MARKET & TRENDS
MULTIFAMILY
4 Reasons Multifamily Isn’t in a Bubble Although the talk of bubbles is everywhere—from single-family homes, stock market to crypto—the apartment housing market not only will be impervious to the bubble bursting but will prove to be a protection and a beneficiary.
by Grant Cardone
ver the last decade, this country has printed more money than
flow. Investing in apartments allows ordinary people to protect their hard- earned money while they wait for appreciation and pay down debt. This is called “the ultimate multiplier.” Others call it leverage. There are four reasons apartments are impervious to an asset meltdown. Let’s look at each one. NO. 1 Lowest Leverage in History Unlike 2008, those buying apart- ments today are using the lowest leverage in history. Apartment loans being processed today are somewhere between 55%-75% leverage. Rents, occupancy, and values would have to collapse to negatively impact the sector at this time. Also, a great deal of this debt is a 10-year term at fixed rates during a time when apartments are experiencing the highest occupan- cies and rent growth in U.S. history. NO. 2 Yield Scarcity There is virtually no place to get yield today anywhere on the planet. This is a worldwide problem. 10-year Treasury will pay 1.7%—and the money is locked up for 10 years. The average checking account today pays less than a quarter of 1%. A core apartment deal like the one you see
in the accompanying image will still deliver 5%-6% cash flow to investors, after debt and operations to inves- tors. That is 24 times what a check- ing account pays. And there is some $10 trillion sitting in cash accounts. NO. 3 Worldwide Inflation Inflation will continue to push all costs associated with permitting and building modern housing. The reason single-family homes are not being built in numbers today is because the market won’t bear the cost of doing so. Instead, builders can spread the inflated cost of concrete, glass, labor, appliances, government intervention, and regulation across hundreds of units rather than one single-fam- ily home. You simply cannot build affordable single-family homes today because of inflation. New apartment housing will continue to rise. NO. 4 Home OwnershipMyth The fantasy of homeownership as the American dream is over. It has been forever tarnished beyond repair when millions of Americans had that dream ripped from them in 2008-2010. Many of those homes are still underwater. Add to that the social change of the millions of people today waiting longer
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in the previous 95 years. In addition, there are fewer and fewer places where individuals and institutions can get yield on their cash. When the asset craze finally does bust, the money moving from those assets— stocks, crypto, and single-family housing—will seek protection and yield. Money from the sales of those assets will not simply sit on the sidelines. Instead, they will seek the safest place to fight off inflation and achieve yield. The meltdown will not change the fact that people still need a place to live. During the pandemic, every non- essential business, including bars, schools, government, office build - ings, stadiums, hotels, shopping cen- ters, malls, and even churches, were closed. Not one apartment building in America was shut down for even a day, however. In fact, apartments continued to operate and provide operations and investors with cash flow. Institutional money moved from investing in hotels, retail, and office to apartments because apartments are the investment vehicle that pro- vides a safe place to keep money, receive money, and multiply money. Apartments are real, tangible assets that produce positive cash
58 | think realty magazine :: march – april 2022
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