Dr. Mark Eppli of Marquette University presents initial findings from an in-depth study of apartment returns during the 2017 NMHC Fall Board of Directors and Advisory Committee Meeting.

Not only does the multifamily industry have strong fundamentals for the foreseeable future—research shows that we will have to build 4.6 million new apartments by 2030 just to keep up with the strong demand—but it’s got a long history of outperformance. That’s the pitch many industry executives have given investors. And now there’s some new research to prove it.


During the 2017 NMHC Fall Board of Directors and Advisory Committee Meeting, Dr. Mark Eppli, professor of finance and the Bell Chair in Real Estate at Marquette University, reported some initial findings from a new study on the risk-adjusted returns of apartments against other real estate classes over time and by geography. The study, which will be released later this fall, builds on previous work illustrating the benefits of investing in multifamily and is the first body of work coming out of the NMHC Research Foundation.


The takeaway: Apartments dominate other property classes in terms of risk-adjusted returns. And this holds true regardless of holding period (three, five, seven, 10 or even 15 years), geographic region or metro market tier. This outperformance has also been consistent over a long period of time.


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To arrive at this conclusion, Eppli and co-author Dr. Charles C. Tu of the University of San Diego, started with data from the National Council of Real Estate Investment Fiduciaries (NCREIF) from 1987-2016. They used this timeframe because, prior to 1987, apartments made up just 3 percent of the NCREIF Property Index (NPI); since then, apartments have significantly grown their share. From 1986 on, apartments have made up an average of 17 percent of the NCREIF index, accounting for $36 billion in market value. And at the end of 2016, that portion had climbed to 24.3 percent, or $128 billion in market value.


The researchers then conducted some returns analysis for apartments against industrial, office, retail and hotel property types, focusing on mean returns, standard deviation and Sharpe ratios. On a national basis, apartments outperformed the other asset types across all three measures. And the besting held up for three-, five-, seven-, 10- and 15-year holding periods.


So, the next thing the researchers investigated was whether the same outperformance could be seen across geographic regions over that same period of time. And the answer was, yes, apartment returns were stronger in every geographic region than those of other property types—and with little volatility.


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Digging deeper, the researchers conducted some market-level analysis. They began grouping metro areas into tiers based on a combination of both total employment and employment growth (%) and then ran the returns analysis once again. And the results were similar across market tiers. 


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Additional analysis of income and appreciation trends also showed that apartments provide an anecdotal hedge for inflation. Apartments have the lowest ratio of annual capital expenditures to property value, which is where other property classes are seeing returns negatively affected. Moreover, some preliminary regression analysis also reveals that apartment returns can be estimated with rather robust results.


For those wishing to review the information in more depth, Dr. Eppli’s full presentation deck is available here