Multifamily Housing: Definitions, Examples, and Opportunities
This guide addresses the following questions about the multifamily real estate sector
What are trends in multifamily home investing?
What does multifamily home mean?
Is a multifamily dwelling unit commercial or residential?
What are the types of multifamily homes?
Who are the top multifamily companies?
The commercial real estate multifamily sector experienced a strong start in 2022. Vacancies dropped to 2.3%, down by 2.5 percentage points compared to the previous year, according to a Q1 2022 CBRE report. Additionally, new construction has added resulted in bringing about 66,400 units. Investors have been taking notice of these positive developments, with total investments reaching $63B.
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In the meantime, here is a quick guide on the basics of multifamily commercial real estate investing for those interested in entering the market:
What Is Considered a Multifamily Home? (And What Is Commercial vs Residential MFH?)
Multifamily properties consist of multiple apartment units, which can either be managed by the investor or another entity, such as a management company, to take care of building maintenance. Multifamily homes can be either residential or commercial, and we'll explain the difference.
Multifamily residential versus commercial
The number of units determines whether an asset is classified as a residential or commercial multifamily property.
Residential multifamily buildings consist of two to four units, such as duplexes.
Commercial multifamily properties consist of five or more units.
A single-family home is a property that is set on a piece of land and is designated with the intention of having rooms and utilities meant for one family.
Single-family homes aren't considered multifamily properties. However, buildings with shared walls and separate utilities, even when the homes are attached on the same piece of land, would classify the property as multifamily.
5 Common Types of Multifamily Buildings
Multifamily properties may differ based on ownership and the offerings for its tenants. Here is a look at 5 common types of multifamily investment properties:
Apartments have an independent building owner that rents out individual units to tenants. Buildings may contain only units or may offer shared amenities for tenants, such as a pool or a fitness center.
Mixed-use developments are adjacent to office, retail and dining spaces, which provide access to workplaces, shops, restaurants and transit.
Age-restricted housing includes housing for seniors 55 and older.
Low-income housing is subsidized housing offered through government programs and isn't compared to market-rate housing.
Condominiums, co-ops and townhomes are centered around the idea of community and often come with shared amenities for residents. In a co-op, the investor purchases a share of the building and is given a long-term lease. Condos and townhomes are owned by the investor, who also has to contribute to a mortgage and property taxes.
Why Are Multifamily Units Appealing?
Multifamily assets are appealing for some investors due to their liquidity — or how fast the property can be sold at market value. Additionally, multifamily properties provide a consistent stream of income, through rent payment from tenants, and the property can often increase in value overtime.
Top Players in Multifamily Housing
CRE developers are responsible for overseeing the construction of new or existing buildings. Their income may come from either selling the property or owning and managing the property, and collecting rent from tenants.
When the developer also has an ownership stake in the project, they are known as a general partner. After construction, they need to make a decision on whether they want to continue to own or operate the building or sell it.
When developers make a fee on the development but do not own any piece of the project, they are fee-based.
CRE owners make money by owning the property and from the building’s appreciation. Owners should strive to have a 90% or greater occupancy rate.
CRE operators are companies that manage the rental process and oversee building operations. In some cases, operators also have a hand in development, determining a property’s approximate valuation and other services.
Here is some details on the CRE developers and owners/operators below:
Major Multifamily Real Estate Developers
Formed in 2011 and headquartered in Boca Raton, Florida, Mill Creek Residential develops, builds, acquires and operates community-oriented rentals across the U.S. The National Multifamily Housing Council ranks the company as the third-largest multifamily developer in the U.S. Its brands include Modera and Alister properties.
Mill Creek Residential owns, develops and constructs approximately 41,000 units, mainly in mid-rise residential. However, in early 2022, it also launched Amavi Homes, its single-family rental platform.
Over 275,000 developed rental units nationwide.
$25B in total transaction value on developments.
Headquartered in Atlanta, Wood Partners manages properties and handles development, construction and acquisitions within its offices across the U.S. The National Multifamily Housing Council ranks the company as the fourth-largest multifamily developer in the U.S. Among its assets are Alta properties.
Wood Partners has acquired and developed 90,000 multifamily homes. Its construction team builds a variety of multifamily apartments, including mid- and high-rise apartments, garden apartments, age-restricted housing and more.
