How to Raise Capital for Multifamily Investments

LOS ANGELES—Multifamily is an easy asset to raise capital for. Why/? Because it performs. Those thoughts are according to Louis Rogers, founder and CEO of Capital Square, who spoke at the recent GlobeSt. Multifamily national conference here at the JW Marriott LA LIVE. 

There are numerous securities offering methodologies to drive fundraising in multifamily, he explained. He pointed to Reg. D private placements, 1933 Act public offerings, Reg. A quasi-public offerings, and 1940 Act investment company offerings, to name a few. “All result in billions of dollars that are raised for real estate investments, including multifamily assets,” he said. “There is a plethora of private, public and quasi-public fundraising options drive fundraising for multifamily assets.”

BREAKDOWN OF INVESTMENT STRATEGIES

The first strategy he discussed is the Delaware Statutory Trusts for 1031 Exchanges, which, according to Rogers, is a “golden oldie” first adopted in 1921. He said that it is “a tax deferral that can last for decades,” and can be exchanged over and over again. The DST is a way of fundraising for 1031 and is extremely favored, he added. 

There is no 1031 tax reform being discussed currently, he said, although that can always be a concern. “There have been decades of favorable interpretation, though,” Rogers said, so reform is unlikely. “This type of investment strategy is estimated to be 15% to 20% of the real estate market—translating to $120-$160 billion.” In 2022 alone, he said, the estimated capital raised was around $10 billion with an estimate transaction value for 2022 at around $20 billion with debt.

The second strategy he pointed to were opportunity zone funds, which provide tax benefits to stimulate economic growth in designated low-income urban and rural communities. This strategy, he said, had a slow start due to regulator uncertainty. The positives for this fundraising strategy, according to Rogers, is that is helps to solve the housing crisis by building in inner cities and contiguous neighborhoods.

The third strategy, according to Rogers were to invest in REITS, which have shown stable income and growth from real estate investments.  “Year-to-date, non-traded REITs have raised $26 billion up from $21.4 billion for the same period of 2021.”

He discussed interval funds as another fundraising strategy, noting that it is another tool in the fundraising arsenal. And the fifth strategy mentioned was to develop new housing.

WHY IS IT “THE GOLDEN AGE”?

As for why Rogers considers this “The Golden Age” of multifamily investing, he says it is because multifamily assets perform at “an exceptionally high level.”

He explains that despite a global pandemic that shut down portions of the US economy, multifamily assets had inflation protection, exceptional rent growth, low defaults, high occupancy and superior financing. 

The returns on these assets, according to Rogers have been around 9.4% annual growth with the highest 10-year average return. “These investments (if not overleveraged) have never lost money in over 44 years… It is a safe harbor with no negative returns and downside protection.”

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