As you know, 2021 was the year after the pandemic started and it certainly had its ups and downs in a variety of industries. The two major areas that were disrupted the most were the supply chain and the labor force which has caused a huge increase in inflation.
Many sectors just couldn’t maintain any consistent level of supplies whether it was a grocery store, car dealer, restaurant, etc. All of us likely tried to buy something in 2021 and found out that it had been temporarily out of stock due to supply chain shortage all the way to a coin shortage too.
Many businesses were hanging on by a thread due to a lack of supply in the labor market even though the unemployment rate was almost at pre-pandemic levels (see Figure 1). Due to inflation being at 6.8%, businesses had to increase the pay for their current employees to keep them and offer higher wages to attract top talent. The sector seeing the most damage is the food service industry.
With inflation at its highest since 1982 (see figure 2), we saw dramatic price increases in food, gasoline, and housing.
PassiveInvesting.com Performance in 2021
In 2021, our team acquired 13 assets and sold 5 assets for a total transaction volume of $718,849,838 for the year.
With the 5 multifamily dispositions totaling $157,404,000, our passive investors achieved high yield dispositions averaging 27% in annualized return and 24% in net LP IRR.
Our acquisitions included 8 multifamily assets with 2,024 doors and 5 self-storage assets with 477,912 net rentable square feet. These acquisitions equated to an increase in our assets under management by $561,445,838.
We raised $197,562,355 in equity from our passive investors and were able to distribute $60,419,103 to investors which breaks down to $7,282,919 in investor monthly distributions and $53,136,184 distributed from dispositions.
2021 was also the year for a dramatic increase in 1031 exchange activity for us with $40,827,482 in new 1031 funds rolling into our assets with $12,940,375 coming from outside 1031 groups and $27,887,107 coming from passive investors in the assets that we sold this year rolling into another acquisition.
Outlook for Multifamily in 2022
Many have been surprised at how well the multifamily market has performed in 2021 especially the higher end Class A and B+ assets. The question has been asked numerous times, “how long will this run last?” and it is a great question.
The national sales volume in Q4 2021 alone (see Figure 3), was at an all time high with just over $80B in sales. The average price per unit was up over $240k for the first time ever as well. As you can see, the forecast for the next 5 years continues the uptick in market price per unit to almost $280k. These figures are for all assets classes across the entire country with primary and higher-end secondary markets seeing an even larger increase in pricing.
There are several reasons for this uptick in pricing to include high rent growth due to under supply and increasing demand and large institutional investors becoming more bullish on the sector.
The institutional investors have flocked to acquire multifamily assets due to the resiliency seen throughout the pandemic and they believe that multifamily is a true edge against inflation and protection of capital during any type of recession. This has been the same thing we have been saying for many years. I’m glad they are now catching up with us.
2022 will certainly be a great time to buy multifamily as the demand continues to increase while supply is still lagging in the markets where we are acquiring assets. You can see in Figure 4, the historical and projected market rent growth and forecast for the next 5 years.
Outlook for Self-Storage in 2022
Self-storage has been a great asset class in 2021 with the self-storage REITs
outperforming all other REIT sectors with a 58.89% annual return according to Nareit data.
The national average for a 10’x10’ climate-controlled unit rental rates have increased by 9.8% while some of the southeastern markets have seen over 15% increases.
These increases in demand have been sparked by all the movement across the country of people moving from less politically favorable areas to more favorable areas due to a shift in remote work ability. Also, the construction of new self-storage facilities has slowed due to the supply chain shortages and increasing cost of construction materials.
In 2022, we will continue to see this demand with high rent growth but towards the end of the year with a projected increase in new construction deliveries, the rent growth will likely taper.
What we have seen throughout the pandemic is that self-storage has once again proven itself to be a leader in the recession-resiliency throughout tumultuous times.
At PassiveInvesting.com, we made a strategic decision to add self-storage assets to our offerings to allow our passive investors options for diversification. Your investment portfolio should certainly consist of self-storage in 2022 and beyond.
Alternative Assets Coming in 2022
As we set our plans for 2022, we are going to continue acquiring solid, cash flowing multifamily and self-storage assets. As we have already announced, we will also be adding hotels to our acquisition pipeline, and we are actively putting our hotel team in place.
In the coming months we will be adding another alternative asset class to our offerings that has a tremendous cash flow potential and high returns. This asset class does not have traditional third-party management options, so it is a little harder to just press the “GO” button. Danny, Brandon, and I are going to put our own money up to acquire the first assets in this space so we can put a solid team in place to manage these assets properly.
I know you are probably extremely curious about this new asset class. We will certainly make an announcement once we have more details to share. And “no,” it is not Bitcoin or anything to do with the cryptocurrency space. Maybe in the future but not now for us.