My answer: it depends (spoken like a true lawyer!)
The reason I’m so noncommittal is because it truly does depend on several factors. Here are a few:
- What asset class is it? A-Class assets are new builds, in excellent condition, in the best parts of town. When the economy goes belly-up, people lose their jobs and if they’re paying a lot in rent, they might look for a place that’s less expensive. A-Class assets are the most expensive. But then again, if a person was a homeowner who has lost his home, he may move into an A-Class asset until he can recover and purchase another home in the future. In any case, a B-Class asset is an attractive living situation for both the former A-Class apartment dweller and the former homeowner. This is why we invest in solid B- and C-Class properties.
- What city is it in? Some cities can withstand the fluctuations in the strength of the economy better than others. We look particularly for cities with more than one strong industry, and prefer those that are heavy in healthcare, education, and technology, which are industries that remain strong even during recessions. We avoid cities that are supported by a single-industry economy (like automotive only or steel only).
- What does the asset’s future look like? Has the city planned for nearby expansion of transit, warehousing, suburban living, entrepreneurial business support, and the other factors that go into a robust, growth-oriented community? When times get tough, people move to places where business can not just survive but thrive during recessions and where they can feel comfortable raising a family. Will this asset be boosted by the city’s growth or suffocated by mass exodus of tenants to other areas?
Before investing in a city, we study the market as it is today and how it might be in the future, underwriting both boom and bust scenarios. Some investors are afraid to purchase real estate during downturns in the economy, but we believe it’s still a good time to buy, so long as our research and underwriting supports the investment and the price is right. What we love about multi-family properties in particular is that people always need a place to live, and when the going gets tough, many of them move from homeownership to apartment dwelling. It’s one of the least risky asset classes available in real estate with a huge potential for upside as the economy picks up.