While Adam Kaufman, co-founder and COO of real estate crowdfunding platform ArborCrowd, hasn’t yet seen a decline in investor appetite for multifamily, he is urging caution.
“We are seeing that multifamily has been a more resilient asset class,” says Kaufman. “The good thing right now is multifamily occupancy is pretty high, and there’s not a lot of forbearance. As long as people can pay their rent, they’re not looking to leave their homes. That’s an important component of the asset class.”
However, he says it’s still uncertain how long the pandemic will last or what the next stimulus will bring to help people financially impacted by COVID-19 pay their rents.
Understanding what the next round of aid will look like, how long it will last, if there will be a larger dislocation if people can’t pay rent, changing fundamentals of people leaving urban areas, and high homeownership rates are just some of Kaufman’s concerns heading into the second half of the year.
ArborCrowd, part of the Arbor family of companies, launched in 2016 and has done nine multifamily deals. The platform offers investments to the crowd one by one, providing individuals the opportunity to invest in single assets or portfolios that are thoroughly vetted by ArborCrowd’s underwriting team. The firm prides itself on quality over quantity and its strong relationships with sponsors. Understanding the nature of market cycles and the inevitability of a recession, the firm was founded with a more cautious approach.
Kaufman says volume is down a lot for the year. “People ultimately are waiting for the time when an opportunity will present itself and people are looking to raise capital in different forms to be prepared,” he says. “Given that the multifamily space has proven resilient, the very nature of seeing those opportunities will depend on how long COVID lasts, what unemployment ultimately looks like, and what Congress passes.”
In addition, if investors see a lot of volume during this period of uncertainty in terms of offerings from a real estate crowdfunding platform, he says they should be skeptical. Despite the ongoing uncertainty, Kaufman is optimistic for platforms exercising caution, transparency and due diligence to seek out high-quality investments at the bottom of the market. Specifically, he notes the slowdown in loan originations by banks and alternative lenders enables crowdfunding platforms to step in and fill the void. However, the key is to ensure each project is supported by solid fundamentals and is backed by an experienced sponsor.
“Being careful and extra cautious is of the utmost importance,” he says. “Ultimately though, people have to look for transparency and the right debt and leverage.”
Kaufman says he thinks there can be good opportunities out there as a result of the dislocation created by COVID-19, but they will be incredibly hard to come by. “Truly distressed assets haven’t hit the market just yet. There’s a lot of unknowns. Ultimately what this industry looks like coming out of this could be very different.”