In the commercial real estate world of 2024, one of the most sought-after types is multifamily properties. These are buildings with more than four residential units, also known as commercial multifamily properties. These structures can include apartment buildings under one roof or multiple residential units managed as a single complex, like clusters of single-family homes.
Multifamily properties have become a central focus for institutional investors, private companies, and public entities. Billions of dollars flow into this market annually, with the U.S. multifamily market generating approximately $138 billion in 2023. The average occupancy rate in this market last year was 91.7%, reflecting the high demand.
Unlike apartment buildings in Israel, where each unit receives a separate property tax bill, multifamily properties in the U.S. are treated as a single entity, with one tax bill for the entire complex. This allows owners to manage the property more efficiently and sell it as a whole unit.
About one-third of Americans live in multifamily properties, often in complexes that offer shared amenities like swimming pools, gyms, and event spaces. One of the key advantages of multifamily properties is economic diversification: if one unit is vacant, the overall income is not significantly impacted, unlike in the case of a single-family home.
The value of multifamily properties is determined by net operating income (NOI) and market capitalization rates. For example, if a property’s net operating income is $500,000 per year and the capitalization rate in the area is 5%, the property’s value would be $10 million.
The multifamily market continues to lead the commercial real estate sector, and it seems poised to remain strong in 2024.