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Multifamily construction is booming in metropolitan areas throughout the U.S., with more than a quarter of a million new units delivered in 2017 alone. This surplus of supply is causing overall occupancy rates to drop, and, subsequently, rent growth has begun to slow.

In fact, U.S. multifamily rents have dropped slightly for five consecutive months, resulting in a national index down 0.2% month over month.

This activity is prompting many investors to ask: Are rents plateauing?

While investors should prepare for a potential future decline in rent growth, those who are connected with talented advisers can best position themselves to survive it.

There are three strategies in particular that investors should consider at this point in the cycle.

Diversify Your Portfolio
Due to the high volume of construction in major U.S. multifamily markets, many regions are becoming heavily saturated. Geographical diversification can be an effective response for investors when confronted with an oversaturated market.

By investing in the right secondary markets on the outskirts of heavily populated metropolitan areas, multifamily owners can still find value-add opportunities, avoiding slowing rents and, therefore, increasing overall returns for their portfolio.

Secondary markets have yet to suffer from the oversupply of product in the way major markets have, meaning rent growth is still a possibility in many of these locales.

Investors who diversify by way of geographic location will benefit from a safety net in case one region they’ve invested in underperforms.

Consider Class B & C Product
The influx of new product has resulted in an oversupply of Class A apartments in many markets. Because demand in most MSAs is driven by middle-class renters, multifamily investors should consider the addition of Class B and C product types to their portfolios.

During times of low occupancy, Class B and C properties have the upper hand. Although Class A apartments can command much higher rents, their net operating income will decrease rapidly if vacancy ticks up. Rents in Class B and C properties are typically more affordable by default, leading to a steadier return over time.

Additionally, Class B and C apartments tend to appeal to a much wider demographic, including working-class individuals; baby boomers looking to downsize; and, most important, millennials, who are currently dominating the market. Even if economic growth slows, renters will continue to need housing, and many will seek Class B and C properties that are relatively affordable in their respective markets.

Improve the Value of Your Assets
As rent growth is just beginning to stabilize and investor interest in multifamily product remains high, now is the opportune time for multifamily owners to consider investing in capital improvements. By making strategic upgrades to their assets, investors can set themselves up for higher returns when the time comes to sell a property.

For example, our team was recently able to achieve a record price per unit for the sale of a multifamily community in Santa Clara, Calif., on behalf of our client, due to the unprecedented amount of renovations performed on the property. By focusing on capital improvements that improved the asset’s value and met renter demand, our client garnered an extremely high return on the property.

Investing in capital improvements will not only appease current residents but can also work to reposition a property and better meet the demand of potential renters. The result is twofold: steadier NOI for the asset during ownership, and an opportunity to sell for a higher value when the time is right.

Even in the midst of potentially plateauing rents, there are strong investment opportunities in the multifamily market.

Owners who diversify their portfolios, consider both Class B and C product, and invest in capital improvements will be well positioned to continue building value in their multifamily investments.