"We are starting to see different kinds of capital coming into the multifamily market," said Josh Grossman, Philadelphia-based senior vice president of real estate money management firm LEM Capital LLC.
These investors are drawn to the sector by the demand for apartments, which has risen to its highest level in more than 25 years, according to a report released Jan. 31 by data provider Trepp LLC.
Foreign capital, which had been focusing on the most stable properties in big-city locations, is moving into the multifamily sector in a big way, and not just into Class A properties.
Four of the top 10 buyers of multifamily properties in 2017 are based outside the U.S., Real Capital Analytics data show. The most active apartment building purchaser last year was Singapore's sovereign wealth fund GIC Private Ltd. The other three are Caisse de Depot et Placement du Quebec, Montreal; APG Group, Amsterdam; and Canada Pension Plan, Ottawa.
Last month, the C$328.2 billion ($266.5 billion) Canada Pension Plan and Singapore's GIC, with more than $100 billion in assets entered into a joint venture with global multifamily real estate firm Cortland Partners. The $550 million venture plans to renovate 8,000 to 10,000 Class B multifamily units in the U.S. (Class B buildings typically are older apartments that tend to have lower-income tenants than Class A, which are the highest quality apartments in an area.)
"The key attractions for the multifamily sector in the U.S. include the strong secular demand tailwinds in the U.S. (due to favorable trends in population and employment), the resilient return profile of the sector, and the opportunity to partner with quality managers," said Marissa Lum, a Singapore-based associate, corporate governance and communications office, at GIC, in an email.
In September, GIC invested in new multifamily real estate investment firm, Greystar Real Estate Partners' perpetual life fund, Greystar Growth & Income Fund. Other initial investors in the fund include APG Asset Management NV; Ivanhoe Cambridge, the real estate subsidiary of Quebec's Caisse; and PGGM, manager of the €185 billion ($218.5 billion) Pensioenfonds Zorg en Welzijn, Zeist, Netherlands.
"There's more capital allocated to multifamily, with a significant amount from overseas," said Steven DeFrancis, Atlanta-based CEO of Cortland.
Cortland executives expect the multifamily sector will enjoy "significant tailwinds" from baby boomers' and millennials' preference for rental apartments rather than home purchases for the next eight to 10 years, he said. At the same time, new apartment buildings are taking longer to complete due to a shortage of construction workers, keeping supply down , Mr. DeFrancis explained.
"Our partnership with GIC and CPPIB indicated a move of capital into U.S. multifamily by institutional investors from other parts of the globe," Mr. DeFrancis said.