Most of the problems in multifamily over the past few years have been related to debt. Many operators are now in their second extension phase and not making payments or keeping up with their properties. Several of these have been taken back by the lenders. Lenders are identifying experienced, local operators to take over these properties.  James Eng, “The Professor” of multifamily financing, is the National Director at Old Capital in Dallas. James has helped hundreds of multifamily investors strategize the right debt to obtain and acquire over $1 Billion dollars of properties. James has also been a Limited Partner in 45 multifamily deals in Texas. 

An asset class that thrives in different economic cycles is student housing, especially at the best colleges. The demand to attend these schools always far exceeds supply. On the operations side, revenue per square foot often exceeds multifamily apartments because leases are done by the bed. Mark Weinstein, President of MJW Investments, has acquired over $1.5 Billion of student housing, over $1.5 Billion of apartments, plus several commercial buildings, industrial, and self-storage facilities over the last several decades.  Mark is currently raising a fund to acquire student housing in the best locations at the top U.S. college campuses in the country.

Multifamily investing can be profitable, but it is not without risks. One of the ways to generate mid-teen returns while mitigating risk is to invest in pref equity. As an investor in pref equity, you’ll be paid after the first mortgage and before the common equity holders. It’s therefore safer than common equity and you’ll still get the same attractive tax treatment. Steeve Breton, President of Velocity Capital, is a multifamily operator, developer and loan broker. Steeve also has a pref equity fund for people who are intent on generating cash flow and don’t want to take on the higher risk of common equity.

80% of new apartments built in the last ten years are luxury class A. As a result, the supply of B class workforce housing has not nearly kept up with demand. Unless someone can afford to own a home or pay close to $4,000 per month for an A class two bedroom or $1,500 for an A class one bedroom unit, they are relegated to renting a B class apartment. Class B apartments cost 30%-50% less. As $800 Billion of floating rate loan maturities are coming due, great opportunities are emerging to acquire workforce housing for 75 cents on the dollar. Mitch Siegler, Co-founder and Senior Managing Director at Pathfinder Partners, finds smaller deals in the Western U.S underneath the radar of larger institutions that have significant value-add opportunities. 

Supply-demand imbalance drives value in Real Estate. In this country, we have a severe shortage of affordable housing in many markets and therefore high occupancy levels. In the case of Mobile Home Parks, supply is not only not growing, it is actually shrinking because municipalities are repurposing the land Mobile Home Parks occupy for better perceived uses. This is what’s creating an undersupply. Nathan Jameson, Founder and Managing Director of ARX Capital, has an incredible track record of buying, improving, and operating Mobile Home Parks in Pennsylvania and surrounding states. He’s now raising his third fund and taking his successful formula to markets in the Midwest. 

Although the Southeast and Southwest are still oversupplied with new multifamily units, markets in the Midwest have seen little to no new supply and therefore perennially low vacancy rates. Many of these markets are also growing, which creates a perfect opportunity for multifamily investing, as long as it’s with the right syndicator. Justin Spillers, Co-Founder of Real Estate Alpha, has built a portfolio of over 700 units, mostly in and around Toledo and Dayton, Ohio. Real Estate Alpha is a fully integrated operator that does everything in-house from all construction, day-to-day property management, marketing, and leasing. Justin and his partner invest a significant amount of their own capital into all their deals.

When deciding who to invest with, experience is what matters most, starting with the number of deals someone has done. Forty percent of Multifamily operators have done fewer than five full cycle deals. Like anything else, Real Estate takes years, even decades, to master. Elijah Brown, Founder of GoldHawk Capital, has first-hand experience operating multifamily and leverages this experience to help him identify other experienced and proven sponsors for others to invest in. Once he finds a great deal, he negotiates favorable terms for himself and his investors. Unklike in the past few years, great deals are starting to appear.

Alternative assets are getting a greater share of investor allocations as they seek higher yields and less volatility. Pension funds, endowments and other large institutions are directing more dollars to these assets in order to increase overall yields in their portfolios and to hit mandated returns. Kim Flynn, President of XA Investments, specializes in Private Credit interval funds, some of which generate higher than 10% yields. Kim is responsible for all product and business development activities plus the firm’s proprietary fund platform and consulting practice.

Capital is pouring into steady, cash-flowing midwestern markets. Investors appreciate the predictable, steady growth and performance of these markets with affordable entry points. This applies especially to supply constrained infill industrial markets with big tenant demand and consequent high occupancy rates. Geoff Stuhr, Principal at Smart Asset Capital, specializes in Class B infill industrial properties in Southeast Wisconsin. Geoff only buys positive leverage, cash flowing properties that have value-add components that allow for enhanced cash flow and appreciation of the assets.

An interesting asset class that lends itself to significant value creation through entrepreneurialism and creativity is boutique hotels. Each property is different, so there’s intrinsic inefficiency. Many of these properties are also owned by baby boomers who have no succession plans and have not maximized their value over the years. Unlike branded hotels, there’s more opportunity to create special guest experiences that ultimately enhance revenue and generate long-term loyalty. Tom Bono, Managing Partner at Bono Capital Group, started out with AirBnb’s, and is now in contract to acquire his first boutique hotel in the Hamptons, a market he knows well.