As home ownership percentages in the Western United States remain below previous levels, Aslan Principals believe the multi-family sector will provide favorable risk-adjusted returns as compared to other alternative investments. Specifically, Aslan Realty Group’s strategy focuses on major metropolitan areas of the West Coast with a California emphasis. Supply and demand dynamics in these geographic areas should continue to support strong rental growth over the foreseeable future.
Even after deciding to invest in multi-family in the Western United States, today’s real estate investors are faced with asset quality options ranging from new construction to Class “D” assets. Aslan Realty Group focuses primarily on existing Class “B” or higher communities that are primed for reposition. Core plus and value-add strategies typically provide a favorable return as compared to lower grade investment properties that are often at risk of functional obsolescence. Aslan’s experience confirms, renovated value-add and improved core plus assets provide enhanced asset yields and support capital preservation.
Moreover, Aslan Realty Group seeks to combine a core plus and value-add strategy with low to moderate leverage. Given the current low interest rate environment, this provides an opportunity for enhanced yield without significant capitalization risk or cash flow reduction during market shifts. Additionally, Aslan Realty Group looks to invest with capital partners that have a mid- to long-term investment perspective. Due to the combined cash-on-cash return and appreciation characteristics, many investors make longer-term multi-family investments a larger percentage of their investment portfolio. This lower risk strategy often compares favorably to shorter-term real estate investments or equity markets.
Investment returns depend on numerous factors. In addition to market dynamics, returns are driven by asset selection, financing structure, renovation scope, and disposition timing. In today’s market, Aslan’s targeted annual investment returns are over 10%. This assumes moderate leverage, strong locations, high quality assets, and seven to ten year holding periods. These returns are attractive given the sector’s lower risk profile. Multi-family transactions with higher leverage, larger renovations and shorter holding periods are generally underwritten between 15% to 20% on an annual return basis, albeit with a higher risk profile.