Post-COVID Multifamily investment

[Amber C.]

What do you think the market/price for Multifamily after COVID?

In terms of people’s behavior change, ie prefer more backyard and living space vs. living in a building.

Where I am (Toronto), we have seen a lot of people move out of downtown. Rent in downtown have been drop 20%.

I own rental property in apartment and also houses. So many inquiry for the house but little for the apartment...

[Paul De Luca]

This question is a little bit vague and prices vary market by market as a result of supply & demand. That being said, from what I have seen prices have continued to rise due to the demand shock (low interest rates) and the supply shock (COVID resulting in fewer sellers listing) across the country. 

We also don't know what "after" COVID looks like though. It may be that we just have to continue living with the virus in the long run. Understandably, people want to move out of the city and into the suburbs where there is more open space. People may find SFHs more attractive for the reason that they do not need to share the building with others and access is more tightly controlled and therefore less exposure to the virus. BUT, like I mentioned prices in many markets are going up with the low interests rate so on the one hand people can "afford" more with their mortgage payments and extend their dollar further. On the other hand, prices going up means housing is becoming more unaffordable for many others.

I think that Class B & C multi-family housing are one of the most, if not the most recession-resistant assets out there. Class A multi-family will always be vulnerable during downturns and will be the first to see reduced demand and people downgrading to more affordable housing. The below breakdown is from the article "Is Multifamily Truly Recession Resistant?" at GlobeSt.com. The article is from 3/4/20 FYI.

"Multifamily is undoubtedly tremendously popular among investors—and for many reasons. Renter demand is up, and more young people want to live in urban, walkable markets, but the trend has led to a flood of class-A development and repositioning projects, which has taken away affordable housing supply. In a downturn, class-A apartments will be the first to see a dip in demand and rents. However, even with that in mind, multifamily remains the best asset to survive a downturn.

“If you look at multifamily, ultimately, it is a utility. People have to have a place to live, so buy the very nature of the asset class, it fills an essential need rather than a an inessential need, like a shopping center,” Pat Jackson, founder and CEO of Sabal Capital, tells GlobeSt.com. "For that reason, it is the most recession resistant asset class. That is why investors continue to like multifamily. Even regulators in the bank sector treat multifamily differently than other CRE assets, and that is because it has an inherent risk aversion to a market cycle."

While class-A apartments will certainly see some dip during a recession, workforce housing should remain stable if not better performing as demand for attainably priced units increases. “We especially think about work force housing multifamily as even more recession aversion that multifamily in general,” says Jackson. “Class-A multifamily has to rely a lot on the excesses of the market to perform. That is not really where we play. Class-B and class-C housing has historically been phenomenally durable. In the last cycle—and I don’t think we’ll have that kind of downturn again in our lifetime—workforce housing performed extremely well.”

The reason workforce housing is well positioned, even better than class-A apartments, is because in a downturn, most workforce housing renters will stay put, and many renters in the luxury segment will bump down to workforce housing. “The sector revolves around people that is trying to find product to meet their needs, and that is going to continue even in a down market. In the highly amenitized space, there is going to be a supply-demand issue in a down cycle,” says Jackson. “Right now, vacancy in that market is already higher than workforce housing. To the extent that demand decreases, it will put more pressure on the upper segment. That isn’t to say that there will be defaults, but you will have declining investor returns.”

Better performance during a recession is only one of the benefits of workforce housing. Soaring demand has also driven more investment in the asset segment. “Workforce housing is a front-page discussion topic. It is front-and-center. Because there is so much attention, it is going to get other tailwinds to help it perform, especially if there is some market distress,” says Jackson."

Source: https://www.globest.com/2020/03/04/is-multifamily-truly-recession-resistant/?slreturn=20200930113142#:~:text=In%20a%20downturn%2C%20class%2DA,asset%20to%20survive%20a%20downturn.&text=%E2%80%9CFor%20that%20reason%2C%20it%20is,investors%20continue%20to%20like%20multifamily.