Market Perspectives & the Voice of the Investor

9 min readOct 9, 2023

EquityMultiple sits at the intersection of real estate capital markets and the needs of individual self-directed investors. What follows is a look into how our investor network views today’s market, as well as our own insights on growth opportunities in the real estate investing space.

This Moment in Real Estate Investing

We are living through an interesting moment for real estate investors. Readers of the macroeconomic tea leaves vacillated between despair and hope in the first half of 2023. The consensus is now that the U.S. economy is fundamentally stable, and that a recession (if one should come to pass at all) would be mild.

Despite the tone of cautious optimism, trepidation abounds in the investment literature — after a period of rapidly rising interest rates, and a historically bad 2022 for the 60/40 portfolio, no portfolio construct seems to be in vogue.

As always, our position remains that a substantial allocation to private-market alternative assets (particularly commercial real estate) can help investors reduce cross-asset correlation and achieve better risk-adjusted returns over time. How do our investors feel? In times like these — with the winds of change blowing — we seek guidance from the collective wisdom of the EquityMultiple investor network.

How EquityMultiple’s Investor Community Views Today’s Market

In September, 2023, we surveyed thousands of accredited, self-directed investors nationwide. The survey concisely addressed investors’ views on the real estate asset class, and general perceptions of the market.

Insights come with a caveat: the survey results show some selection bias — EquityMultiple investors, the group polled, understand the potential value of investing in private-market real estate throughout market cycles, including during times of dislocation. However, we may be biased in saying that this is the right stance to take. Results show a balanced and steady focus in terms of asset allocation going forward.

At a time with so much uncertainty — from financial news headlines to Fed remarks — it’s telling that a near majority of investors still feel optimistic about their prospects over the next five years. Only 13.3% feel pessimistic.

The question “Where do you think we are in the market cycle?” yielded the most varied result. This is no big surprise — no one knows the shape of the cycle until it has played out fully, and we shouldn’t expect consensus at this point. It is telling that over 60% of respondents feel that we are in, or headed for, a recession.

Again, no big surprise about the responses to portfolio optimism, especially when contrasted with the response set to the last question. Just 16.5% of investors feel more optimistic about their prospects now than in 2021, before the end of the “era of free money.” If nothing else, this shows that most investors read the paper… it would be hard to feel too optimistic in general, with most investment literature projecting a period of moderating growth.

Here is where the results get interesting. Despite the pessimism reflected in the last two answer sets, just 15.7% of respondents plan on reducing their allocation to real estate over the coming years. Respondents therefore likely view real estate as a defensive, if not a potentially counter-cyclical, asset class.

Interestingly, results from our survey of individual accredited investors is similar to recent results from Preqin’s surveying of institutional investors. On the institutional side, investors have shifted preference toward “maintaining allocation” to real estate, but the percentage of respondents indicating they will reduce allocation in the coming years remains quite small.

And which real estate sectors do these investors find most appealing? Multifamily dominates, with Single-Family Homes/Built-to-Rent a distant second.

Multifamily provides a strong recession-resistant investment thesis in general. The contours of today’s market make multifamily particularly appealing going forward due to a number of macroeconomic and demographic factors, including:

The U.S. remains vastly undersupplied in terms of market-rate units.
In recent decades, the housing shortage that was felt most acutely by gateway markets has infiltrated a wide range of tier II metros.
The supply pipeline for new multifamily units thins rapidly beyond 2024.
Average housing costs have reached all-time highs, underscoring the supply/demand imbalance.
The combination of a potential recession and tight single-family home market put more upward demand pressure on multifamily.
Given the potential for sustained inflation, multifamily is one of the most appealing real estate sectors as an “inflation hedge” given the relatively short typical lease (versus office, industrial, retail, and other property types).

The answers for investing strategy with the most appeal were more dispersed, as seen below, but show a clear preference toward more liquid, more defensive positions. With a credit crunch emerging in mid-sized banking, CRE debt and bridge financing investments are poised to potentially deliver strong risk-adjusted returns, approximating equity-like returns for the first time in decades, especially at a moment when stable income is a high priority for many investors.

EquityMultiple’s Ascent Income Fund serves the most represented preference among this answer set: a diversified, income-focused fund predicated on CRE debt.

In sum, EquityMultiple investors indicated that they are viewing markets warily, but see the value in continuing to hold a significant allocation toward private real estate.

How We Are Approaching Today’s Market

There’s no denying that 2023 has been a turbulent time for the “real estate crowdfunding” space. Several platforms have come under fire for proximity to fraud, or filed for bankruptcy. While we do not celebrate these events, we take this moment as an opportunity to reiterate the features of operating model that make use different.

