🏘️ Institutional Cap Rates, the #1 Investment Class, and Coffee Clozers

Smart Money on Wall St Is Betting on a Bright Future for Multifamily and SFR Housing

Recent real estate deals by Blackstone, the world’s largest alternative asset manager with over $1 trillion under management, suggest the company is bullish on the future of the sector though the cap rate on its latest purchases are just north of 5%.

Like many institutional buyers, Blackstone paused its buying during 2023 while interest rates ticked upward — the 30-year mortgage rate peaked at 7.29 percent in November — but it has resumed its aggressive efforts in both the single-family residential and multifamily markets.

It paid $3.5 billion for the Toronto-based Tricon Residential and its portfolio of 38,000 single-family residential (SFR) homes in January of this year, and announced in April that it would acquire Denver-based Apartment Income REIT Corp. for approximately $10 billion, paying $39.12 per share, a 25% premium on AIR’s share price as of April 5. 

Blackstone, which announced on June 28 that the deal had closed, obtained 77 communities totaling 27,385 apartment homes located in 10 states and the District of Columbia. Industry observers say it is paying a 26% discount to the net asset value, showing a gap between public and private real estate valuations.

“It feels like Blackstone’s bet here is that the public markets are still mispricing this even with the premium that they’re offering,” Haendel St. Juste, managing director of REITs for investment bank Mizuho Securities, told the website Multifamily Dive.

Juste estimated the cap rate for the deal at 5.9%, while Raymond James Equity Research analyst Buck Horne said the cap rate was closer to 5.4% based on fiscal year 2024 net operating income, while CRE Analyst posted on LinkedIn that it was closer to 4.9%.

A 5-7 Year Timeline with Strong Growth Potential

Aside from a purchase that appears to take advantage of a mis-valued asset in AIR’s portfolio, Blackstone and other institutional buyers see a favorable outlook in the longer game for housing.

Alexander Goldfarb, managing director and senior research analyst for investment bank and financial services company Piper Sandler, wrote:

Assuming the current peak supply is sufficiently absorbed by YE25, 2026-2028 have the potential for outsized rent growth from depressed deliveries and continued shortage of housing.  

Jay Parsons, a rental housing economist, noted in a recent LinkedIn post that housing starts this year are the lowest in the US since 2013, and he believes the country is reverting back to early 2010s supply levels. And he points out that the next cycle will likely have a larger share of income-restricted affordable housing because tax incentives are helping offset higher rates and flat rent growth.

“This is why we're seeing so much renewed bullishness on the multifamily outlook for 2026 and beyond — particularly for higher-demand markets getting pelted by lease-ups today,” Parsons wrote. “Supply is the biggest headwind for apartment investors today, while it's an enormous tailwind for renters ... but those dynamics appear likely to shift again.”

Lower supply of housing translates into higher rents and better returns for investors. It’s no wonder that smart Wall Street operators like Blackstone are setting the table to cash in on this shift.

Cap Rates Show an Upward Trend

Some investors counted on low interest rates to compensate for low cap rates and make it possible to stay above water, but once the Fed raised rates and kept them there, all bets were off.

Persistently low cap rates have been the norm in some markets, notably San Diego. As of May 2024, major trades in the multifamily sector in the San Diego market are averaging just 4.6%, Fident Capital reported. 

Meanwhile, multifamily cap rates in Midwest and sunbelt markets have risen to 6-7% range. San Diego’s market has a set of factors that make it more challenging for investors, including its strong economic fundamentals, high demand, limited supply, and robust institutional investment — compressing cap rates more than in other U.S. markets.

Blackstone has hedged its bets by investing in both multifamily and SFR, and is also expanding its geographical footprint beyond the Sunbelt: most of the properties in the AIR portfolio are in coastal cities. 

SFR cap rates have been ticking upward as well, according to research from Arbor Realty Trust, SFR cap rates rose again in the first quarter of 2024, up 11 bps to 6.6%, their 6th positive quarter out of the last 9.

Given the example of San Diego, investors are wise to look at up-and-coming markets for opportunities, and upcoming issues of proptext will identify some of those markets.

Real Estate the Best Investment? For Those Who Already Own, It’s a Resounding Yes

Every May Gallup releases a poll that ranks Americans’ view of what the best long-term investment is among six options. This year, as for the previous 10 years, they chose real estate.

From May 2024: 

Thirty-six percent choose real estate, followed by stocks or mutual funds (22%), gold (18%), and savings accounts or CDs (13%). Only 4% chose bonds, and 3% cryptocurrency.

This is hardly surprising given the increase in home prices over the last decade, and especially since the big runup in the post-pandemic period. It peaked at 45% in 2022, just before interest rates increased and home affordability became a larger issue.

