InvestmentsReal Estate

Are high-end multifamily REITs overpriced?

Misevaluation in the multifamily sector? One investment group thinks so and cries foul

Conventional wisdom would say that high-priced multifamily REITs would be less risky than cheaper REITS, but one investment group thinks the opposite is in effect due to inaccurate pricing on some high-end multifamily REITs.

Dane Bowler of 2nd Capital Market, posting on behalf of his company on SeekingAlpha, says these REITs are overpriced because of a misestimation of the risk vs. opportunity in the areas in which they are located. 

Mispricing [sic] among multifamily REITs appears to be rampant at the moment with the higher multiple stocks corresponding to properties in locations that I view as more risky. Similarly, the companies with properties in high growth locations with strong fundamentals are trading toward the lower end of the FFO multiple spectrum. This mispricing [sic]  provides investors the opportunity to buy strong fundamentals at a good value. -Dane Bowler

Bowler accompanies his claims with a graph and a few maps detailing the scope of the misevaluations and the “high-risk” areas in which the high-end REIT’s properties are clustered.

Bowler specifically names Equity Residential, Essex, UDR and AvalonBay as his cases-in-point.

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