European investors of multifamily properties such as apartment complexes, condo buildings or duplexes are starting to take a firm stand on meeting environmental, social and governance metrics.
According to the MSCI and Real Capital Analytics’ 2022 Cross-Border Compendium shared with Multifamily Dive, a whopping $70.8 billion dollars was spent on commercial real estate in the U.S., which is almost twice the deal volume in 2020.
According to the 2021 Association of Foreign Investors in Real Estate (AFIRE), over the next 3-5 years, 86% of foreign investors plan to increase their positions in multifamily properties, making it the most favored property type. Expert analysts are insisting that the markets for this type of investment are evolving. As renters leave large coastal gateway metros for the Sun Belt and growing tech hubs, cross-border investors are following them.
According to a Census Bureau report, between mid-2020 and mid-2021, New York, Chicago, and San Francisco approx. 700,000 residents while Phoenix, Houston, Dallas, Austin and Atlanta gained 300,000.
According to Jim Costello, senior vice president and chief economist for RCA, as foreign investors head to the suburbs, they are seemingly becoming more attracted to investing in smaller garden-style apartment buildings which are more prevalent there, but they still lean heavily toward new high-rise buildings.
Cross-border investors look for more conservative assets, Costello said, adding, “They have a lot of money to deploy at once, and they’re not going to buy a $2 million apartment building in Knoxville, Tennessee. Not that that’s not a great apartment building or a great investment — it’s just that, operationally, they can’t get their heads around it.”
They are also looking at student and senior housing, specifically looking for ESG-compliant assets, according to CBRE’s 2022 Multifamily U.S. Real Estate Market Outlook. Investors from Europe, where these types of environmental, social and governance requirements are expected, are starting to insist properties meet sustainability, resilience and wellness metrics.
“Particular investors, especially from Europe, will not touch any property that does not check several of these boxes,” according to Riaz Cassum, executive managing director, capital markets, and global head of international capital coverage for JLL. “That’s why the German funds, for example … won’t go into committee with a deal that doesn’t check those boxes because it won’t be approved.”
Aaron Jodka, national director of capital markets research for Colliers, expects more cross-border investment in affordable housing as pension funds and individual companies focus more on ESG. “That social aspect in housing has been a perennial challenge in the United States,” he said. “That will be an interesting dynamic to watch in years to come.”