Back in 2011, with the hangover from the housing meltdown still lingering, only 19% of Americans believed real estate was the best way to invest. In 2013, gold and real estate were tied at 25%, but real estate has led the way ever since.

Home ownership rates have roughly mirrored that sentiment, indicating that many Americans were walking the walk when it came to where they were putting their money. Beginning 2016, according to data from the St. Louis Fed, rates rose from just under 63% to 65.6% in the second quarter of this year, though it spiked to nearly 68% in the second quarter of 2020. (Well below the peak of 69.2% in 2004, a period when loan standards were lower and some who were buying would otherwise have not been eligible.)

Is Real Estate Really the Best Investment?

The data shows that recently the stock market has performed better than real estate, except for the period between 1990 and 2006 known as the Great Moderation. With any investment analysis, results are dependent on the dates — returns in the 21st century look better than returns from the 20th century.

(For a true long-term perspective, the San Francisco Fed published a paper in 2017, The Rate of Return on Everything, 1870–2015, that found stocks and real estate averaged similar returns over that period of about 7% a year.)

Over the past 30 years or so, stocks have performed better. From March 1992 through March 2024, the US housing market's annualized average growth rate was around 5.5%, while the S&P 500 returned about 8.27% and over 10.24% annualized when including dividends.

But the story about real estate goes beyond numbers alone. We can all relate to the idea of a home, and shelter qualifies as one of the most basic needs on Maslow’s Hierarchy of Needs, the theory developed by the American psychologist Abraham Maslow that psychological health was based on fulfilling innate human needs according to their priority.

And property is a tangible asset, unlike a stock portfolio, one that is subsidized by government tax advantages, capitalizes on the leverage a bank loan provides, acts as a hedge against inflation, and offers multiple strategies to goose returns. (Among them, short-term rentals, mid-term rentals, co-living and house hacking, all of which have been covered in previous issues of proptext.co.)

We like to say the best time to buy a property was 20 years ago. The next best time is today.

Today, real estate investing is more challenging, with higher interest rates and elevated home prices creating affordability issues making it more difficult to find a reasonable return on investment (ROI). But real estate also serves as an alternative investment, one that helped during the recent period of high inflation and high interest rates, especially for those who borrowed at historically low rates that were prevalent post-pandemic.

But just as a stock portfolio’s performance depends on which equities are in it, a real estate portfolio is only as successful as the properties in it. Finding the right deals are the magic formula, and as Kermit Walder, a real estate investor from New Jersey told proptext in issue #10: “It’s all about finding the right deal. Fifty percent of the work is finding the right deal, and that’s a lot of work.”

Investor Activity Has Increased in the SFR Market

The single-family residential (SFR) market as an investment vehicle largely grew out of the ashes of the housing crash in 2008-09. In 2016, the number of single-family rentals peaked at 15.2 million, up from 10.9 million in 2001, as investors bought up distressed homes after the foreclosure crisis, according to the Joint Center for Housing Studies at Harvard University.

The number of single-family rentals fell in recent years as many of these homes converted back to owner occupancy. By 2021, there were 14.3 million single-family renter households, comprising about 33 percent of all renters, about 3.5 million more single-family renters compared to two decades earlier.

But the face of ownership has shifted over time, as investor activity has ramped up, and now “non-individual ownership is now 25% of all SFR, up from 17% two decades earlier,” according to the JCHS. Investors purchased an average of 16% of homes from 2017-2019, but that number peaked at 28% of sales in the first quarter of 2022. 

Corelogic reported that investor activity moderated in 2023, but still exceeded 2019, and investors still purchased 27 percent of single-family homes in the first quarter of 2023.

In the first quarter of this year, investors purchased $31.3 billion worth of homes in the first quarter, up 6.6% year over year, according to Globest, and homes at lower prices made up 47.5% of those acquisitions. This trend is exacerbating the shortage in the starter home market and contributing to the negative media surrounding the activities of institutional investors in the SFR market.

But as to the myth that institutional investors are buying up all the affordable homes, jacking up rents and forcing out small investors, don’t believe it.

A report published by the Urban Institute in April of 2023 found:

As of June 2022, we estimate that large institutional investors own roughly 574,000 single-family homes. We have defined an institutional investor as an entity that owns at least 100 single-family homes. To put this in perspective, there are 15.1 million one-unit rental properties nationwide. This would suggest that the total institutional ownership share is 3.8 percent; the vast majority of owners in the SFR market are small and medium investors who own less than 100 properties. There are 46.6 million total rental properties, so one-unit properties make up 32.4 percent of the total rental stock. 

The point is that there is plenty of room in the market for small and medium investors, and the next best time to buy a property, if you are thinking about it, is probably today.

The data shows institutional investors pulled back in 2022-23 as interest rates climbed, but a survey by Auction.com in January of this year revealed that enthusiasm among small investors for the real estate market, especially for those who participate in auctions, had not waned.

