While the housing market appears to be faring well against thecurrent recession, multifamily real estate in particulartraditionally performs best under economic distress. In otherwords, the expectations for the post-pandemic housing market arecompelling, and this is especially true for multifamily real estatesince it is often regarded as "the most resilient property sectorto recessions." For example, during the 2001 recession, USmultifamily property rents fell by 6.7%, whereas office rents fellby 7.4% and industrial rents fell by 17%. Furthermore,post-recession, US multifamily property rents grew at considerablyhigher rates than the rents of office properties and the rents ofindustrial properties. The multifamily housing market exhibitedsimilar behavior in 2008. During the 2008 recession, US multifamilyproperty rents fell by 7.9%, whereas office rents fell by 17.7%,industrial rents fell by 17.5% and retail rents fell by 14.1%.After the 2008 recession, multifamily rents exhibited a lower levelof rent decline and a higher level of post-recession growth thanoffice rents, industrial rents and retail rents. Therefore, "formultifamily owners and investors, the prospect of a comingrecession should offer pause, but not undue concern. Rent loss islikely, but expected for a limited period of time followed by astrong rebound."

Growing uncertainty regarding the long term impact of theCoronavirus has reduced current consumer spending and has delayedcurrent consumption. As such, Americans are reluctant to place downpayments on homes thereby committing to future debt obligations.Since the start of the pandemic, Americans have stopped looking forpermanent housing as revealed by the sudden and rapid drop in thenumber of privately owned housing demand. The fact that multifamilyrentals provide a short-term alternative to home ownership viatemporary housing further illustrates its ability to withstandharsh economic conditions. Not only does renting require lesscommitment than ownership since tenants are not contractually tiedto more substantial future payments, security deposits are moreaffordable and more feasible than down payments. Furthermore,renting provides more flexibility and accommodations in regards tolocation choice. Finally, as the remote work trend continues beyondCOVID-19, commute times and location will play a less importantrole in the home search for some buyers."

As such, in the current economic climate, we may see thetraditional pattern of a preference on permanent housing and homeownership transition to an emphasis on short-term, temporary,multifamily rentals. In the same token, given the multifamilyrental housing market's historic resiliency in the face of economicvolatility, real estate investors and property owners need to takeadvantage of various and diverse strategies to enhance and optimizetheir investment opportunities. The 1031 Exchange represents oneimportant option for implementing this approach.

A 1031 Exchange as a Means of Deferring Tax Payment on CapitalGains

A 1031 Exchange refers to Section 1031 of the United StatesInternal Revenue Code (IRC). , The IRC serves as the branch of theInternal Revenue Service which deals with the regulation andenforcement of domestic tax laws. Specifically, a 1031 Exchangecaptures a taxpayer's ability to defer tax payment on his/hercapital gains that result from the sale of their investmentproperty. These profits are instead reinvested into a replacementproperty of equal or greater value.