Real estate investing is an inherently complex and risky business. Not every investment will be a home run, and not all of ours have been. Our thesis all along is that a commitment to due diligence and asset management will win out in the long run, and as macroeconomic conditions change. As our CEO delineated in a recent letter to investors, our operating model was built to withstand market cycles and, since day one, we have built in investor protections in ways that other platform have not.

That said, our approach is evolving to meet the moment. Here are a few ways that our operations are changing to meet market conditions and serve the evolving needs of our investors:

Market Evaluation Rubric

Our Investments Team prides itself on its highly selective, data-driven approach to originations and vetting potential investments. The team leverages first-party and third-party data, as well as local market perspectives sourced from our combined network, to evaluate investment potential within metros and submarkets. In total, EquityMultiple has historically accepted only around 5% of investments evaluated.

Recently, this approach was codified in EquityMultiple’s Multifamily Market Ranking Framework. This highly quantitative rubric is timely for the following reasons:

The current and future importance of Multifamily, both to our investors (see above) and within EquityMultiple’s broader investment thesis.
The current need for a data-driven approach as local multifamily markets recalibrate and as new opportunities emerge.
The current imperative for even more rigorous vetting, given expectations of moderating returns, fluidity in capital markets, and ongoing sectoral shifts (e.g. “work from home” trends).

The resulting framework should give investors further comfort that diversified multifamily investments are on the horizon, and that these opportunities will be vetted rigorously and through a forward-looking lens.

The model relies on 11 key factors, based on third-party and first-party data sets, to arrive at a proprietary market score. Factors include:

5-year forecasted REVPAF (revenue per available square foot) growth.
5-year forecasted growth of the market’s working-age population.
Scoring of the markets’ entertainment value and overall appeal, as proxied through the professional sports and culture scene.

Based on our proprietary model, EquityMultiple has arrived at a number of growth market opportunities. It is important to note that our model and the underlying data look at these markets from an “outsized beta,” market-wide institutional opportunity. While this underpins the appeal for each individual market, we further benefit from dislocation that naturally occurs within the less transacted, more opaque middle market. In this segment, we look to partner with sponsors adept at capitalizing on
these dislocations and realizing alpha, even in more challenging beta markets.

More information regarding the EM Market Score is available upon request. A few notes for now:

Growth opportunities for the near term currently over-index to Texas and Florida markets.
Despite negative headlines from national and local press, certain major coastal metros are now undervalued/offer stronger upside potential, and will receive future attention based on this scoring. Such markets include San Francisco, Seattle, and Boston.
The model also identifies 10 less desirable beta markets in the near term, including Cleveland, Memphis, and Minneapolis. Despite the less appealing beta profile, we continue to evaluate opportunistic investments with well-positioned sponsors looking to unlock alpha.

Debt Platform

As the credit crunch plays out in the regional and mid-size banking sector, CRE debt grows in stature as a pillar of a more diversified portfolio. The Ascent Income Fund, predicated on senior real estate debt positions, was developed to serve this purpose. EquityMultiple is in a unique position to bring alternative debt financing to qualified mid-market sponsors, in turn bringing attractive risk-adjusted returns to our network of individual investors. In addition to the Ascent Income Fund, individual debt and preferred equity opportunities will be prioritized on EquityMultiple in the near term. As the survey results show, this profile of real estate investment is of particular interest to our investor network at this moment.

Refocus on Asset Communication

EquityMultiple’s Investor Relations Teams and Asset Management personnel are more focused than ever on delivering timely and detailed asset reporting. Given future market uncertainty and unflattering headlines surrounding other investment platforms, we feel that a more frequent cadence of asset reporting is in order. If you invest with EquityMultiple already, expect to hear more often from your dedicated Investor Relations rep regarding any asset management updates.

Moving Ahead

The insights gleaned from our investor survey corroborate our general thesis for the future. Real estate remains a potentially attractive asset class for a number of reasons that are both specific and generalized across market cycles:

Private real estate, if invested across the capital stack, can deliver both predictable yields and upside potential in the form of alpha, while diversifying traditional investment portfolios.
Ongoing demographic shifts support robust, broad upward demand pressure, particularly in multifamily. Inflationary pressures are further providing a short-term tailwind to this short lease duration sector.
While the mid-sized banking crisis has opened the door for investors in private CRE debt to realize equity-like returns, dislocation and rising cap rates have created potential to invest at an attractive basis and potentially realize high upside on equity.

As always, EquityMultiple maintains a focus on rigorous underwriting. We look forward to an interesting next chapter in real estate capital markets, and bringing our investors a diversity of compelling opportunities.

For more insights on investing, visit → equitymultiple.com/blog