Look ahead 2024: The evolution of the multifamily sector

As the multifamily sector has evolved into a number of distinct subsectors, lenders and investors are taking a new look at where value lies in the capital stack – and which asset classes are set to outperform.

The US multifamily lending and investment sector is evolving rapidly, changing from what was once a focus on for-rental housing to a diversified asset class which includes workforce housing, affordable housing, senior living, student housing, single-family residential and build-to-rent communities, and manufactured housing.

But a key driver of lending and investment activity in the coming years will be driven by a widespread affordability crisis, with market participants looking at new structures to create more housing that is affordable for everyone, said Alicia Glen, founder and managing principal of New York-based development company MSquared.

“The capital markets for affordable housing and market-rate housing are fairly robust and there is a well-understood playbook for pure, affordable low-income housing and market-rate housing,” Glen said. “We really think that combining these two asset classes presents a unique opportunity to contribute towards solving the housing crisis.”

With this investment thesis, MSquared’s strategy has focused on combining these two types of residents, with a further overlay of proximity to public transportation and other services to create mixed-income, mixed-use communities – in the same building, if possible. “These are all factors which have a significant impact on affordability,” Glen added.

As the multifamily market evolves, so are its investors. “We need different kinds of investors who understand the connection between affordability, sustainability and diversity of income and people – both in the buildings themselves, and in this field,” Glen added.

She continued: “Our strategy of leveraging public sector housing and urban revitalization programs to drive multiple social impacts also offers a very interesting financial proposition for investors. If we want to break the status quo, we need to have different players at the table with myriad skill sets and perspectives. We need to understand the difference between policy and finance and how we use both to put these deals together.”

Public-private partnerships

Los Angeles-based Primestor Development, a multifamily developer focused on building mixed-use workforce and affordable housing in West Coast markets, recently held a topping out ceremony for a seven-story Los Angeles development it is working on with partners that include BRIDGE Housing, Los Angeles County and the Coalition for Responsible Community Development.

Evermont, the mixed-use property in South Los Angeles, is a public-private partnership expected to be completed in the third quarter of 2024 and will comprise 180 affordable apartments, including a concentration in senior housing, a Target and additional retail and commercial space. It is also adjacent to a transit hub, noted chief executive Arturo Sneider.

The firm, which has been focusing on developments in primarily Latino sub-markets for more than 32 years, focuses on what it believes is the disconnect between the demographic reality of Latino neighborhoods and populations in the US and the real estate and business environment related to those communities.

“We are a firm that focuses on urban infill development and redevelopment in very dense areas where others historically have not been willing to invest. Our biggest focus is around consensus planning and community building strategies,” Sneider said.

The firm, which often operates within public-private partnerships, is also very focused on building near public transportation. “We are looking for projects located at or within walking distance of transit stops and also allow for the development of mixed-use space for medical services, commercial or retail,” Sneider said.

Primestor has a hefty pipeline of about a half-billion dollars and is looking forward to moving ahead.

“It helps us that we have longstanding relationships with lenders and have done a lot of repeat business because they know our style and underwriting criteria. We continue to find that we can do either construction or permanent financing and will be testing the market soon on a couple of larger projects.”

Scaling SFR and BTR

While mixed-use and mixed-income developments have been rising in urban markets, single-family residential and build-to-rent projects have been taking center stage in more suburban markets, according to a report from Berkadia.

The New York-based advisory sees the growth in these projects as the next step in the evolution of the multifamily sector, with Mackinley Robinson, a senior director at Berkadia Commercial Mortgage, noting the SFR space is the fastest-growing component of the US housing market.

Berkadia cited a 3.5 million gap in housing units as well as the increased cost of buying a home as key drivers for investors, with end-users – tenants – wanting to rent because of the ability to have neighborhood optionality and low-density living.

The firm has increased its focus on the sector as it has followed clients into the space, putting into place a dedicated team.

“Over the past three to four years, we have seen notable clients move into this space or dedicate a portion of their investing into this space. There are more investors, both public and private funds entering the space every day,” Robinson said.

There is a primary delineation between how terminology is typically used between BTR and SFR that is important to understand, Robinson said. The BTR sector is comprised of purpose-built communities that are typically contiguous and adjacent. “This is as opposed to the scattered site-SFR space, where investors are buying sections of a subdivision and lumping them together, or going in and buying homes by zip code.”

The largest lenders on permanent debt in BTR are Fannie Mae and Freddie Mac, with the ability of HUD to complete loans as well subject to more specifications concerning building density and accessibility. “On the scattered site type of projects, we are seeing primarily the large money center banks continue to serve that market,” Robinson added.

These projects fit in a middle ground between multifamily and single-family. While there is not a strong overlap, there are some synergies. “To get a single-family mortgage is completely different from getting a mortgage for five units, the technical delineation of residential and commercial real estate,” Robinson said. “On the scattered site side of the business, we are pulling from a single-family world and modifying it to work for a commercial use. On BTR, we are pulling it from a traditional multifamily world. Either way, we have to modify and adapt, and it involves a very hands-on and active approach to the capitalization.”

The BTR sector has not been insulated from the macro-economic impact, with Robinson noting debt and equity is more restrictive and selective.

“Lenders are looking for deals that check more boxes with stronger clients. It has been harder to source and find capital to put into projects across the board,” Robinson said. “That said, two or three years ago there were one or two players in the SFR/BTR space and now we are seeing an average of one a month enter the space as a lender or equity partner. In general, groups are becoming more comfortable with the product-type as they see more data demonstrating benefits that otherwise compliment their portfolios.”


As the commercial real estate market gears up for its next cycle, Glen believes there will be more focus on mixed-income housing and projects and an increase in interest from lenders in this sector.

“Beginning to figure out how to leverage market rate development and private sources of capital is also becoming increasingly interesting to affordable housing developers. We can source deals through the affordable housing and market rate world and also the public sector, which is increasingly realizing that a segmented approach is not producing the best outcomes,” Glen said.

Although the idea of office-to-residential conversions is much-discussed, Glen believes this will happen mostly around the edges in urban markets.

“The idea that you’d want to permanently remove a lot of class B office stock from New York is a long-term mistake,” Glen said. “It would be short-sighted to do any sort of wholesale conversion of class B office space because it will ultimately undermine the city’s growth for smaller companies. Additionally, most office stock is not in neighborhoods that are meant to be lived in, and the buildings were not designed to accommodate quality residential.”