Multifamily is invariably on hot. It is a favored asset class in many markets, especially in Los Angeles. While the multifamily is popular, some investors are steering clear because of the compressed cap rates and high competition from institutional players. Cash Flow Connections is one such investor, choosing to focus on self-storage product, where there are better returns. We sat down with Hunter Thompson, founder of Cash Flow Connections, for an exclusive interview to talk about his investment strategy away from multifamily.

GlobeSt.com: You have invested in multifamily in the past. Why aren't you investing in multifamily today?

Hunter Thompson: I have invested in multifamily in the past, but I haven't done so recently because it is very hard to find risk-adjusted returns in that sector, because it is so competitive. One of the advantages of self-storage is that the purchase prices typically aren't high enough to attract major institutional players, and the asset class isn't as sexy as some of the multifamily apartments out there. I am looking at the differential in the ability to achieve the returns that we are looking for by staying away from certain asset classes, most notably multifamily. It is just really challenging.

GlobeSt.com: Why is multifamily so competitive, as opposed to other asset classes?

Thompson: Everyone is hip to the fact that buying houses is not going to as popular going forward, particularly in major markets like Los Angeles and San Francisco. At the same time, I think that a lot of those sources saying that millennials don't want to buy houses anymore are talking about the prime markets. If you talk to the average millennial in Kansas City, they want to buy a house. They want to, but in highly primed markets, it is challenging.

GlobeSt.com: You are focusing on self-storage product instead. Why aren't you seeing the same issues in this market, especially considering that the multifamily and self-storage markets share drivers?

Thompson: It is almost incomprehensible to hear of someone raising $100 million to buy self-storage, and there are a lot of reasons for that. One is that if you are raising $100 million and you are using leverage, you are buying $300 million of property. To buy $300 million of self-storage, with purchase prices in between $5 million and $20 million, would take a lot of time. There are many apartment properties out there worth $50 million, so those players tend to focus on that product.

Instant Insights /

Competition in Multifamily Drives Investors to Alternative Asset Classes

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