By Michael Moran

It’s on everyone’s lips these days: the dreaded “downturn.” We don’t know when it will happen, just that at some point it will. And whether you’re riding an increase in a 401K retirement account, investing in the stock market or just remembering what happened to your job or mortgage in 2008, the idea of a recession gives pause to almost everyone.

Yet not everyone is afraid. Large fortunes were made even during the last recession, which as recessions go is about as bad as they get. By and large, those who made money placed fantastically risky bets in an effort to time the bursting of the mortgage bubble (i.e., hedge fund manager John Paulson) or just had piles of money lying around and enough sense to buy when everyone else was frantically selling (the trademark of Warren Buffett).

But what if you’re not Warren Buffett? “Going to cash,” which is what some of the largest investors in the world do when the storm clouds beckon, isn’t really an option for someone whose wealth is locked into the stock market through a 401K account or in the value of their single-family home.

Betting on Resilience

Happily, there is an investment vehicle which has helped smart investors weather storms throughout the decades: multifamily residential real estate. Since the first few months of this year, the amount of money flowing into multifamily investment properties of the kind favored by PCRP Group has nearly doubled – and for good reason.

CBRE, the world’s largest commercial property broker, notes in its 2019 multifamily report that this property sector has caught the eye of big institutional investors both in the US and abroad. A few simple reasons explain this growth:

  • the lack of affordable housing under construction;
  • the continued difficulty that middle class US families have obtaining a mortgage in today’s environment;
  • the continued flow of downsizing baby boomers into apartment living;
  • and the fact that multifamily real estate is a tangible asset.

In other words, no matter what happens in the stock and bond markets or to single-family housing, professional investors feel that multifamily real estate will perform throughout any coming storm. This validates a key part of PCRP Group’s investment strategy.

Resilient – It’s Our Middle Name

Multifamily projects of the kind favored by PCRP Group – large Class “B” and “C”-class developments – form an important part of America’s housing stock and it’s a part that is growing faster than any other. Also referred to as “Workforce Housing,” these are the safe, comfortable and affordable apartment buildings where middle-class families, recent college graduates and downsizing seniors hang their hats.

For these reasons and many others, those types of multifamily apartment developments have provided more resilient, stable and higher returns than other investment vehicles for decades, including stocks, bonds and other real estate asset classes like industrial, retail or single-family properties.

What’s more, even in the worst recession since the Great Depression, these assets do more than breakeven: they keep performing. The chart below, from Standard & Poors, the ratings and intelligence firm, shows how apartment buildings performed since the turn of the century.

Unlike office, industrial and retail properties, residential apartment occupancy rates remained almost unchanged in the Great Recession. Between 2007 and today, residential occupancy rates in multifamily investment properties never dropped below 94% occupancy – a number that reflects natural turnover, not distress.

As the owner of a 215-unit property in Raleigh told me: “2008 was a non-event for our residential properties. Our retail portfolio took a hit, but people have to live somewhere, and when their adjustable mortgage rates got to be too much, or they worried about the higher rent they were paying in a luxury building, they came a knocking.”

Your investment in a multifamily property not only buys peace of mind, it unlocks unrivaled tax advantages, quarterly distributions and an equity stake that will make you very happy when the property is ultimately sold. PCRP Group and our partners own and operate over 4000+ such units around the US and we’re feeling pretty good about that.