Trends in Data

How Data is Driving Decisions for Multifamily Investors

by Galen Faurot-Pigeon

Data has been a cornerstone of multifamily for a long time, but real-time data and open APIs have empowered the next generation of data-driven decision making. Granular, real-time data and more accurate rental forecasts are changing the ways multifamily investors strategize and make market and property decisions.

Nontraditional, granular data points coupled with traditional sources like historical rent growth provide actionable insight to better dial in to key drivers of demand and rent growth in specific zip codes. As real estate is a hyperlocal industry, this advanced insight in real time is powerful and provides the needed data points to make strategic capital allocation decisions and identify areas for outsized rent growth and future asset appreciation.

This is what the next generation of data-driven decision making looks like for modern multifamily investors:

In-house market scoring models

Each company maintains a view on the best investment markets. Often what determines the course of real estate investments is macro-cyclical and beyond control. However, choosing the markets that will have the best relative performance is essential for data-driven investment. Subsequently identifying the best submarkets and zip codes allows for continued relative outperformance. Then it is up to the acquisition teams to execute on the best deals. 

Some of the best data-driven real estate teams design internal models with objective metrics and benchmarks. Since it’s impossible to incorporate all data manually, teams will select inputs based on backtests to determine the most important data fields at each granularity. These specific data points help  to paint a more complete picture of market activity. This research informs investors of opportunities for expansion into new markets and growth within existing markets.

Job, income, population and key demographic growth all carry a high correlation to rent growth, and investors are analyzing how rent will grow based on these trends. In a rapidly changing environment, it is of the utmost importance to have these metrics updated to real-time to get an accurate depiction of the current trends on the ground. Multifamily investors are now leveraging nontraditional data, like employment growth and gross income on a granular, geographic level, to get a more comprehensive and accurate glimpse into market activity in real-time.  

According to a recent Markerr REIT Roundup report, markets with the highest employment growth experienced the most revenue growth. Tertiary markets showed the strongest year-over-year revenue and employment growth, followed by Sun Belt and Coastal markets. Submarkets with the highest employment growth, Savannah and Memphis (8.7%) saw some of the strongest revenue increases at 12.7% and 11.6%, respectively.

Strategic rent forecasting

Rent growth is a crucial figure when it comes to underwriting models and evaluating specific investments.

Metrics like real-time gross income and employment growth can power better rent growth forecasts and submarket/zip code scoring models. Especially as 2020 Census delays encourage firms to consider nontraditional data, tapping into granular, local-level calculations from nontraditional data sources provides a competitive advantage with unique insight. More recent metrics are a better determinant of growth opportunities that exist in new markets and submarkets, and an indicator of how properties can perform.

Markerr utilizes a backtest against ~430 variables to help identify areas with the best rent growth potential over the next five years. A sample of the best investments in the Denver MSA is below:

As technology continues to change the way the world operates, the real estate industry will also evolve. When it comes to real estate, it’s all about gaining an edge. Multifamily investors are finding that nontraditional data sets are providing the necessary context and insight to make better capital allocation decisions, identify markets ripe with opportunity and outperform their competitors.

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