Some 60% said they expected their investment property acquisitions to increase in 2024 compared to 2023, while 34% expected their acquisitions to stay the same, and only 6% said they planned a decrease in 2024.

“We just need more inventory,” wrote one Tennessee-based real estate investor. “How I long for the days when we’d win two or three auctions a month!”

Salt Lake City, Utah

Salt Lake City has seen steady growth in recent years, making it a prime target for real estate investors focusing on single-family rentals (SFR). Utah’s largest city and state capital, its population crossed 212,000 residents in 2024, increasing nearly 6% since 2020. Between 2020 and 2023, the city's population increased by 4.45%, much faster than the national average of 1% for other cities in the same period​.

The largest employment sectors in Salt Lake City are professional, scientific, and technical services, aligning with the broader trend of an expanding tech and innovation ecosystem in the region. Healthcare and educational services are robust as well, and these industries underpin an economy and that provides a stable job market for residents. Additionally, Salt Lake City continues to attract corporate interest, with some large employers either expanding operations or relocating to the area, including tech companies. For tech workers, Salt Lake is the ‘Silicon Slopes’ for the West. Salt Lake City also leads the way in expanding data center inventory. 

Some of the fastest-growing neighborhoods include Downtown, Capitol Hill, Bonneville Hills, Wasatch Hollow, and Central City. Downtown Salt Lake City has an up-and-coming vibe with new restaurants, bars, and cultural events, making it a popular choice for young professionals and investors. Capitol Hill and Bonneville Hills are also growing, with Capitol Hill offering proximity to downtown amenities, while Bonneville Hills is known for its quieter, residential feel.

Key Neighborhoods

1. Downtown: It has seen significant high-rise construction, with projects like the Astra Tower, the tallest building in the city at nearly 450 feet, with 377 luxury apartments in its 680,000 square feet and 39 floors. (Rents range from $1,525 to $15,415 for studios to three bedrooms.) The Post District has contributed to the area’s rapid transformation of the area, and Sugar House is also expanding.
   

2. Capitol Hill: Close to downtown with a population of around 8,400, it's a popular area for its urban feel and historical architecture.
   

3. Bonneville Hills: Smaller, with a population of about 2,550, it offers a quieter residential environment.
   

4. Wasatch Hollow: A family-friendly neighborhood with a population of 3,600, known for its community feel and good schools.

2398 E Cinder

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The Investment Thesis

→ South Salt Lake where population is growing
→ Attractive rent income today with rents projected to continue to grow
→ New construction

 Property Details

 Financial Projections

Interested in Learning More?

*Appreciation based on 4.5% growth rate. 

An Overnight Success, 14 Years Later

Mike Masci still doesn’t know what he wants to be when he grows up, but that hasn’t stopped him from building a long-term rental portfolio of 19 units.

Now 46, with two teenagers, Mike started his real estate investment journey 14 years ago, encouraged by his wife, Laura. She had just completed nursing school and secured what they assumed would be a steady job, allowing Masci to explore various business careers in upstate New York. With one young child and another on the way, they were concerned about financial stability.

Initially, Masci viewed real estate like many others do: a means to provide stability and security for his family's future. However, instead of buying a typical starter home, he proposed purchasing a duplex. By investing in a more affordable area and applying sweat equity, they aimed to eventually upgrade to a more permanent single-family home.

Masci's background in finance gave him confidence that the real estate market would improve. “I’m not some investment savant,” he admits. “I looked at the declining prices in Albany, estimated potential rental income, and made offers on properties that could grow in value and cover the mortgage when we moved out.”

They refurbished one side of their duplex while living in the other. After completing renovations, they switched sides and rented out the untouched side for a year to build cash reserves.  After a year, the tenant moved out and they repeated the renovation process, then went back to market, locking up a new lease at 135% of the carry costs of the entire property.  

Masci decided to purchase another duplex before buying a single-family home.

By the end of 2016, they had acquired two more duplexes, using savings and tapping into home equity. In 2016, they finally bought their first single-family home as their primary residence, marking a shift in Masci's investment strategy.

“We found success locally in Albany, but there were trade-offs,” Mike said. “While we had good cash flow, the low home price appreciation and the maintenance demands of older properties created a part-time job for me. I wanted to diversify and capture the appreciation gains my friends were experiencing in New York City, but I couldn’t afford to invest there.”

Mike discovered HomeUnion, a company offering new construction investments in Florida with lower maintenance costs, and decided to try investing remotely to capture better appreciation. Shortly after, he and some friends bought a 12-unit building near Orlando, which he said has been a great addition to his portfolio. 

Today, Mike has 19 rental units, plus his primary residence. His end game — it’s all about taking care of his family while he continues to figure out what he wants to be when he grows up.

This interview has been edited and condensed for clarity.

What is your special real estate power?

