Comparing multifamily to office investing

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And… we’re back. (I was at Princeton Reunions over the weekend and my flight didn’t get me back to LA until 3AM Monday morning.)

Thought you might be interested in this article, which advocates that institutional investors consider allocating real estate investment dollars to multifamily instead of office.

The argument should be familiar to regular readers of this blog:

  1. There is demand for housing throughout the economic cycle
  2. Unlike office or retails, which have long leases, multifam owners can dynamically adjust pricing to reflect market conditions
  3. In the event of the downturn, multifam owners can still bring in revenue, meaning they are very unlikely to lose buildings unless they are over-levered
  4. Multifam is less vulnerable to drastic changes in society, since people always need kitchens, bathrooms, etc. (as opposed to office buildings, where tenants’ demands change over time)

I’d personally add that office and retail are both subject to some pretty awful societal trends:

  1. Companies are using much less office space per employee. This is due to a combination of open-plan offices and the rise of telecommuting; and
  2. More and more shopping is moving online.

So, to me, the sweet-spots in real estate for the foreseeable future are in multifamily and industrial / logistics (which is benefitting from the online shopping trend).

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