Multifamily: “The sector is an ideal and timely diversifier to our sizable US Portfolio”

Union Investment is a leading international investment company and has been investing in the US for over 30 years. Last year, Union Investment acquired US properties worth around half a billion dollars.

Why is the USA currently an interesting market for investors?
The US real estate market is the largest and most transparent real estate market in the world, offering an abundance of attractive opportunities. The depth of the market is truly unique and continues to provide our investors with an excellent risk adjusted return. Over the last couple of years, we have found it challenging to invest in the US market due to exorbitant hedging costs and travel limitations caused by the Covid-19 Pandemic. While the US team has remained active throughout this period, we are now able to acquire once more and look forward to realizing future opportunities in this very dynamic market.

In just three months since travel restrictions were lifted in late 2021, our US investment team based in New York was able to acquire four properties valued at over $425 million. This investment sum included our entry into two new asset classes for Union Investment in the US market, namely grocery anchored retail and multifamily.

What investment strategies are you pursuing in the region?
The Americas investment thesis is one that remains focused on core/core+ stable cash flow yielding opportunities in rising rental markets possessing diverse and long term economic drivers. The team successfully sources opportunities through its well-established geographic network on both the brokerage & principal side, as well as through the gold-standard reputation Union Investment enjoys as a reliable & trusted transaction partner throughout the region.

In the Americas, the investment team remains laser focused on the traditional core asset classes of office, urban retail & hospitality, with a fresh concentration on diversifying the portfolio into US multifamily as well as necessity based retail. Additionally, the team is exploring opportunities within the light industrial, life science & data center sectors.

What was the trigger that led Union Investment into entering the US multifamily sector?
Union Investment entered the US multifamily sector, as we view the asset class as an ideal and timely diversifier to our sizable US Portfolio, which has historically been heavily weighted towards office. Demand fundamentals for the asset class continue to be very robust in many of our target markets across the country.

Why is this a good time to invest?
The trend away from home ownership in the United States due to affordability, increased mobility & flexibility continues to be evident amongst the younger generations of American workers. At Union Investment, we see this trend continuing and view select markets as shining stars of this paradigm shift away from home ownership to renting.

Where do you see the most promising investment opportunities?
We continue to keep a very close eye on the growth markets of the American Sunbelt. While many of these markets were booming well in advance of the Covid-19 Pandemic, a few of them have witnessed “turbocharged” growth over the last two years. With increased flexibly around hybrid and remote work, coupled with affordability and increased quality of life seekers, a good many of these markets have been the beneficiaries of relocated corporations and workers away from the higher priced coastal cities. While these moves have dropped off with the worst of the Pandemic behind us, rising net in-migration continues to be in the single greatest driver of demand in many of these cities.

Is build-to-core an option for you?
Definitely yes. A build to core strategy is particularly interesting for Union Investment given the continued tight yield environment for US Multifamily. Despite several interest rate moves from the Fed, we still have not seen meaningful cap rate expansion on stabilized assets in several of our target markets. This is largely due to the fact that demand fundamentals for this sector remain consistently robust, even with such headwinds as labor shortages, lingering construction cost hikes and interest rate moves. We see the yield spread between acquiring existing assets and a build to core opportunities as quite attractive; we feel the demand fundamentals will continue to remain strong over the medium to long term further bolstering that narrative for Union Investment.

What are your future plans?
We will continue to assess opportunities in this compelling sector and will look to further diversity our US portfolio with additional US Multifamily assets.

Are there any lessons to be learned in Europe from the US experience?
The for-rent market is of course very different in continental Europe, but the one differentiating demand driver we continue to observe in the US resonating most with tenants, particularly younger renters, is amenities. Properties with the best amenities win the race; depending on market/region, these range from rooftop swimming pools, state of the art gyms, high-end game rooms, pet spas, golf simulators, concierge services, Amazon storage lockers, wine storage, etc. We have seen a noticeable gap in landlords’ ability to push rents where amenities are not cutting edge and relevant for today’s discerning renters.