Not being concerned about what I don’t know.  When you get online, everybody has a perspective on how to invest.  And it’s always the “best” way.  If I went down this path, I’d probably still be searching for what is supposedly the perfect deal.   

What was the hardest lesson you learned early on in your real estate journey, and how did you overcome that and persevere?

Everything takes more time than you think, whether it’s repairs, maintenance, or managing property managers. It’s all active, and almost always more time-consuming than anticipated. With experience, I’ve gotten better at estimating time commitments. 

What advice would you offer to somebody looking to get into real estate or grow a portfolio?

Find what works for you. If you know where you want to live longer term and think family is in your near future, look at the options. This is easier for me to say living in Albany than someone trying to invest in Manhattan. They have to rethink how to participate if it makes sense. Some areas are so expensive you’d be better off in my opinion just saving and looking elsewhere. 

Among the strategies a property owner could pursue — long-term rental, mid-term rental or short term, (Airbnb), co-living — what works best for you, and why?

I’m all about two-year leases with great tenants.  Finding great tenants is crucial for me.  Not exactly rocket science, but it’s been the biggest difference over the years.  

What do you think is the biggest issue investors face in 2024 and beyond?

Landlord laws are often overlooked, and they can make or break annual performance.  New York is not exactly landlord friendly.  If you’re not screening tenants yourself, you would be wise to find someone very trusting to take that on.  

What’s your sense as to where the market is going, vis a vis, rates, prices, valuations, appreciation, etc.?

No idea. Albany is at a point where I just won’t invest right now. This was historically a cash-flowing market. Prices have finally moved up and with rates where they are, deals are mostly cash negative. For a market that doesn’t typically appreciate much, it’s a non-starter. We’re even considering selling our 12-unit building. We’ve had good returns from rent increases, but it’s become more work than we expected. It’s less about the market’s direction and more about my personal goals.

Coffee Clozers

Coffee Clozers is an AI-driven real estate investment marketplace that leverages big data and machine learning to help investors discover a range of potential investment properties. By analyzing properties based on risk, investment strategy, type, and market, Coffee Clozers offers a platform that appeals to both novice and experienced investors.

Whether targeting long-term rentals, fix & flip, BRRRR (buy, rehab, rent, refinance, repeat), or pre-zoned ADU (accessory dwelling unit) opportunities, Coffee Clozers enables users to filter MLS feeds according to specific investment criteria. This approach saves hours by streamlining the search for acquisition targets. 

Origin Story: Innovation Born from Necessity

Founded by Ariel Herrera, Liam Maher, and Madalyn Pape, Coffee Clozers emerged from a shared frustration with the traditional methods of researching and evaluating real estate deals. Ariel, who has a background in data science, found the existing process slow and cumbersome, often lacking in actionable insights. Recognizing an opening in the market for a more efficient solution, the team developed Coffee Clozers to automate property analysis, making investing more accessible to a broader audience.

How It Works 

Similar to other real estate data platforms, the first step with Coffee Clozers is to sign up for a free account and set your investment criteria. Given the vast amount of data flowing through MLS listings, narrowing down preferences early on is crucial for maximizing the platform’s utility.

Coffee Clozers combines standard filters — such as property type, budget, bed/bath, square footage, and year built — with unique, investor-specific filters like value-add potential, ADU zoning, fixer-uppers, turnkey properties, fix & flip, BRRRR. The goal is to identify 💎 hidden gems. 

The platform also offers a neighborhood grading system to help investors quickly evaluate potential risks versus return profiles, enabling a more strategic approach.

The Challenges and Considerations

While Coffee Clozers presents a powerful tool for investors, we at prop.text have been building real estate investment marketplaces for over a decade and believe it’s important to call out the inherent risks in automated underwrites.  

Real estate data, even from the most trusted sources in the industry, is messy. Even the most sophisticated algorithms cannot replace thorough, human-led due diligence. Real estate data, despite being sourced from reputable providers, can contain inaccuracies — such as misclassifications, incorrect geolocations, pricing errors, and unverified restrictions (e.g., HOA rental limitations).

However, this does not diminish the value of Coffee Clozers. The platform represents a potential significant step forward in real estate technology, offering investors an effective starting point. As with any tech-driven solution, ongoing refinement and iteration are needed to address edge cases and enhance data accuracy and reliability.

The Verdict

Coffee Clozers is well-positioned as a valuable resource for investors at all levels, providing a user-friendly experience and robust data tools that can significantly streamline the property search and evaluation process. As the platform evolves, it has the potential to become the premier choice for real estate investors, especially with larger players shifting their focus away from non-institutional investors.

Our recommendation? Give Coffee Clozers a try by signing up for a free account. With no credit card required, you can explore the platform’s features and decide whether it aligns with your goals. Sign on with Coffee Clozers today and see how it can enhance your investment journey.

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