Where are institutional investors deploying capital?

In March 2022, the Fed raised its federal funds benchmark rate by 25 basis points to a target range of 0.25 – 0.50% as a first step in combatting rampant inflation. By late July, the target rate had been increased to 2.25 – 2.50%. Meanwhile, war broke out in Ukraine, and the confluence of these macroeconomic events, along with other geopolitical uncertainties, forced real estate investors to reevaluate their outlooks.

Starwood Capital Group’s activity in April and May 2022 offers insight into where some of the largest capital allocators in the real estate sector are focusing during this period of broad uncertainty. A Securities and Exchange Commission filing revealed that Starwood purchased 53 apartment properties totaling $3.2B in that period, in metro areas including Washington D.C., Phoenix, Dallas, Houston, Raleigh, and Salt Lake City. The Starwood website also mentions two multifamily portfolios in Texas and North Carolina, citing “strong suburban locations”. 

Starwood is clearly placing emphasis on the multifamily housing sector, one of the top performers throughout the pandemic, and is focused on primary markets with favorable job and population growth. Suburban locations have also performed well recently compared to their urban counterparts. Evidently, Starwood expects many of the trends borne out of the pandemic to continue, and the large volume of transactions reflects high confidence, especially in the context of the present macroeconomic uncertainty.

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