Multifamily Performance During the Last Recession

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March 21, 2019

The question that we get from our investors often (and rightly so) is: “how did Multifamily, as an asset class, perform during the last recession in terms of the rent growth”?

The short answer: it outperformed.

More detailed answer:
According to research recently published by CBRE, during the last recession of 2008-2009, Multifamily experienced negative rent growth for only five quarters, with cumulative rent decline during that period of 7.9%. Not bad! For comparison, rents in Industrial, Office and Retail sectors declined 17.5%m 17.7% and 14.1%, respectively, from trough to peak; with negative growth continuing for 13 months for Industrial, 9 months for Office and 21 months for Retail (see the chart below).

As such, Multifamily sector is much more resilient than other types of commercial real estate and most properties in decent locations remained cash flow positive during the last recession which resulted in very low default rates on Multifamily loans (as was discussed in our previous piece).

In summary, we, as investors, should not be panicked by the prospect of upcoming recession. As long as we remain conservative in our underwriting, avoid short term debt and have sufficient cash reserves to last through a potential downturn, we should manage through the recession just fine. Yes, we will probably see some deteriorating occupancy and rent growth metrics but the duration of such period tends to be less than two years and most properties in the “good” markets (= population growth, job growth and job diversity with no industry representing more than 20% of the employment pool) should continue to generate cash even during the recession.