Over the last three decades, apartments have become a recognized and desired asset class among real estate investors, both domestic and foreign. One reason for the investor interest is that apartment returns have outperformed other property-types. While the underlying characteristics of apartment, office, retail, and industrial properties differ, one might expect that over time, competition would narrow, if not eliminate, apartment return over-performance as apartment returns will mean-revert across time.

In fact, apartment returns, on both a risk-adjusted and unadjusted basis, exceed those of other real estate asset types regardless of holding period, geographic region, metro area size and growth rate. The authors find that this stems in part from investors under-estimating capital expenditures for both office and industrial properties.

In the first work of research funded by NMHC’s Research Foundation, Professors Mark J Eppli and Charles C. Tu then examine a wide range of property and financial market characteristics to try to find insights into expected investment returns. One result: acquiring properties immediately after a downturn boosts returns.