why did you choose this asset class? I am currently in school and heavily considering pursuing opportunities in the sector upon graduation, curious to hear what people in the industry like/dislike about it.
thanks for your time.
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Fell ass backwards into it, so pure dumb luck... Turns out I really love the space. At your age, I would still encourage you to pursue roles where you touch all asset classes before you settle on multifamily.
Thinks I enjoy: love the people in the industry, fits my interests (history and finance), it is really the story of where people live and why/how they make that decision and I find that really interesting. It is still an incredibly fragmented industry (consolidation is happening but slowly) with lots of room to be entrepreneurial, tons of debt and equity capital available, cheap government debt. Great secular tailwinds a well.
Dislike: not a whole lot. The property management folks I deal with can be idiots but are by and large good and decent people. Space is now very crowded and cap rate compression is definitely occurring, but I plan on being in the space for 30+ more years so I'm ok playing the long game on it as I'm sure it'll fall out of favor at some point.
Not to hijack the thread but have a question for you. Being someone who tries to use Multi Family RE as a passive investment, how do you usually go about evaluating an area? I understand things like job growth, transit access etc go into it, but was wondering how you drill down to see trends behind that? Thanks in advance.
If you are trying to just hold SFH or small multi-unit complexes and make consistent income from the rent then you don't really need to evaluate an area other than understanding what the rent levels are and how much you can afford for that cash stream. All those other trends you mention are useful if you are trying to juice returns by outsize rent growth or land appreciation.
Absolutely the same situation for me. My first internship happened to be in apartments, which led to getting a second internship in apartments, which led to a job in apartments.
I chose multifamily for a few reasons:
I would strongly consider the space as a career. There are so many old people in the industry which means growth opportunities will continue to exist, demand fundamentals continue to improve, and it's not terribly difficult to break into.
- Second to best performance along with Industrial - whether compared on IRR or TWR 1,3,5,7,10 Year, whatever, these 2 asset classes consistently outperform the others.
- Meaning more institutional LP (pension funds, SWF, endowment) money flowing into the sector
- Meaning more jobs, more fees, more opportunities for money for people like us who work as fiduciaries for these money sources
- Job is not as annoying when you don't have to use ARGUS. We only use ARGUS for the retail portion of the deals. I hate that stupid software and prefer to own every tab in my model in excel.
Those are the quantitative reasons. Other qualitative reasonings are:
- In multifamily, you can also better relate to the asset. If you're a renter, (which pretty much half of Americans, and for millenials probably 60-70%) you get to apply what you think a typical renter would behave in certain situations, whereas that's harder to do when buying office/industrial products.
- Touring core/CBD class A multifamily is a lot more fun than seeing a suburban 200K sf industrial office park or industrial warehouse (applies to my shop I guess, not everyone buys core CBD deals)
- You get to apply your industry knowledge to get better rent deals. For example, I NEVER begin lease in the summer. You always get leases 2-3% cheaper during winter non leasing season due to LRO algorithms functioning that way...
- Kinda fun to know what every apartment building in your market rents on a psf basis or which apartment is stick built vs concrete and how all that affects YOU as a tenant.
Those are just my rants, feel free to make up your own mind!
I mean if you're touring suburban mid-century I'm sure that you're correct, but you can do some really neat things in commercial. My father was a RPA in CRE when I was growing up, and there were neat stories. Adidas NA was one of his tenants for a while. when they got prototypes in they would destroy one shoe at the end of evaluation so they couldn't be sold. He got sick things like mis-matching colored high tops an whatnot. Later on he ran an old building in the city when I was old enough to run around with him. While in the basement hearing "This is the foundation for the formaldehyde pool where they put the bodies that had been shipped back from WWI." was absolutely INSANE to 14 year old me.
I'm not in the industry, and your mileage may vary, but that's my $0.02.
There's also a matter of what you're used to. As a multifamily developer, it takes a lot to get me excited when touring a competitor's apartment project. When I do see something cool or unique or ingenious, I geek out about it, don't get me wrong, but typically I just shake my head at decisions I wouldn't have made, or frankly, just notice how unbelievably similar every single project is.
If I were to walk through a 200K warehouse, I'd probably be far more interested, simply because I don't see it every day.
1. Everyone needs housing, lowest risk in that regard. Plus America is about 3.3m housing units short of where it should be, so hopefully governments start to wake up to that and let more dense construction (you can't fill that all in with SFH in the 'burbs, it's not economically, environmentally or politically feasible).
2. Like others have said, it can be intuitive since you can think like a renter, it's a bit harder to try and build office or industrial and put yourself into the shoes of whoever is making the purchasing decisions for that real estate.
3. I love luxury housing, haha. I spend my free time browsing mansions on Zillow and get newsletters on luxury housing. I'm primarily interested in it from an architecture/interior design perspective, but it follows into general real estate interest.
4. I got a job in it. I was ping-ponging between residential and office when I was in construction, but my experience at my MBA and the job I got now solidified me as a MF guy.
