban areas. But as office vacancies wreak havoc on the nation’s major metros, and remote work continues in popularity, we’re seeing billionaires switch gears and set their sights on a different horizon - apartment investing.
While offices were popular, multifamily has always been a place ultra-wealthy investors sought to grow their wealth. According to Knight Frank research cited by Bloomberg, billionaire investors have doubled their wealth in the multifamily space, and have been doing so for the past ten years.
But why exactly is multifamily so attractive to these ultra-wealthy investors?
Is Multifamily A City On A Hill?
You’d have to be living under a rock to not know that the multifamily space hasn’t been invulnerable to the tumultuous investment environment. Rising interest rates, government policies, and more have contributed to uncertainty in the space. However, this has presented a unique opportunity for some of the wealthiest investors. Many institutional investors are choosing to sit on the sidelines and wait until debt costs fall and property values stabilize. This has resulted in a 57% decline in transaction volume, according to CBRE. But they also believe that the multifamily space and its investors can expect good things ahead. Ultra-wealthy investors who aren’t as vulnerable to changes in debt, and can afford to play the long game, have benefited from this decline in competition. These investors are likely to have more cash reserves they can deploy, and have stronger relationships with banks to get favorable debt terms.
The multifamily space at large is holding its own. The rental market has been resilient and fundamentally strong, despite slowing rental rates. This slowdown can easily be explained by the artificial surge in rents caused by the pandemic. But what explains the sustained strength of multifamily? One word: demand. Demand for multifamily units is still high, and the supply shortage seen in the U.S. persists. This explains why apartments were the number one asset class over any other in Q2 of 2023.
Below, I’ll break down some of the specific factors that have kept multifamily cemented as the preferred asset class of the wealthy.
Demand: Demand for housing is still strong, and growing. And even though I mentioned rental rates have slowed, they are still growing. According to this Apartment List report, rental rates still saw an 18% increase in 2021 and a 3.5% annual uptick in 2022.
Lack Of Supply: A housing shortage is also something you’ve likely read or heard about in the news. But there’s a lot of housing construction and new builds coming online soon, and in the past year, multifamily properties have become less expensive - and thus, more affordable for investors. Yes, current owners might not love the idea of their properties depreciating, but those looking to buy might benefit from seeing 16% property value declines (as seen in August 2023).
As an asset class, multifamily fundamentals are stable, and renter demand has been strong despite rising interest rates and fears of an economic downturn.
Yes, apartment prices may be seeing small drops. But this is just an opportune time to remind ourselves of the saying, “buy the dip.” Long term investors benefit from moments like these. As Ronald Dickerman - founder and president of Madison International Realty - said, “There is a cyclical buying opportunity.”
Real Estate Is King
The richest investors in the world have been investing in real estate for a long time. This is due to multiple reasons - real estate provides reliable cash flow and potential tax benefits. This explains why 13% of the portfolios of family offices were focused on multifamily in 2022. And according to a recent survey, these big investors expect to allocate more of their money to real estate in the years to come.
As growing investors, we’re eager to learn from those who have come before us, and we value the wisdom that comes from those with a track record to back up their words. So if multifamily is the preferred investment option for the world’s richest investors, then it’s where we’re placing our bets as well.