On the minds of residential investing experts

What is the current appetite for residential property investing and how has that changed in recent years?

John Williams, president, CIO and COO, Avanath Capital Management: Appetite is growing as demand outpaces supply in many markets, and recent oversupply should be absorbed quickly. What changed in recent years is the availability and cost of capital. Fortunately, the affordable housing sector has access to alternative financing from government agencies and public-private partnerships that can move deals across the finish line.

John German, managing director, alternative investments, Invesco Real Estate: Investors have recently transitioned away from fund investments to more direct or small club-style investments while moving from forward funding structures to joint ventures with a better yield on cost, and in some instances investing in op-co/prop-co structures as the markets mature.

Helen Streeton, head of BTR, Forsters: Investment into BTR continues despite economic headwinds as demand outstrips supply. In 2023, the BTR market saw £4.5 billion ($5.7 billion; €5.3 billion) invested. Housebuilders continue to face challenging conditions, meaning that investment is greatly needed to tackle the UK’s housing shortage.

Tricia Peterson, managing partner, Accord Group: The US faces a critical shortage of housing, so appetite remains strong and demographic trends support this. Until recently, most institutional exposure was in multifamily, but as portfolios have grown and matured, many investors are looking for exposure in other subsectors.

Quentin Kerrault, head of investment, ARA Europe: Residential has demonstrated remarkable resilience and consistency while fundamentals remained robust. Over the past decade, there has been a growing demand for senior living, student housing and co-living subsectors, which enables investors to create alpha.

Brian Good, managing partner, iBorrow: As a private lender financing US multifamily, we are seeing far more refinance than acquisition loans today, but we expect that to shift as markets settle towards the end of this year. Multifamily had been a sure bet for the past 30 years, but that standard no longer holds.

What do you see as the biggest risks, challenges or issues facing residential investing?

Cath Webster, CEO, Thriving Investments: Regulation continues to be a stumbling block, especially in the open-market rental sector where questions of affordability may lead to further policy tightening – as we saw in Scotland – which would make the sector less appealing to investors. Separately, rising building costs must be managed.

Eric Shepsman, managing director, real estate Americas, Partners Group: The number one issue on everyone’s mind has to be supply and absorption. Many growth markets have concessions, and not just on new builds, but are still yet to deliver peak supply. Uncertainty around interest rates and inflation are also key considerations impacting valuations.

Jonathan Dubois-Phillips, president, international real estate, QuadReal: Just as there are structural tailwinds fueling rent and capital growth, there are structural headwinds beyond cyclical impacts like rising interest rates and inflation. The tenor of rent control is rising globally, as are affordability, environmental and building/planning concerns, but these are not insurmountable.

Tricia Peterson: Three big risks we see are: oversupply in certain geographic markets, increasing insurance costs, and political and regulatory risks surrounding rent control policies. Even with positive long-term demographic trends, these issues could easily destabilize a multifamily investment or project.

Marshall Boyd, co-president, CIO, Interstate Equities Corp: High interest rates are limiting borrowing power, delaying many middle-income families from buying homes. If interest rates come down or home prices shift meaningfully, we could see people moving out of well-located multifamily.

Antonio Marquez, principal, managing partner, Comunidad Partners: The largest challenges facing the industry are regulatory risks, including rent control at the local level, insurance and risk management, and collections impairment or rent delinquency.

Which residential subsector or geography are you most excited about today, and why?

Quentin Kerrault: Senior living and student housing have emerged as two key subsectors attracting a lot of inflows from investors attracted to the strong operational performance, increased returns and a more predictable regulatory framework for operational real estate.

John German: In the UK, single-family and co-living offer interesting opportunities, and there is still an early mover advantage. In addition, emerging rental markets like Spain and Poland offer compelling returns for both BTR and BTS investments.

Marshall Boyd: Workforce housing, particularly in the US West Coast, is very exciting right now. Class B rentals were the most resilient last year, and those fundamentals are likely to remain in place thanks to the limited supply of attainable housing.

Michael Bickford, CEO, Round Hill Capital: Multifamily, student and senior assets in markets where there is significant supply/demand imbalance – which is most urban markets in Europe – are exciting. We acquire existing assets or fund developments offering discounted pricing and management or value-add opportunities.

John Williams: The affordable and workforce housing sector is seeing incredible promise. Legislation to assist development in this subsector is growing. Ongoing demand, scarcity of supply and rising investor interest are boosting capital inflows and will help carry it forward in the second half of the year and into 2025.

Andrew Allen, CIO, equity investment, Savills IM: There are few subsectors that have adequate provision, either by volume or quality, so we see opportunity across global markets. Cautious investors will be attracted to repriced income-producing assets, while higher risk strategies like delivering much needed housing will be rewarding.

What do you think the future holds for residential property investing or the sector as a whole?

John Williams: No down cycle lasts forever; eventually interest rates will come down, likely later this year. There will always be demand for high-quality places to live. The residential sector has a history of identifying solutions to any challenge we face, so the future looks bright.

Antonio Marquez: Strong fundamentals, capital availability and political support for affordable workforce housing will position it as a desired asset class thanks to continued interest by impact and institutional investors domestically and abroad.

Quentin Kerrault: The sector will remain a stable and predictable option for long-term investors. The shift towards more intensive operational models like senior and student housing will continue to draw capital from investors willing to accept higher risk for greater returns.

Michael Bickford: ESG-led, value-add strategies will become more prominent since sustainability and community initiatives can generate significant alpha. Traditional equity investors are primed to shift to higher risk and infrastructure strategies in search of returns.

Robert Lang, managing director, CRE, Revitate: Demand for workforce housing will continue to grow. In many markets, like the US Midwest, it is simply a matter of supply and demand. Private equity investors are likely to have a meaningful role in helping to preserve workforce housing, providing them with stable returns.

Marshall Boyd: More capital earmarked for other asset classes will flow into residential. It will be more growth-oriented and could increase competition. I also see each sector healing on its own distinct timeline and a clear delineation between markets.