Is U.S.-Style Multifamily America’s Next Big Export?

When Greystar first bought into a 6,900-bed?student housing portfolio in the U.K. in 2013, its investment dollars were bucking what was quickly becoming a blistering trend for U.S. multifamily operators.

At the time, global finance dollars in search of multifamily deals were beginning to pour into the United States, not leaving it. By 2015, those inflows would culminate in a $13.5 billion torrent of international investing dollars landing on multifamily’s domestic shores. The outflows, by comparison, were just $5.6 billion, according to JLL Research.

Despite that trend, Greystar, already a U.S. rental housing juggernaut at the time by any measure, was sending dollars in the other direction and buying up beds overseas, in addition to its continued growth in the U.S. In its first three years in the United Kingdom, the Charleston, S.C.–based company would leverage its initial investment, along with its American-made multifamily philosophy, to increase the NOI of its London student portfolio by 34% on a same-store basis, according to Wes Fuller, executive managing director of investments at Greystar.

“There were a lot of different factors that went into that [result], but we lifted NOI by using our operational expertise to drive higher revenues, and lower expenses, at the asset level,” Fuller explains.

While a jump of just a few points in NOI would be laudable in a new U.S. locale, the outsized gains had as much to do with the relative state of the U.K. rental housing industry as they did with what the company actually bought. “That’s the kind of opportunity you get in a less-mature industry, where there’s less information and fewer professional operations,” Fuller says.

The industry he’s referring to, of course, is the U.K.’s “built for rent” housing market—the Brits’ moniker for multifamily—which, from an institutional perspective, is still in its nascent stages, with just an estimated 6.5% of rental stock institutionally owned. With similar institutional underrepresentation in many markets globally, U.S. multifamily operators and investors are suddenly salivating over untapped markets overseas and in 2018 invaded foreign shores to the tune of $12.9 billion in capital flows, just a scant $1.6 billion less than international inflows into the U.S. during the same period, according to JLL Research.

Fast-forward to 2019 and Greystar’s move looks almost savant-like in hindsight—of the company’s $31.9 billion in assets under management, $7.5 billion worth is abroad, with operations in Mexico, Chile, Spain, the Netherlands, Germany, France, Australia, and China, in addition to the U.K.

“We had a handful of strategic capital partners who were asking us to invest with them outside of the U.S.,” says Bob Faith, Greystar’s founder, and CEO, describing the formation of the company’s international strategy in 2013. “This reminded me of the multifamily industry opportunity when I started Greystar in 1993, so we decided to build businesses in the world’s great cities to serve those capital partners’ desire to invest in rental residential outside of the U.S.”

But the big little company from the Palmetto State is not alone in pushing America’s brand of multifamily overseas.

Just witness Atlanta-based?Cortland’s own entry into the U.K., with the 2017 acquisition of developer Orion Land and Leisure, the cornerstone of Cortland’s $5 billion push to establish a 10,000-unit portfolio in the kingdom by about 2022. The company sees opportunities in other for-rent housing markets with the same relative “immaturity” characteristics that contributed to Greystar’s NOI rocket in London.

“Just the idea of multifamily right now is an entirely new investment class throughout much of the global markets,” says Mike Altman, Cortland’s chief investment officer, who likes to point out that Dallas–Fort Worth, with a slightly smaller population than London, has 500,000 professionally managed apartments, whereas the latter city currently has only around 20,000. “In the U.K., they call it ‘built for rent.’ In Brazil, they don’t even have a name for it yet.”

Then there’s David Woodward, former CEO of Laramar, who now heads SVN | CompassRock Real Estate, one of the largest real estate advisory firms in the world. Woodward actually moved to London to help clients looking to expand there, as well as in places such as Madrid, Berlin, and Sydney, Australia.

“You see a lot of U.S. companies that are coming over to the U.K. and starting to do a project or two, looking around for opportunities,” Woodward said during an exclusive interview with a multifamily executive at the 2018 MFE Conference in Las Vegas. “It’s a really interesting time to be there.”

Also of interest: In 2017, investment outflows by U.S. multifamily investors looking for opportunities globally were $1.2 billion higher than what came into the country from overseas, according to JLL Research. That means while inflows in most years outstrip what’s sent abroad—including, just barely, the numbers for 2018—international investing involving the States is increasingly becoming a two-way street.

Indeed, those trends, viewed through the 20/20 hindsight of multifamily’s meteoric rise as an institutional investment class in the U.S. over the past 30 years, have many U.S.-based apartment pros wondering aloud if they can replicate America’s multifamily miracle and simply do it all over again, just a little farther afield.

“It’s an edge-of-your-seat kind of thing,” says Colleen Pentland Lally, director of global capital markets at Los Angeles–based CBRE. “Overseas, everything’s still mom-and-pop. When I go to events, people love to look at charts of U.S. multifamily going from 8% institutionally owned in 1985 to 25% today. They’re just waiting for that to happen in other markets. There’s all this pent-up interest that wants to know where that tipping point is.”

Whether 2019 provides that tipping point is still anybody’s guess, and the far more likely scenario is that if and when it comes, it will do so in stages while building on itself. But as U.S. operators continue their forays into foreign lands, one thing is becoming clear: Nobody does multifamily better than America.

“The reality is, these foreign real estate firms are coming to the U.S. to talk to more-experienced investors who believe in institutionally owned for-rent housing, which we call multifamily,” says Altman. “They want to know how we do it.”

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