MORE BUYERS FOR MULTIFAMILY DEVELOPMENTS AS INSTITUTIONAL INVESTORS EYE CRE
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Analysts tracking institutional investment in commercial real estate report that large institutional investors plan to redirect $135 billion into the sector over the course of the next few years. This investor group, which currently controls $12.3 trillion in assets, represents a deep well of new capital that will further support CRE’s already strong fundamentals.

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There are two themes at work here. Traditional private equity is more populated than it was and investment managers want to offer a full service to their clients. Real estate is becoming a bigger part of the investment allocation of institutions and so managers want to provide that offer to them. Secondly, they’ve seen other PE managers and hedge funds make the move and make good money in real estate. They’ve made good returns and hence promotes, so it is a strong business direction in that sense.
 
– Hodes Weill Partner Will Rowson told Bisnow

As our sector draws attention from bigger investors, PointOne Holdings sits in a favorable position to market our development multifamily properties to these potential buyers.

WHO ARE THESE INSTITUTIONAL INVESTORS
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Bisnow highlights well-known companies like BC Partners, which has historically concentrated its efforts in private equity throughout the United States and Europe. 
 
Other large firms who have made a move into CRE investment include life insurance companies and investment firms who have developed niche strategies to maximize current market conditions. For example, Aegon RA has identified a significant opportunity in so-called “opportunity zones” where investment in multifamily and other CRE has the potential to deliver strong returns: 

The foundation of Aegon RA’s opportunity zone strategy is the array of 30+ metro areas with demographic and economic characteristics that have a positive impact on demand for multifamily rentals and constraints on supply.

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Last year, London-based research firm Preqin found that the number of global institutional investors with $1 billion or more in commercial real estate increased 13 percent over the prior year. NREI reported that these firms represent enormous direct buying power for commercial real estate assets:

The firm’s researchers note that these investors are more likely to buy properties directly, a strategy that ‘requires significant human and capital resources and is, therefore, more often implemented by investors with sizeable assets under management and substantial knowledge of the asset class.

The Preqin report uncovered a wide variety of firm types that had made significant CRE strategic moves, including: wealth managers, superannuation schemes, banks, private sector pension funds and public pension funds. 
 
As investors seek to diversify their portfolios, these firms are answering the call with creative strategies and new vehicles, such as commercial real estate, that deliver a hedge against recession and strong returns for their buyers. 

WHAT MAKES MULTIFAMILY ATTRACTIVE
TO INSTITUTIONAL INVESTORS
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Multifamily properties and investment vehicles offer a unique set of advantages to investors of all sizes, including institutional investors. 

The inflow of money to real estate comes as economic indicators, such as the inverted yield curve, point to a coming recession. Investment managers and brokers said capital providers are looking to multifamily real estate as a more stable sector than other portions of the economy, and are willing to accept lower returns than they may have in previous years.

Reported by Bisnow

We have reported on multifamily’s strength and stability for many years, and we have developed a strategic investment approach built on our years of experience and research that bears out those findings. 

Factors contributing to multifamily’s stability include:

  • Demand for apartment homes remains not only stable, but it is growing as the American Dream shifts away from home ownership for many Americans
  • The shorter multifamily leasing cycle allows property managers to flex with changes in the marketplace, which offers a number of protections during economic slumps
  • Rent tends to grow faster than inflation and multifamily property managers benefit more from low financing rates than other CRE class types
  • Opportunities and demand in all asset classes: affordable/workforce, value-add and luxury
  • Defensive investment against economic swings; low volatility compared to other CRE or investments
    (Sources: MFE, GlobeSt., RealtyShares)

The numbers back up that last bullet point. Data shows that, between 1992 and 2018, multifamily posted annual returns of 9.75 percent – higher than any other CRE sector. Those returns coupled with multifamily’s low volatility, make it a uniquely attractive option for large investors. 
 
Final Thoughts 
 
PointOne Holdings welcomes these changes to the investment landscape because they mean more potential buyers for our office and multifamily properties. With investment firms of various types backing commercial real estate with significant capital, it supports the whole sector. These firms will bring a level of healthy competition to CRE acquisition that can only benefit our development investment platform and strategy.

PointOne Holdings is a real estate investment firm headquartered in South Florida and Atlanta with properties located throughout the Southeastern United States and Texas. The firm owns and manages a diversified portfolio of residential and commercial assets valued in excess of $730 million. PointOne Holdings’ core principles are founded on precise investment selection, thorough due diligence, creative deal structuring, strong financial management and proactive and responsive communication. PointOne Holdings’ principals are seasoned professionals with over 40 years of combined experience who have collectively conducted over $2 billion in real estate transactions.