Caldera Real Estate Ventures’ Founder & Chief Investment Officer discusses the unique benefits of commercial real estate (CRE), focusing on the multifamily rental segment and investment strategies. Multifamily makes up 70% of the $5.4 trillion U.S. CRE market and has historically delivered superior risk-adjusted returns to investors.
Key benefits of CRE, such as diversification, tax advantages, and inflation hedge, set it apart from traditional financial assets. Multifamily, in particular, offers stability, consistent cash flow, and adaptability to market dynamics.
The multifamily sector benefits from urbanization trends, with a growing urban population driving demand for rental properties. A housing shortage, caused by decreasing construction starts since 2006, is expected to put upward pressure on rents in the long run.
Despite potential headwinds like tightening credit, decelerating rent growth, and new supply in the market, long-term trends suggest strong fundamentals for multifamily investments. Opportunities include prioritizing mid-market opportunities, focusing on assumable financing, pursuing value-add opportunities, considering recapitalization, and adaptive re-use opportunities like office to residential conversions.
Investors may need to extend their investment period and implement hands-on asset management strategies to achieve desired returns. Private debt/rescue capital opportunities may provide strong arguments for equity investors, but the window of opportunity before cap rates stabilize may be short, limiting investors’ ability to react in time.
