Industry Voices Multifamily

Multifamily Matters

The multifamily market has seen growing interest, leading up to and during the COVID-19 pandemic.

Josh Patinkin

Considering the complexities inherent in the economics of commercial real estate, it’s refreshing when a concept can be approached from the basics of supply and demand. When it comes to housing — specifically affordable housing — such fundamental market forces help frame the discussion. The United States is 5.24 million homes short of what is currently needed, meaning supply is well short of demand. As a result, the multifamily market has seen growing interest, leading up to and during the COVID-19 pandemic.

“Many of the trends that existed before COVID-19 only accelerated in its wake,” says Joshua Patinkin, managing director of real estate with Leste Group, a global independent alternative investment manager. “Places like Dallas, Houston, Atlanta, and Nashville, Tenn., have been huge positive migration cities. … [These locations] are encouraging new supply — places like South Carolina, Georgia, Texas, and Florida are generally supportive of new development.”

While developers scramble to provide as much new inventory as possible, demand will continue to grow. According to U.S. Census data, 12.3 million American households were formed from January 2012 through June 2021. During this same period, only 7 million new single-family homes were built.

Listen to this full-length Commercial Investment Real Estate podcast with Josh Patinkin.

An added complication is just whom the new supply is targeted at. According to a study, homes considered to be relatively affordable, meaning those valued at $300,000 or below, represent just 32 percent of builder sales in 2Q2021, down from 43 percent during the same period in 2018.

“What I would characterize as a force against new development is just a misunderstanding of gentrification,” Patinkin says. “It gets back to policy — if you’re able to create a dynamic where you can require developers to provide affordable housing in a way that’s [economically viable] for them — where they can still make money and seek financing from the investment community — then that’s a win-win. And a lot of the local people are able to stay in the neighborhood and live in affordable homes.

“You’re providing more supply, more homes. Again, this is just Economics 101 with supply and demand. The more homes we have, the cheaper the rents will be.”

If two-thirds of new housing is targeted toward the upper middle class and upper class, the why isn’t much of a mystery. Considering the across-the-board demand, these sectors offer investors and developers greater profit potential. If a project in a major metropolitan area where housing is expensive is limited to a specific number of units, it’s only logical from the developer’s perspective to target higher-income demographics.

Patinkin points to some areas of Washington, D.C., as a cautionary tale. Huge investment in previously ignored areas of the metro area has replaced longstanding affordable communities with Class A apartments that attract high-earning individuals. Rather than rapid neighborhood turnover, Patinkin emphasizes a need for coordinated, intentional development that incorporates all interested parties.

“There needs to be a clear path to get input from developers, the local community, the city — all the stakeholders,” he says. “And that is possible. San Diego, for example, has done a good job with some of its zoning ordinances, which are leading to new affordable housing. They have to build 10 or 15 percent affordable — which is significant, since the city, like most of California, is extremely undersupplied.”

The friction between supply and demand in the U.S. housing market, and specifically the multifamily sector, appears to be a topic of discussion in 2022 and beyond. But looking at other possible speed bumps in commercial real estate, Patinkin needs answers to immediate economic issues like inflation and supply-chain disruptions — from a perspective that extends beyond the next month or the next quarter.

“We’ve seen a complete price reset on almost everything, right?” he says. “Whether it’s milk from the grocery store or the cost of your apartment, everything’s gone up. When that stops, which asset classes are most affected? Which goods and services increase more? And where will they increase more? These are the real questions.

“How you can play those relative values from an investment standpoint is on the top of everybody’s mind. We’re focused more on fundamentals and the long term — long-term capital flows, long-term real estate fundamentals. I always say that good things happen to good assets in good locations, and that’s what we have to focus on.”

Editor's note: This article is an adapted excerpt from a full episode of Commercial Investment Real Estate podcast. To listen to the full episode, head to SoundCloud, iTunes, Spotify, or wherever you listen to your favorite podcasts.

Nicholas Leider

Nicholas Leider is senior content editor for Commercial Investment Real Estate. Contact him at

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