January 3, 2024

By: Ben Nelson, Investor Relations Regional Manager

Multifamily The Golden Child of Commercial Real Estate

The Unwavering Appeal of Multifamily Real Estate in a Shifting Economy 

Multifamily real estate is often considered the “golden child” of commercial real estate (CRE) due to its resilience, consistent demand, and ability to generate steady cash flow, especially during economic downturns. The sector’s adaptability to changing market trends and demographic shifts further enhances its appeal in the commercial real estate landscape. 

Robust performance, marked by low default rates and quick recovery post-recession, is poised to continue. Additionally, transaction volumes are expected to pick up significantly by mid-2024, outpacing other CRE types.

As the economy rebounds from the challenges of recent years, the multifamily sector is primed for a significant upturn in transaction volume. This expected surge in multifamily transactions reflects broader economic trends and investor confidence, distinguishing it from other commercial real estate (CRE) segments.[1] 


Multifamily’s Superior Performance and Swift Recovery Post-Recession 

This sector has consistently outperformed other CRE segments in the aftermath of recessions, with its resilience primarily attributable to the inelastic nature of its demand. Housing, unlike commercial or retail spaces, is not a discretionary expenditure; it is a fundamental human need.  

Consequently, even during economic downturns, the demand for housing remains relatively stable. This stability is reflected in the sustained occupancy rates and rental incomes associated with multifamily properties, even during challenging economic periods. 

Moreover, this sector often benefits from countercyclical trends. In times of economic hardship, individuals and families tend to downsize or opt for more affordable housing solutions, which often include rental apartments.

As more people make the shift to renting over owning, the demand for multifamily units tends to remain robust, thereby supporting the sector’s overall performance.  

Demand is not the only factor impacted during times of economic uncertainty.

The sector’s unique relationship with inflation and rent growth offers a hedge against economic volatility, further enhancing its appeal in challenging times. 

This enduring demand, coupled with the sector’s historically lesser impact from economic downturns compared to other real estate sectors, positions multifamily investments as a wise choice for investors seeking to navigate through uncertain economic landscapes.[2] 

Let’s look specifically at Class B Multifamily properties. The resilience and performance of Class B multifamily properties, an asset class historically offering a balance of quality and affordability, has demonstrated strong stability in challenging economic times.  

The appeal of Class B multifamily properties lies in their ability to maintain consistent demand, lower vacancy rates, and have smaller rent fluctuations compared to Class A and C properties. These trends highlight the strategic value of investing in Class B multifamily properties during recessions, offering investors a blend of lower risk and reliable returns and providing a hedge against economic volatility.[3] 


An Asset Class That is Durable, Practical, and Adaptable  

The durability of the multifamily sector is underscored by its impressive track record during economic downturns, particularly during the Great Recession, where it reported less than a 1% default rate nationwide. This low default rate is a testament to the sector’s inherent stability and lends itself to the practicality of investing in the asset class.[4]

Multifamily properties typically offer more stable cash flows compared to other CRE segments. This is attributed to their shorter lease terms which allow for regular adjustments to market conditions. This flexibility ensures that rental income remains aligned with current market rates, providing a buffer against economic fluctuations. 

Furthermore, the sector has shown adaptability in responding to changing consumer preferences and demographic trends, such as the increasing preference for renting among millennials and the shift towards urban living. As home prices and interest rates remain at elevated levels, many potential homebuyers are opting for the simpler and more affordable path of renting.[5] 


Expected Increase in Multifamily Transaction Volume by Mid-2024 

Multifamily real estate is anticipated to experience a surge in transaction volume by mid-2024. This optimism stems from the sector’s enduring appeal and foundational role in the real estate landscape. Multifamily is projected to outpace other CRE segments for several reasons.  

