Are Class-A Assets a Smart Choice in the 2020 Multifamily Market?
E ach stage in the real estate market cycle presents a variety of opportunities to shift the acquisitions thought process and the ability to various asset classes to our portfolio. Our team is constantly monitoring the ever-changing stages of the market cycles. As we move into the 2020 year, we have decided to continue looking for B+ assets in a solid, class A areas in markets with strong market fundamentals. In addition, we have decided to begin looking for class A assets which will provide some diversity to our portfolio in the coming year. As the market continues to stay strong and cap rates are low, we have seen the cap rate differential by Dan Handford, PassiveInvesting.com
between various asset classes has compressed significantly. In stable markets that we are currently seeking assets, there is very little different in cap rates from Class A to Class B to Class C. This makes it a very feasible option to start acquiring Class A assets as we move into 2020. You may be asking yourself about the risk in investing in Class A assets compared to Class B or possibly Class C. The best asset classes to be investing in a strong economy, like the one we are in right now, is Class B and Class A. We have researched the data back to the last recession in 2008 and noticed that the drop in vacancy across the asset classes was very little. It was between 30-50bps
between the various asset classes and this presents a very positive outlook for the Class A assets staying stable for a future recession. In order to fully understand the impact a recession has on the various asset classes; we must take a deeper dive into the difference between physical occupancy and economic occupancy. Physical occupancy is what tells us how many units are currently being occupied. This is a great stat, but this alone does not tell us how well a property is performing. We must be looking at the economic occupancy. The economic occupancy is what allows us to know how many of our residents are paying their rents. In the last recession we saw a
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