Garden-style apartments in demand among Multifamily investors

Garden-style apartments represent one of the best commercial assets an investor can buy. These apartment types are usually seen on the parameter of large cities, and are characterized by having two to four floors, usually with no elevators. These assets normally have pitched roofs and individual airconditioners which reduce overhead costs, and they make for easy units to own. Renters love garden-style apartments because it feels more “homey” and doesn’t feel as confined as city-center mid-rises and high-rise apartments. Garden-style apartments usually provide ample amounts of amenities from dog parks, pools, tennis courts, and communal areas so residents can live and mingle within their living area.

Investors love garden-style assets because they generate strong and steady returns and have lower expenses than mid-rises and high-rises which normally have elevator systems, complex heating and cooling systems, and hard-to-reach upper floors if there is a problem with water or gas.

For the first time ever, garden-style apartments commanded lower cap rates on average than mid-rise and high-rise apartment buildings. The average dollar of revenue from garden apartments, which are frequently older and located in secondary markets or suburban submarkets, was valued higher by investors than the average dollar of income from mid-rises and high-rises.

According to Jim Costello, chief economist of MSCI-Real Assets (formerly Real Capital Analytics), based in New York City, “That reflects an expectation for income growth going forward.”

Garden apartment investors have high expectations due to factors like a restricted supply and a swiftly increasing demand.

Investors are chasing down garden apartments

According to MSCI’s hedonic cap rate series, cap rates for garden apartments dropped to 4.3 percent in the second quarter of 2022. 50 basis points less than in the first quarter. Additionally, according to MSCI’s hedonic series, it is the first time that cap rates for garden flats have been lower than cap rates for mid-rise and high-rise properties, which were 4.4 percent in the second quarter.

According to Costello, “investor preference for garden flats is just greater than that for the mid-rise and high-rise assets.” That represents a significant shift from the years prior to the epidemic, when investors indicated a strong preference for mid-rise and high-rise homes.

According to MSCI, wealthy investors are also more inclined to purchase entire portfolios of garden apartment buildings. According to MSCI, investors spent a total of $57.4 billion on garden apartment assets in the second quarter, and 31% of that total was spent on massive portfolio purchases, a considerable increase over the number of portfolio sales made the year prior.

Simple geography is one of the reasons why investors purchase so many garden flats today. According to Carl Whitaker, director of research and analysis at RealPage, Inc., “at a macro level, we see a lot of the Sun Belt cities continue to pull in investment at a quicker pace of increase than gateway regions.”

There are far more garden apartments than mid-rise and high-rise apartments in several of these sunny metro locations. According to Whitaker, “one of the distinguishing features of the Gateway markets is that they tend to be more concentrated and metropolitan in nature.”

The Takeaway

The future performance of garden apartments is projected to be strong due to the lack of competition from new construction. Since it costs too much to fit fewer than a dozen flats onto an average acre, very few developers have been able to construct new low-rise residences. Additionally, many suburban communities oppose denser growth.

At Growth VUE Properties we focus solely on garden-style apartments outside major city metros that provide our investors with strong and stable returns. If you would like to join our network of investors and get access to our private deals, please apply below.

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