What are some firms out there that do these deals?
What are some firms that invest in multifamily? There are hundreds if not thousands of players and it grows every year (The NMHC conference has been a clusterfuck the past few years). Is there a particular market you're interested in?
...come on, man.
Another nice thing about multifamily is its the easiest asset class to buy/manage and even get some utility out of (househack) on the side
My pre-development experience was in multifamily and office. When I was looking for internships in business school, I applied to and interviewed with multifamily and office developers. I ended up getting a multifamily development internship, which enabled me to get a multifamily development job.
I love the personal design touch of the developments and the reality that small details like which way a door should swing or which amenities you choose to provide will directly impact how enjoyable a person's daily life is. I also enjoy and appreciate the high amount of deal flow. In contrast, I hate dealing with property management/leasing issues and how boring multifamily development and architecture can be - especially the further into the suburbs you go. Developing a garden project out in the middle of nowhere doesn't exactly make you jump out of bed in the morning.
All in all, I'm happy to have been in multi during COVID. We haven't suffered much at all in my market.
There's no innate reason why multifamily architecture has to be boring. It just is, because most of the architects who do it have a lot of technical expertise but little aesthetic expertise.
I say that as an architect who now works in MFR development.
Oh I completely agree with you. I said "can be," not "always is."
The reality, however, is that a majority of multifamily projects this cycle were designed with a soulless "developer modern" aesthetic, whether due to value engineering or indifference. As opportunities move from CBDs to the suburbs, that is only going to continue.
I would argue it's because renters aren't particularly interested in paying for "architecture" or for aesthetic quality of a building when, by nature, their tenancy is transient. Homeowners might be willing to shell out, which is why you see luxury condos with more interesting architectural features.
However, at the end of the day everyone's taste is different, and a developer is looking to sell to the broadest possible market to increase sales velocity. I can build the funkiest, most revolutionary building you've ever seen, but I need to sell it. With a single family home it's easier because you only need to sell one unit, but even there you hear brokers caution that making your home into a literal castle with a moat and drawbridge into the garage is going to massively hurt resale value, no matter how cool the concept is. I don't think it's a question of architects being good or bad at something - I've only worked on one luxury development, but the architect came to us with a lot of crazy cool ideas, but at the end of the day we had to value engineer a lot of it down and tone down some of the rest because I'm not looking to make art, I'm looking to make money.
Multifamily, or housing in general, is the only major asset class that will always be there no matter what new tech we have.
Everything that has been said ITT is why I find the asset class incredibly boring, cookie cutter, and not challenging enough.
Sure, it is the most stable asset class and easiest to transition to investing on your own, but to work FT in a job? No thanks.
There is plenty of non-cookie cutter MF projects as well, it's just fewer and farther between. There are some skyscraper condos in NYC or Miami that are awesome projects, but you don't many people working on them. Just like there are some really cool office and commercial buildings out there, most are just boring rectangles.
I was more referring to your typical suburban MF complexes.
Because they love gentrifying black people out of their neighborhoods in exchange for a comp package that most finance professionals would laugh at and returns that a true PE fund manager would get fired for.
Multifamily is a great place to be. From a development perspective there is definitely still a lot of pent up demand that has only been exacerbated by the uncertainty of the economy and population migration. Get if you can but I feel like most bigger name companies are looking for people with pretty significant deal experience whether it be development, asset management, or acquisition roles. Also be prepared to for lower pay. Even before the pandemic started, roles in multifamily seemed to be paying lower than what it was even 2 years back. I agree with all the above about stability and opportunity, I just feel like pay has been lowered. Hopefully the pay picks back up because I’m over employers low balling for the amount of work it takes to develop multifamily.
What do intro analysts get paid? Also what would you say average salary range is? $ amount would be nice if possible.
Can only speak for development but I’d say 50-80k. The 80k number would be in major cities.
I'm not purely multifamily, more focused on residential-heavy mixed-use, but if I had to specialize later I'd probably go multifamily. It's the most resilient real estate asset class there is, there is a huge under supply that will take decades to correct, and frankly I just find it very easy to understand and relate to which makes picking up on crappy design choices much simpler.
Commercial is more interesting from an acquisitions perspective because of the complexity, but its a bit of a headache too.
hello everyone
Multifamily, or housing in general, is the only significant asset type that will always exist regardless of new technology.
Kind of ignores that fact that if someone has a significant breakthrough with construction, replacement costs would fall and housing supply would spike in non-land constrained areas
There's a miniscule chance that robots and automation come and change the multifamily construction landscape within the next 20 years. Modular and mass timber are already pretty much here and aren't going to crush costs like people think. Maybe some automated foundation pours might happen for SFH? We're much farther from Boston Dynamics robots building structures than YouTube would lead you to believe.
So, is it better to become an owner-operator or someone who does transactions - such as a broker or loan officer who are underwriting the deals?
Owners and operators make a lot more money. They also take on a lot more risk. So it depends on what your appetite for risk is.
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