The Monthly Multiple: May 2022

June 1, 2022

Each month we bring you the best of what we’re reading in industry news & market trend commentary. Sign up here to get this curated news brief delivered directly to your inbox.

A Return to Normal…?

The era of restricted activity is all but over (at least for now). A maskless face would draw peevish glances in New York’s coffee shops and subways only a few months ago. The masks, the vaccine checks, and the anxiety seem to have all but vanished now. Not coincidentally, New York and other gateway markets are now gaining on the rest of the country after being hit hardest by the pandemic. Per Marcus & Millichap, the six core gateway metros recorded 6.2% year-over-year employment growth in March, on average, versus 4.5% for the nation overall. A few callouts:

  • Austin, TX: Despite above-average supply growth, a business-friendly environment, major corporate relocations, and healthy human capital all contribute to an appealing place to live and an appealing place to invest.
  • Oakland/East Bay Area: The Bay Area remains an appealing gateway metro for highly skilled workers. San Francisco remains the most expensive city in the country per rentable square foot. With large tech employers loosening remote work standards, the East Bay should remain appealing for both affluent renters and smaller employers seeking agglomerative economies of scale.
  • Seattle: The metro ranks as one of the most affluent in the country, and is increasingly regarded as more business-friendly than other West Coast markets. In a recent Axios poll, Seattle ranked as the most appealing destination in the country for college graduates.
  • New York: In Manhattan, Q4 office leasing activity increased to levels not seen since before the pandemic, signaling a long-term recovery is already underway.

For an overview of other cities we believe demonstrate strong fundamentals, please review this recent whitepaper.

markets to target in 2022 map

Why Stability Matters

Are we still talking about inflation? Yes, unfortunately we are. Including food and energy prices, the personal consumption expenditure (PCE) index jumped 6.6% year-over-year in March, the sharpest increase since 1982. This likely assured that the Fed would increase interest rates by half a point in May. Meanwhile, public equities (namely tech stocks) have endured a terrible month. So, despite sustained job growth and the return of real, live economic and cultural vibrance, public markets roil amid the twin anxieties of sustained inflation and potential recession. This may be a critical moment for stable, inflation-hedged assets. History tells us that multifamily holds up particularly well during turbulence, and now is a great moment for diversified, geographically dispersed opportunities in the sector.

Speaking of diversification, one study shows that it only takes 10+ investments to reduce almost 90% of the kurtosis in a portfolio and almost 70% of the standard deviation in a portfolio.

Standard Deviation, Skewness, and Kurtosis of Portfolio Returns with Increasing Diversification

With this in mind, some investors may want to consider allocating a portion of their portfolio to niche assets, like campgrounds, alongside more traditional asset classes like multifamily. We encourage investors to reflect on their investment goals, risk tolerances, and time horizons in order to inform their investment decisions and build diversified portfolios that are suitable for them.

Further Reading

Marcus & Millichap — Gateway Metro Apartment Performances Gain Momentum
Axios — Exclusive poll: Where college students want to move
Wall Street Journal — Investors Check Back Into Hotels as Travel Picks Up

Sources: Marcus & Millichap, Axios, Bisnow

New From The EquityMultiple Team

Multifamily REIT Dividends vs EquityMultiple Investments

A look at how EquityMultiple’s multifamily investments have performed versus publicly traded apartment REITs.


Whitepaper: 2022 Commercial Real Estate Market Overview

A review of 2021, and summary of our current investment thesis.


Asset Diversification: an EquityMultiple Case Study

An overview of diversification as an investment strategy, including an analysis of EquityMultiple’s portfolio data.


“Diversification, or the allocation of capital across types of assets that are not perfectly correlated, has historically proven to help drive down risk.”

*Past performance is no guarantee of future results. Aggregate return figures for these investor cohorts were derived by first calculating the dollar-weighted average return of each investor’s portfolio across all fully realized EquityMultiple investments as of 3/21/22, then calculating the mean, standard deviation, and coefficient of variance for each cohort.

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