The U.S. economy has seen some improvement during the third quarter, and with it, renewed appetite for commercial real estate. As the office and retail markets continue to struggle during the coronavirus pandemic, investors are turning to stronger-performing assets like multifamily.

“Institutional investors, I think they’re seeing how resilient the asset class is,” Nuveen Managing Director Nikita Rao said during Bisnow’s BMAC South summit Sept. 15. “When you look over the past 35 years, the average income return from multifamily was 6.6%, and even during the [Global Financial Crisis], that income return was 4.4%.”

More than any other asset type, multifamily caters to a basic human need: shelter. During the pandemic, U.S. government intervention has also helped keep the sector afloat, in the form of stimulus checks, larger unemployment payments, business loans and eviction moratoriums.

Rao said that for investors considering multifamily properties, the main focus should be thoroughly underwriting the rent roll. That means looking at the durability of the existing renters in the community and where they work, as well as demographics and the employment situation of the surrounding area.

The performance of rent collection during the pandemic also influences how properties are valued, and whether multifamily investors want to take on the risk. Westmount Realty Capital CEO Clifford Booth said that overall, rent collections have been better at the company’s higher-end properties.

“In our portfolio, the lower end, the lower demographic properties have had more collection problems. The higher the demographic, the higher the collections,” Booth said. “We are skewing more [during] this time period towards acquiring higher-end properties, and we feel more protected as a result on those rent rolls.”

Nuveen has about 50,000 rental apartments on its multifamily platform, and collection rates at Class-C workforce housing properties have been lower than in Class-A and Class-B properties.

“We actually see Class-B communities that have targeted middle-income have actually collected the most amount of rent, versus even Class-A,” Rao said.

The oversupply of Class-A multifamily assets in some areas may be hurting their value. Rao said Nuveen has seen a differential in renewal rates and new leases, particularly for Class-A communities in the urban core. That’s because there is more competition for tenants, especially for lease-ups.

“We’re seeing a lot more concessions given in those types of markets or those communities, versus some of the infill or suburban assets that are Class-B. We’re just not seeing that type of rent pressure as much as that of those who are in the urban core,” Rao said.

The challenge of underwriting existing assets in an uncertain economic environment has some industry figures looking more closely at the benefits of developing multifamily product.

ZOM Living CEO Greg West said a lot more capital in the development space is starting to free up, after being entirely frozen in March and April. The company was able to close four development deals in June and July with partners who were committed before the pandemic. Now, more investors are becoming engaged on the development side.

“The smart money should be in development, so you can build through that operational turbulence and then open up the other side [in] a stable environment,” West said.