Small Multifamily: Real Estate's $5T Opportunity (Part 2)

Thesis Driven dives deep into emerging themes and real estate operating models by featuring a handful of operators executing on each theme. This week’s letter is the second of a two-part series by Michael Falgione, co-founder and Managing Partner of Greenspace Capital. These letters will dig into investment opportunities in small multifamily buildings. You can find Part 1 here.

Part 1 of this small multifamily (SMF) series analyzed why institutions have historically avoided investing in 2 to 49 unit apartment buildings. We concluded the following:

• Large multifamily and SFR were lower hanging fruit following the Savings & Loan Crisis and Global Financial Crisis, respectively;
• Sourcing SMF is highly localized, and buying opportunities can be limited in the absence of widespread seller distress or economic tailwinds;
• Property and asset management have always been challenging for scattered site properties, up until the recent development of pointed technology solutions.

To better understand how the SMF space is evolving, we sat down with three companies at various stages of their growth journeys. Last week we spoke with Veritas Investments, who has already built an institutional-scale investment platform over the past two decades through a combination of geographic asset concentration and a forward-thinking approach to operational centralization. This week we sat down with Groma and Constellation Homes, both newer operators who i) are implementing technology across the entire real estate asset lifecycle, and ii) expect there will be meaningful supply and demand drivers for SMF over the coming decades based on US housing and macroeconomic trends.

Following their interviews, we share some predictions about what the future holds for SMF.

Groma

Groma is on a mission to make it easier for more people to invest in the real estate that surrounds them. They are initially focusing on SMF because it often presents an immediate opportunity for value-creation, and over the long term they feel that bettering this housing segment helps improve the cities and communities in which they invest.