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Multifamily model continues upward trend in 2021: ONE Real Estate Investment

Real estate assets have always been considered one of the best investments that provide attractive returns mainly in crisis situations in which the real estate market has been resilient.

Such is the case of the residential sector, which remained stable during 2020 and has registered an upward trend at the end of the same year and early 2021 . Result of the natural need for housing and the importance it acquired during the multiple confinements.

Various specialists highlight that the multifamily or residential rental model is one of the most strengthened after the events of last year, since it allows granting housing to those who cannot or do not wish to purchase a property at that time.

In the United States, the multifamily is a mature market, which in times of crisis, has remained firm compared to other types of real estate assets.

According to CBRE, only at the end of 2019, it was recorded that 35% of the American population preferred to rent rather than buy a house, a figure that has grown over the years.

Fact confirmed by RealPage, noting that the demand for this type of housing increased 60% in 2020 compared to 2019. While in 2021, with the reopening of local economies, the demand has been boosted.

According to the Apartment Rents Surge in April market study , demand increased 1.3% in April (the fastest pace observed for a single month in the last decade). Rebound that occurred, mainly in luxury Class A properties.

"Class A communities posted 2% rental growth for the month, compared to increases of 1.3% for mid-market Class B projects and 0.3% in Class C inventory."

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It should be noted that this model also registered during the pandemic, a greater preference for less urban regions that offered properties with more space for the same or lower cost.

Jeronimo Hirschfeld, Founder and CEO of ONE Real Estate Investment (OREI), pointed out in an exclusive interview for Inmobiliare, that since the start of the health crisis , the departure of people from cities like New York amounts to more than 450 thousand, which has left a high number of vacant units.

"The ease and comfort that the remote work scheme has provided throughout the world, has made large cities like New York register a large vacancy in apartments and buildings for rent. Today, they offer you two to three months free if you sign a one-year contract, they are giving a 20% discount. I have never seen anything like this, and this is because people prefer to look for more space for the same rent payment".

Cities such as Austin, Arizona, San Antonio, Dallas, North Carolina, Charlotte, Harvey and Fayetteville, are some where the company has seen higher demand.

Likewise, it indicates that despite the situation experienced last year, in which there was a slight slowdown in the market, 111 billion dollars in transactions were reported, so for the current year, they estimate around 125 billion . A figure that still remains below the more than 138 billion in 2019.

Safe, profitable and value-added business model

Jeronimo Hirschfeld, details that despite the fact that the real estate industry has shown strength throughout the different crises, the housing sector has been one of the most stable, which is why it has also become one of the most attractive markets , mainly the multifamily, in which he has more than 20 years of experience.

Experience he has built since 2001, the year he founded One Real Estate Investment, a private multi-family asset management and real estate investment company based in Miami, Florida. "I saw the opportunity to acquire three properties that were empty and had few units. This is how the idea of ​​creating One Real Estate Investment came about".

Company that is dedicated to the acquisition of multifamily assets in the southeastern United States, in cities such as Texas, Arizona, Colorado, North Carolina and Florida. Mainly in properties of between 200 and 400 apartments; which are completely remodeled, both common areas and each of the units.

"What we do is make improvements in the common areas and then we get to remodel these apartments that are usually one or two rooms, that is, units of between 80 and 90 square meters. Which allows us to increase rents, create a greater appreciation of the property and a greater flow".

Investments that last from 4 to 5 years (investment period) since sometimes the properties acquired are 95% occupied, so the remodeling of the apartments is carried out as the contracts expire month by month.

Similarly, it indicates that another of the factors that allows them to obtain a greater capital gain is location; which is why OREI focuses on buying properties close to major cities. No more than 20 or 30 minutes away, allowing them to obtain higher demand and create added value.

Another situation that has also benefited them after the change in routine that 2020 left, is the market demand, since it has proven to be a 100% profitable and safe model compared to that of offices, which was seriously affected after the use of schemes such as the home office.

Which, according to the CEO, is expected to continue for at least two more years, so the idea of ​​the company is to continue creating spaces that offer recreation areas, quality of life and work at the same time.

"We are constantly looking for purchase opportunities, today there is a great appetite to acquire and invest in this type of property. In 2020 many investors decided not to risk it, so this year there is plenty of capital. Where they have to be investing today is in the multifamily."

He explains that it is a market with little risk that gives quite generous returns, since it is about existing properties, of which their history and occupancy numbers are known.

Most of them are properties built between 1985 and 2010, so the improvements made make them even more competitive. "They defend themselves quite well, especially during crises, since that is when occupancy levels rise. Result of the slowdown in the economy, so those who paid rents of four or five thousand dollars, now look for something more accessible. Today we have about 14,000 people living in our complexes, a number that continues to increase".

The rents that OREI manages are located in a range between 800 and 1,400 dollars, which allows it to capture a niche made up of approximately 200 thousand inhabitants in the United States.

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2021, synonymous with growth and technological vanguard

Currently, OREI has a portfolio of more than 5,800 departments, of which 2,000 correspond to nine transactions carried out last year. So his vision for 2021 is to achieve the same numbers, staying within a range of 2,500 new units, that is, about 11 properties.

The idea is to continue with the same business model and strategy that we have had for 20 years, we have become experts in this area. It is a very attractive market, especially when you balance the risk versus the return that we are generating for investors".

Yields that to date, with the purchase of the most recent properties, are located in Tir annualized of around 14 to 16 percent. "Very generous returns, if we take into consideration the type of risks with an existing property, which is already rented and has a high occupancy."

On the other hand, the also founder of OREI, mentions that the company has implemented software that allows better communication with investors. An application in which they can be aware of the financial statements of each of the properties in which they participate, which gives them access to information such as the level of occupancy and service and operating expenses.

"The more transparent and more information we can provide to investors, the more attractive it is to people; so as we grow and the company evolves, we focus on designing different options to facilitate communication with each of our investors. "

Finally, Jeronimo Hirschfeld, highlights that the multifamily market will continue to grow, which will bring greater benefits for the sector and those who decide to invest in it.