  1. The fundamental need for housing ensures a steady demand for multifamily properties. Unlike commercial spaces that may lose relevance or undergo significant shifts in utility during economic changes, housing remains a perpetual necessity.  
  2. The demographic trends, particularly the growing urbanization and the increasing preference for flexible living arrangements, further bolster the demand for multifamily units.  
  3. The multifamily sector often benefits from a more favorable financing environment. Lenders view multifamily investments as lower risk due to the consistent cash flow and historically lower default rates. This perception encourages lending even in periods of economic uncertainty, facilitating transaction fluidity in the multifamily market.[6] 


A Critical View of the Fed’s Interest Rate Hikes 

In the current economic landscape, the Federal Reserve’s interest rate policies are under scrutiny, particularly their impact on various sectors, including housing. Some experts have taken a critical view arguing that the Fed’s interest rate hikes are unnecessary and potentially harmful. Emphasis is put on the housing market’s challenges, such as shortages in single-family homes and high mortgage rates, which cannot be resolved through higher rates.  

Three key challenges:  

  • The current nationwide shortage of single-family homes 
  • The impact of homeowners with a low mortgage rate “golden handcuffs”  
  • The inadequacy of the Owner’s Equivalent Rent measure in accurately reflecting rental price changes 

There is potential that lower mortgage rates, not higher ones, could help ease these issues, implying a misalignment between the Fed’s policies and the actual needs of the housing market. 

Critiques have been made regarding the Owner’s Equivalent Rent measure, arguing that it fails to accurately capture real changes in rental prices. This inaccuracy potentially misguides monetary policy. Beyond housing, this problem extends to broader economic factors such as labor and automobile markets, food shortages, and external geopolitical events like wars affecting energy prices.  

These ideas present a compelling argument that the Federal Reserve’s current approach may not effectively address the multifaceted issues within the housing sector, inviting a reevaluation of monetary policy strategies to better align with the diverse needs and realities of this dynamic sector.[7] 


Investor Confidence Fuels Multifamily Market’s Upward Trajectory 

The future of the multifamily market will hinge on a combination of economic indicators and investor sentiment, currently on a trajectory for growth and resilience. 

The anticipated increase in transaction volume by mid-2024, its robust performance in the face of economic adversity, and its adaptability to changing market dynamics position it as a key player in the CRE landscape.  

Despite concerns over rising interest rates and the potential for a moderate recession, investor interest in multifamily assets remains strong. The multifamily market is expected to not only withstand potential challenges, but thrive, offering promising opportunities for investors and developers alike. 

As such, multifamily real estate continues to be seen as the golden child of the CRE industry, offering both durability and opportunity in times of uncertainty and beyond. 



    1. “Midyear Pulse Check: U.S. Multifamily Market.” CBRE. September 14, 2023. https://www.cbre.com/insights/briefs/midyear-pulse-check-us-multifamily-market
    2. Agarwal, Swapnil. “Multifamily Investing In A Recession-Prone Environment.” Forbes. November 4, 2023. https://www.forbes.com/sites/forbesbusinesscouncil/2022/11/04/multifamily-investing-in-a-recession-prone-environment/?sh=27796b956e1b
    3. “Class B Multifamily Performed Best During Past Downturn.” CBRE. March 25, 2020. https://www.cbre.ca/insights/articles/class-b-multifamily-performed-best-during-past-downturn
    4. “How Multifamily Outperformed Other Real Estate Sectors in Past Recessions.” ArborCrowd. May 20, 2020. https://www.arborcrowd.com/real-estate-investing-learning-center/multifamily-outperforms-in-recessions
    5. Mekouar, Dora. “Young Compete Against Old in Hottest US Rental Market in a Decade.” VOA News. November 08, 2021. https://www.voanews.com/a/young-compete-against-old-in-crowded-us-rental-market-/6301836.html
    6. “2024 Multifamily Outlook.” Freddie Mac. 2023. https://mf.freddiemac.com/docs/2024_multifamily_outlook.pdf
    7. Ritholtz, Barry. “The Fed is Finished*.” The Big Picture. November 1, 2023. https://ritholtz.com/2023/11/the-fed-is-finished