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Increase in High Income Renters Could Benefit Multifamily Real Estate as a Whole

A recent article from the Wall Street Journal highlighted the boom in demand for rental units from high income renters.

The article cited reasons ranging from high interest rates & high cost of ownership to low inventory to new arrivals wanting to rent before buying to households that just like the amenities and lifestyle of renting.

Whatever the reasons, the increased demand from households making over $150,000 could create renewed opportunities for investors in Class B assets, which is what we focus on at Blue Lake Capital.

The Gap Between Class A and Class B Rents

We all know that we're looking at a near record amount of new units coming on the market over the next 12-24 months. There had been some thought that, with so many Class A assets being constructed, if the demand wasn't able to fill those new units there would be a possibility of concessions which could be attractive enough to cause Class B renters to go up market.

It doesn't appear that will be the case.

RealPage looked at the gap between Class A and Class B rents and found that there's still a 28% premium in Class A rents on a national basis over Class B. Even considering the possibility of concessions, the study found that they would have to be extreme, over 3 months free rent to equal the average Class B rent.

The study explains: "Only in extenuating circumstances has such a deep concession been offered, and almost exclusively site-specific instances at that. Of the nearly 52,000 properties surveyed by RealPage as of 4Q22, just six properties were offering a concession this deep."

There are location specific exceptions to the rule of course.

Over on LinkedIn, RealPage's Carl Whitaker said that "there are some submarkets where the Class A to Class B difference isn't all that great", and that "a stabilized Class A property could offer a concession of up to 2 weeks free and actually pull an existing Class B renter household into that Class A property".

Those markets are in the minority however, and are not the markets we would consider in our deal flow.

Class A Construction Could Benefit Affordable Housing

It's interesting to consider that, with the majority of new construction projects being in Class A, it could actually benefit lower income renters. While there's a clear need for more affordable housing and a lot of advocates have been pushing for more affordable housing projects, it's difficult for many of those deals to pencil, with higher construction costs one of the major factors.

However, without the new Class A construction, all of those new high income renters could actually create more of a squeeze on lower income renters. They'd spill into more Class B+ and below units out of necessity, driving rents higher in the mid market and crowding out the renters who actually want to live in those units.

It's interesting to look at the big picture and consider the fact that, yes, we obviously need more affordable housing. But we also need more Class A units, and renovated Class B units. This is potentially creating positive benefits for renters and real estate owners across the spectrum.

Luxury Rental Demand Could be Here to Stay

It's possible that this new demand for Class A could be temporary, but what if it's not?

People's lifestyles have changed, and some of the luxury units offer a lifestyle that high income earners want and really can't be found anywhere else. Great locations in booming cities with amazing amenities with the opportunity to expand social circles in high end communities.

Even though the gap in rents has come down between Class A and Class B, it seems fairly clear that the new Class A inventory will not have much of an impact in Class B in the vast majority of markets. Further, the high cost of ownership impacts those middle class renters even more dramatically than high earners, meaning demand in the mid market should continue to outpace supply.

That's where we see opportunity despite the current challenges in the market, and that's why we're launching the Blue Lake Multifamily Fund. Identifying properties in great markets that fit our model will continue to provide long term growth and strong returns for our. investors, especially as we apply our value add model.

Those new Class A units will bring up the overall rent profile of markets and, with nice, updated units filling a need there should be some room to move rents, even if it's not at levels we've seen the past few years. (Shameless plug: to learn more about our Multifamily Fund and how you can invest alongside of us, contact our Investor Relations team through this form, we'd love to connect with you.)

We do expect conditions will begin to improve at the tail end of 2023 into 2024. In the meantime, we're staying active and keeping our eyes open for opportunities. The increased demand from high income renters could be providing be a nice, unforeseen tailwind at just the right time.

As always, Be Bold, Be Great and Keep Pushing Forward!


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If you are an accredited investor interested in learning more about passively investing in multifamily properties, click here to complete our investor form and schedule a call with our Investor Relations team.

About Ellie Perlman

Ellie Perlman is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the founding host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital and Ellie Perlman at


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