Apartments and the International Investor
By Mike Ratliff, Senior Associate Editor
While apartments were relatively unknown as an investment class in the 1980s, risk-return characteristics have proven solid overtime, and now everyone wants a piece of the North American multifamily market. A panel gathered to discuss the current state of international investment in the U.S. and Canadian apartment markets this April at ULI’s Spring Meeting in Vancouver, and it looks like a few interesting trends are emerging in 2014.
Institutional investors are continuing to increase their allocation in apartments in both countries, though the relative levels of multifamily holdings vary significantly. In the United States apartments account for roughly 25 percent of property held by institutions according to LaSalle Investment Management’s NCREIF Property Index (NPI). In Canada, that value sits at 7 percent. This is mainly due to a smaller apartment stock in Canada, where individually owned condos serve the rental market, says William Maher, director of American Strategy at LaSalle Investment Management.
But Canada trumps the international community in investing in U.S. units, dropping about $3.5 billion on American apartments in 2013. The next top investors were Bahrain, Israel and Switzerland, all coming in at roughly $500 million each. The buyers are reflecting the current state of the multifamily cycle in their investment strategy.
“Investors are embracing infill urban,” says Maher. “They are moving away from the traditional garden style apartments that really dominated the market 10 years ago.”
That said, once an institution or fund becomes comfortable with the core markets, they are branching out.
“We are seeing some Asian investors looking at the suburban Sunbelt, albeit on a highly-leveraged basis,” Maher adds. “There is a group that wants yield first, and geography—whether urban or suburban—is secondary.”
Over the last 10 years, the share of foreign investment in U.S. apartments has risen from 2 percent in 2003 to 5 percent in 2013. One of the triggers for an increased investment in apartments is that product has changed. In the early days, the international community was concerned over the longevity of framed construction, which differed from the steel and concrete office buildings they traditionally sought out.
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