In June 2022, Wood Partners announced in a statement that it teamed up with CP Capital to develop Alta North, a luxury residential community that will open in early 2023.
$17.5B in “combined capitalization.”
70 properties owned.
Assets are located in 22 markets and 15 states.
Established in 1997 and headquartered in Wellington, Florida, Bainbridge manages, constructs and develops properties that focus on bringing forth a premium living experience. The National Multifamily Housing Council ranks the company as the 12th-largest multifamily developer in the U.S. Among its assets are Bainbridge and Axis properties.
Bainbridge Cos. owns and manages primarily luxury residential apartments. In June 2022, the company said in a statement that it acquired 14 acres in Braunfels, Texas, to develop a garden-style residential apartment consisting of 291 units.
21,000 apartments owned and operated.
Assets are located in more than 33 markets across six states.
Major Multifamily Owner / Operators Include:
Formed in 1921 and headquartered in Bloomfield Hills, Michigan, Edward Rose & Sons is a family-owned company that owns and maintains apartments located in the Midwest, select states throughout the East Coast and Washington state.
During its 100 years of business, the company has been focused on creating luxury apartments. In January 2021, the company said in a statement that it was partnering with technology company Smart Rent to provide residents with smart home features.
66,000 units owned.
Assets are located across 15 states.
Headquartered in Houston, Camden Property Trust acquires and manages multifamily, retail and office spaces and also provides construction services. In its various U.S. markets, Camden's holdings range between two and 23 apartment communities.
Camden Property Trust is an S&P 500 company arranged like a publicly traded real estate investment trust, or a company that provides investment opportunities through stocks, mutual funds or other investment funds.
170 owned and managed apartment communities.
Approximately 59,000 apartments owned.
Manages 240K SF of office and retail.
Formed in 1960, GID is an owner, operator and developer of multifamily, industrial and mixed-use properties. The company has corporate offices in Atlanta, Boston, Dallas, New York and San Francisco.
GID has a vertical integration platform, which means it facilitates various components of management and development. The platform helps with running its more than 46,000 multifamily apartment units.
In July 2022, the company said in a statement that it is partnering with Hanover Co. on Hanover Edgewood, a 422-unit multifamily property adjacent to retail, restaurants and other points of interest.
$26.7B in assets overseen.
Manages 21M SF of industrial and other commercial properties.
Multifamily Housing Trends: Focus On Live-Work-Play
Over the last decade, the multifamily sector has been experiencing a rise in mixed-use spaces, with renters preferring their home, work and entertainment all in one place. RentCafe insights showed that as of June 2022, the number of apartments located in live-work-play communities increased from 10,000 apartments in 2012 to 43,700 in 2022, indicating that this trend isn't likely to slow anytime soon.
Key Multifamily Statistics
As of 2019, there were over 43.9 million multifamily residences.
As of 2019, New York-New Jersey-Pennsylvania had the largest apartment stock, with around 2.4 million units.
In 2021, $335B was invested in multifamily assets.
As of January 2022, the average cost of constructing an apartment building in the U.S. was $11M.
As of April 2022, New York had the most multifamily residences.
Top Multifamily News Story
Rent prices have been increasing throughout the U.S., and both building owners and renters are feeling the impact. Owners may increase rent to help with the cost of managing properties. Many renters are facing the possibility of having to leave their homes.
A ground lease expiration in a New York City co-op has led to a spike from $4.4M in ground rent to $26M per year beginning in 2025. Unless renters can purchase the land that the property stands on, they may no longer be able to live there. A lawsuit claims that the co-op board and the consulting firm are charging renters unfairly and are pushing them out.
The skyrocketing cost of housing and fears of an upcoming recession may keep renters from transitioning into homeownership. The construction industry has been experiencing rising costs and delayed project schedules. For these reasons, multifamily building owners may benefit from renters who are staying put.
Sandy Springs, Georgia, has been booming with new apartments and is no longer in need of more. The city instead could benefit more from creating housing for first-time homebuyers. One possible solution has been single-family homes that can be rented, but there are concerns that these homes would remain rentals and that homebuying would remain inaccessible for most residents.
A Comprehensive Guide