Real Estate Investment Strategy

The US multifamily real estate market benefits from the strengths and resilience of the US economy offering attractive opportunities.

According to its investment regulations, Varia US Properties invests in US multifamily real estate properties and pursues a mid to long-term investment perspective through the following individual strategy based on three pillars:

  • The Company acquires properties that allow for value adding measures, including refurbishment, renovation and other operating measures, in order to maximize the rent potential at limited incremental costs before looking for an attractive exit.
  • In addition, the Company invests in properties profiting from Low Income Housing Tax Credit (“LIHTC”) in order to generate attractive rental profit and realize value growth once these properties have been transitioned to the non-rent restricted market.
  • The Company also aims at selectively investing in stabilized properties with limited improvement potential, such that it can benefit from secure rental income and the value growth in the mid to long-term.

Varia US Properties focuses on the low to moderate income level assets and, in particular, on the LIHTC (Low Income Housing Tax Credit) properties. LIHTC properties benefit from a tax credit program when they are built and are then subjected to rent and tenant income level restrictions usually for the first fifteen years following construction. Once the restriction period has lapsed, a transition to free market can be negotiated. As of September 2022, LIHTC assets amount to approximately 4% of the portfolio’s value.

Latest Trends in the US Real Estate Market

In the United States, there have been over 42 million renter households in 2015 amounting to 36% of all households nationwide. This is an increase by 1.4 million over the previous year and double the rate of growth in the previous decades (source: US Census).

  • Shift from homeownership to renting in the US

Tightened credit requirements for single family home ownership following the financial crisis have led to a shift from home ownership to renting. Number of renter households grew with a CAGR (compound annual growth rate) of over 5% from 2005 to 2015, while owner households only grew by 1.5% in the same period.

  • Demand for rented properties outpacing supply

The residential multifamily market is characterized by strong rental growth averaging at 3.0% p.a. nationally between 2010 and 2016 (source: Fannie Mae Research). Despite the increase in rents, the demand for rental housing continued to exceed new supplies. Since 2010, multifamily unit construction has been increasing every year with over 300’000 units being added to meet the high demand. Developers will continue to construct rental properties largely aimed at younger, high income tenants.

  • Strong rental income growth and low multifamily vacancy rates

The median asking rent has increased at a rate of 4.3% p.a. countrywide and 5% p.a. in the Southern states in the last 5 years, whilst US-wide vacancy rates have been decreasing since Q3 2009 and have reached with 5% the lowest level in over 30 years (source: Fannie Mae Research).

  • Secondary and tertiary market growth

Suburban apartment rent growth has exceeded urban apartment rent growth over the past 5 year. Given the demographic distribution and strength of the US job market, the supply-demand dynamics will likely continue to be favorable for the rental market in secondary and tertiary markets.