A Look at Multifamily Housing: Q&A with Virtú Investment’s Mike Green
Mike Green, CEO of Virtú Investments, a multifamily real estate investment firm that has acquired and operated over 130 properties, totaling more than $3.7 billion in real estate, shed light on the current multifamily housing market.
Despite elevated interest rates and higher debt-to-equity ratios than in some other segments of the real estate industry, he highlighted that opportunities exist in regions where there is limited supply, rising demand, and property values well below their peak.
CM: Multifamily housing’s performance has been flagging in some markets, even as the U.S. housing shortage grinds on. What is causing the discrepancy?
MG: The discrepancy in multifamily housing performance from region to region can be attributed not surprisingly to supply/demand dynamics and the ability of a given market to absorb additional supply that has been recently added. In some regions, such as Seattle and San Diego, rising construction costs and regulatory challenges have made it less economically viable to develop new multifamily properties, leading to reduced supply because of a swifter turn off in the development pipelines as of late.
However, there is still strong job growth in these markets and demand from consumers for apartments, making multifamily investments for the intermediate to long term attractive to us. But in other markets like Phoenix and Austin, multifamily is seeing stagnating or non-existent rent growth due to the ease with which those geographies have added substantial apartment supply over the past few years.
These markets have substantial additional supply to be absorbed over the next few years before we expect any substantive rent growth. Therefore, we are not acquiring these markets currently, despite the strong job and demand growth that continues to persist.
CM: What do you see as the opportunistic plays in fast-growth U.S. markets?
MG: The opportunistic plays in fast-growth U.S. markets include investing in regions where there is limited supply, rising demand, and property values well below their peak. Fast-growth U.S. markets include Seattle, Washington; San Diego, California; Portland, Oregon and Chicago, Illinois; to name a few. These markets are characterized currently by steady, strong job growth, recovering downtowns, attractive quality of living factors, and scarcity of high-quality multifamily units.
Virtú Investments is capitalizing on these conditions through our acquisition of properties like Skyglass Tower in Seattle, ALX in San Diego, and Kearney Plaza in Portland. These acquisitions are strategic, focusing on markets where the potential for long-term rent growth and value appreciation is high, despite current economic challenges.
CM: Though multifamily appears to be a widely embraced property type among investors, you have indicated it belongs in more investment portfolios than it currently occupies.
MG: Multifamily real estate offers several advantages that make it an essential component of a diversified long-term investment portfolio, yet the asset class is often underrepresented. With the right portfolio, multifamily properties can provide consistent cash flow, especially in high-demand markets, and are less volatile compared to other real estate sectors. The ongoing housing shortage in the U.S. adds to the stability and growth potential of multifamily investments.
Furthermore, as seen with Virtú Investments’ strategy, there are significant tax advantages, particularly through vehicles like the Virtú Evergreen Fund, which allows for the deferral of taxes on gains and cash flow through 1031 Exchanges within the fund. This makes multifamily investments not only lucrative but also tax efficient.
CM: You have also indicated you’re a fan of the tax advantages multifamily properties confer.
MG: Multifamily properties offer several tax advantages that can significantly enhance an investor’s returns. Through strategies like 1031 Exchanges, investors can defer capital gains taxes by reinvesting proceeds from the sale of one property into another similar property. The Virtú Evergreen Fund, for instance, is structured to perpetually defer taxes on gains and cash flow, which allows investors to compound their wealth over the long term without the immediate tax burden.
Additionally, depreciation on multifamily properties can be used to offset income, reducing taxable income and enhancing after-tax cash flow. These tax benefits make multifamily properties particularly attractive for investors seeking long-term, tax-efficient growth.
CM: Where and what are the best opportunities currently?
MG: We see the best opportunities currently in coastal and gateway markets like Seattle, San Diego, and Portland, where there is a combination of limited supply (and often, difficulty to build), plus strong demand, and below-peak property values. Virtú Investments is actively acquiring properties in these markets as they represent significant opportunities for long-term value creation. For instance, the acquisitions of Skyglass Tower in Seattle and ALX in San Diego leverage the high demand for luxury apartments in areas with limited supply and strong employment growth.
Similarly, the purchase of Kearney Plaza in Portland capitalizes on what we see as the early stages of the market’s continued recovery as well as significant long-term growth potential, particularly in a low-supply environment where new developments are becoming scarce. These markets offer a unique entry point for investors looking to capitalize on the next market cycle.
