While there are many alternative asset classes such as: (1) venture capital, (2)private equity and (3) mezzanine & distressed debt we believe direct private real estate ownership is one of the best entry points to diversification and entry into alternative investments. Commercial multifamily (e.g. apartment complexes) provide both the yield and risk profile that match our investment style.
We have always recognized there are many ways to generate a good return in real estate
You can invest in residential (e.g. single family, duplexes, land, etc.) or commercial (e.g. hotels, retail, industrial, etc.). There are even a multitude of ways you can invest in commercial multifamily (e.g. high rises, development, etc.). As I mentioned you can invest and seek yield in so many ways within this asset class.
For us commercial multifamily aligned really well with our business and investment approach. Specifically, empirical research tells us this sector has higher liquidity, lower market and asset volatility, smaller investment sizes, stable capital flows, counter-cyclical demand base and favorable diversifications benefits.
One of the most fundamental elements of a successful investing is a robust demand for the asset class
Let’s discuss why this is the case.
First, the commercial multifamily is stable because of the following: (1) demand (e.g.population and household growth) is relatively easy to forecast and stable over a long period of time, (2) supply is responsive (e.g. rents and construction) to downturns and (3) access to capital through a wide variety of financial institutions (e.g. federal agencies, commercial banks, etc.) is larger than any other sector within commercial real estate and most other alternative asset classes.
Second, there is a low correlation to other possible components of your investment portfolio and the commercial multifamily sector outperforms other commercial property types by a large margin.
Third, this asset class is highly liquid in comparison to other commercial real estate and alternative asset classes due to the availability of capital, typical investment size and investment turnover rates. This provides us with the ability to have more exit options that in turn allow us to maximize return on capital over the long run. When we can more easily exit, it provides a significant flexibility and ability to hedge risk. Very few, if any, other commercial-real estate or alternative asset classes provide this liquidity.
While any investment presents risk, we believe multifamily apartment investments provide one of the best risk return ratios on the market.
While the future is highly uncertain, we continue to be confident people will need a place to live.