Why Multi-Family Real Estate
During the past 30 years the returns for apartments or multi-family real estate have made this sector standout among all real estate asset classes. As can be seen in the chart above, not only did apartments achieve the highest total returns but paradoxically they also had the lowest standard deviation. (Standard deviation is a measure of the volatility of returns i.e. the lower the standard deviation, the lower the volatility of returns and the lower the risk level, which is obviously preferred by investors.) We say that it is paradoxical as investors generally achieve higher returns by taking on more risks in terms of the volatility of returns. Multi-family assets have delivered a relatively rare combination of higher returns and lower risks/volatility. In fact, apartments continue to be a model of consistency, with 2006 the 13th consecutive year of positive net appreciation. It is this track record that has allowed apartments to continue as the leader among all the major real estate asset classes in terms of risk-adjusted returns of the broader NCREIF Property Index.
The apartment market entered a new and important phase for investors in 2006, when for the first time since the 2001 recession, effective rent growth has exceeded inflation as outlined in the chart above. The recession in 2001 was very deep for the multi-family industry, and while skilled investors were still able to earn attractive returns, it has taken 5 years for the supply/ demand balance to swing in favor of apartment owners. From this perspective, it is an ideal time to be investing in this real estate asset class.
The % of homeownership represents a recent major shift in the U.S. housing market. For the first time in over a decade, home ownership rates edged lower in 2005 and continued to decline throughout 2006, while the number of renter occupied units have begun to rise as high-lighted in the chart above. This trend bodes will for keeping the supply/ demand balance skewed in favor of apartment owners.
Demographics in the US market over the next decade represent a powerful force that should ensure that the superior financial performance of multi-family real estate continues. A large number of children of baby boomers, called echo boomers, were born in the 1970's. In fact, people born in 1982 are just old enough to join the 25-29 age group, which is the age group with the highest propensity to rent. Within the next 5 years this group is expected to increase by over 2 million people. Additionally, this age group tends to rent moderately priced residences, which is the focus of Venterra's portfolio.
Venterra’s real estate assets offer a consistency and level of return that is superior to most investment alternatives. Venterra spends considerable effort in sourcing its acquisitions, as we generally acquire only 1-2 properties for every 100 properties we review. This kind of stringent acquisition process offers our investors very high quality investments.