Multifamily Rentals “Boom” as Older Residents Opt for Convenience

The multifamily apartment complex is often built and marketed to urban millennials and young professional families. But today, the most profitable and appealing multifamily tenants are their parents. This “Silver Tsunami” of retiring baby boomers is quickly becoming a key contributor to a successful and profitable multifamily real estate boom.

Baby boomers are flocking to urban areas

A few numbers help clarify the opportunity that major baby boomer lifestyle changes present to investors. First, 693 million boomers worldwide will hit retirement ages in the next decade.[1] When they retire, they won’t stay in large-footprint suburban homes, either. They’re moving to urban communities in droves.[2]

Given that boomers hold well more than half of the nation’s wealth, you might assume they’d sell their empty nest and buy into a condo or a home in Florida.[3] But, according to U.S. Census Bureau figures, the 55-and-older demographic represented the largest jump in the renter population in the U.S., growing 38 percent between 2007 and 2017.[4] Even more definitive, the number of renters over age 65 increased by 43 percent.

What’s more, even as they exit the workforce, boomers are expected to represent a larger share of overall consumer spending in the next five years. They will account for 33% of aggregate spending in the U.S. by 2025 — even while the percentage of all other generations’ aggregate spending declines.[5]

With retirement savings and family home sales proceeds in their bank accounts, boomers seek more active, consumerist, and cosmopolitan lifestyles than the generation before them. They want convenient access to shopping, restaurants, entertainment, and transportation.

Their preference for urbanized suburbs offers a lower cost of living than big cities, for slightly more living space while providing a walkable and social lifestyle with a strong sense of community.

Multifamily rentals support boomer lifestyle preferences

Multifamily rental units are perfectly suited for their new lifestyle goals. Instead of spending on sprawling square footage and acreage they don’t need anymore, they’re moving their spending to consumption and convenience.

Urbanized, walkable town centers with retail, restaurants, entertainment, and health care services are ideal locations for multifamily builders courting older residents. The cost of living is more affordable than in dense urban centers. They also offer other luxuries, including high-end in-unit and building-wide amenities that cater to their lifestyle preferences and desire for community.

Plus, managed properties are both easier to take care of and easier to leave behind when traveling.

Are multifamily properties safe investments?

When considering multifamily real estate as an asset class, it’s essential to evaluate not only its potential profitability but its security in the face of economic uncertainty and potential downturns.

Fortunately, multifamily real estate tends to perform well in uncertain markets for the following reasons:

• Multifamily buildings typically feature larger tenant bases than other asset types, so individual vacancies don’t have the same material impact on revenue.
• The short-term nature of leases also allows property owners to react and adjust to changing economic conditions.

Unlike the retail, office, and hospitality sectors, the multifamily sector is not as impacted by economic uncertainty because people always need a place to live. It may seem overly simplistic, but the facts back this up. [6] The multifamily market has historically proven to recover more quickly from economic downturns. As Circle Squared CEO Jeff Sica said in a recent interview:

“During the Great Recession, multifamily rents were more resilient than those of office, industrial, and retail. Multifamily rents have outperformed those of the other major property sectors during and after the Great Recession in multiple ways. The sector experienced the lowest level of rent decline, the fastest recovery to pre-recession peaks, and the longest post-recession period of rent growth. While the COVID-19 outbreak is very different from the last few recessions, we are seeing, anecdotally, that people now have even stronger respect and appreciation for having a nice place to live.”

We believe the best is yet to come

Many locations are ideal for multifamily development to attract older generations. And energetic communities with walkable downtowns and easy access to larger metro hubs are drawing more interest from developers.

Want to learn more about this asset class? Circle Squared is proud to be a part of emerging trends with several multifamily completed projects. Additionally, we are always seeking to uncover the right opportunities in markets like Montclair, Morristown, Summit, Jersey City, and the Greater Hudson County, and from our perspective, demand, and competition for these sites continue to be robust.

Reach out, and let’s discuss what to look for as you explore your next real estate opportunity.

All investing involves risk, including the risk of loss of principal. Investors should be aware of additional risks associated with alternative investments due to factors such as economic and political instability, regulatory requirements, increased volatility, illiquidity, higher management fees, lack of performance history, currency fluctuation, and differences in auditing and other financial standards and that these risks can be accentuated in alternative investments. Alternative investments may be suitable only to those who understand and are willing to assume the economic, legal, and other risks involved. The foregoing is not a complete list of the risks involved with alternative investments. You should thoroughly review all pertinent offering documents with respect to alternative investments with your financial, legal and tax advisors to determine whether the investment is suitable for you in light of your investment objectives and financial circumstances. Circle Squared Alternative Investments, LLC (“CSQ”) is an SEC-registered investment adviser with its principal place of business in the State of New Jersey. Registration does not imply a certain level of skill or training. CSQ may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by CSQ with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration where the prospective client resides. For information pertaining to the registration status of CSQ, please contact CSQ or refer to the Investment Adviser Public Disclosure web site (SOURCES www.adviserinfo.sec.gov). For additional information about CSQ, including fees and services, send for our disclosure statement as set forth on Form ADV from CSQ using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

[1] (Rothstein, Bisnow.com, 2020)

[2] (Sisson, Curbed, 2019)

[3] (Pesce, MarketWatch, 2019)

[4] (Eastabrook, Forbes, 2019)

[5] (Best, Visa, 2018)

[6] (Marcut, Multi-Housing News, 2020)

Originally published at https://www.circlesquaredalts.com on November 3, 2020.