Multifamily Becomes a Defensive Play for Global Investors

Recently, Canada’s AIMCO agreed to a 10-year joint venture with a passive institutional investor for a $2.4 billion portfolio in California.  It is one example of a new trend identified by JLL—global investors seeking out multifamily assets as a defensive play.

“Housing demand remains high in many cities around the world and supply has struggled to keep up,” says Gemma Kendall, head of multifamily investment, EMEA Capital Markets at JLL. “As a result, investors are viewing multifamily opportunities as more resilient than other asset classes.”

JLL notes that investment in all commercial sectors fell 44% in the third quarter compared to the same period last year, investment in apartments only dropped 27%. All told, global Investors acquired $116 billion of multifamily assets in the first nine months of this year.

Jonathan Morgan, president of Morgan Properties, the nation’s fifth-largest apartment owner and operator on the National Multifamily Housing Council’s Top 50, tells GlobeSt.com there is a lot of foreign interest in US apartments.

“You’re seeing a lot of foreign investors deploy capital in our space,” Morgan says. 

One reason for that might be because of low currency hedging costs—a dynamic that is expected to continue.  

Ciccy Yang, director of Global Markets for Hudson Advisors, explains that short-term and medium-term rates drive hedging costs. “And on that front, the Fed’s been giving very strong hints that more fiscal stimulus is needed to keep the economic recovery on track,” Yang told listeners in CBRE’s weekly podcast. 

The five-year annual hedging cost for Euro-based investors in the US has fallen 100 basis points this year to 1.2% today, according to Yang. In the same period, it has fallen 50 basis points to 2.6% for South Korean investors.

“There probably isn’t that much more room for these levels to fall further,” Yang says. “But given the likely expectation of accommodative Fed policy, it does feel like the lower currency hedging costs are generally here to stay in the near term.”

Overall Sales are Low 

It should be noted that while apartments may be a ripe target for foreign investors, CRE sales are slumping overall.

Both US cross border sales and global sales of CRE dropped in the third quarter, according to Real Capital Analytics. Cross-border investors were behind $3.5 billion of US deal volume in Q3 2020, down 71% from the level of Q3 2019. Still, this third-quarter level is better than the low of $0.5 billion seen in the depths of the Global Financial Crisis. 

Globally, sales of commercial property sank sharply among all major property types in the third quarter of 2020 compared to a year ago, RCA also reported. Deal volume fell 52% year-over-year and came in just a shade higher than the level seen in the second quarter of 2020, the lowest quarterly total since 2012.