Commercial real estate refers to any piece of real estate used for business purposes, such as generating income or providing workspace. Multifamily investment real estate includes residential and commercial properties. Residential multifamily properties must have four or fewer housing units, whereas buildings with five or more housing units must be categorized as commercial multifamily properties.

Multifamily real estate can offer investors many inherent structural benefits, such as economies of scale and reduced risk. [1] This article highlights the advantages and disadvantages of multifamily real estate and other commercial property types, including industrial, self-storage, hotels, senior living, and retail real estate.

INDUSTRIAL PROPERTIES

Advantages: There is a rising demand for industrial properties (manufacturing facilities, warehouse spaces, etc.) due to the growth of e-commerce. Dalfen Industrial President and CEO Sean Dalfen addresses industrial real estate in Forbes by stating, “From the clothes we wear to the food in our refrigerators, almost every product we use has passed through an industrial facility.” [2] With industrial properties come long-term leases, which can offer stable income. Since these properties have fewer tenants, there can potentially be less day-to-day management.

Disadvantages: Industrial properties depend highly on the overall economy and tenant-specific industries. In other words, they are more sensitive to economic cycles. While having fewer tenants means less day-to-day management, it also implies that property stability is at higher risk if a tenant leaves. Since long-term leases often have pre-determined rent increases (generally 2-3% annually), if market rents increase, owners cannot increase rents to match the market; they have to stay within what was agreed to in the lease. This means that rent increases are stifled and may lag behind current market conditions during periods of growth or inflation.

SELF-STORAGE

Advantages: Self-storage properties (storage units, warehouse-like facilities, etc.) typically have low operational costs and higher profit margins. They require minimal staffing and maintenance and are in high demand in areas experiencing rapid population growth.

Disadvantages: Building self-storage is far less complicated than other types of commercial real estate due to relatively low construction costs. However, this means that the self-storage industry struggles with oversupply. Therefore, supply/demand dynamics can shift rapidly since the barrier to entry, from a construction perspective, is low. Oversupply incites competition, and pricing is often a race to the bottom. Lastly, this property type has limited opportunities for value-add strategies, resulting in fewer ancillary income or premium pricing opportunities.

HOTELS

Advantages: Many opportunities exist for hoteliers and asset managers interested in this commercial real estate investment vehicle. Hotels present high-income potential during peak periods or in locations with a large influx of tourists. This means owners can charge premium pricing, if supported by the market, with upscale amenities.

Disadvantages: Since the industry heavily relies on a bustling tourist presence, income for this asset type can be very cyclical. Occupancy rates vary daily and are tied to peak travel seasons and economic trends. Hotels can generate high operational costs for staffing (maintenance, housekeeping, office staff, etc.). Also, it can be challenging for individual owners to compete with multinational corporations with established brand loyalty programs (Marriott Bonvoy, Hilton Honors, etc.). As mentioned earlier, economies of scale refer to cost advantages where the size of the operation mitigates ownership costs. While entrenched brands with sprawling portfolios can achieve economies of scale and leverage in vendor negotiations, smaller operators cannot.

SENIOR LIVING

Advantages: Housing for older adults is a need-driven, growing sector in commercial real estate due to the aging population. Operators with this asset type can force rent growth because the increased day-to-day needs of residents are significantly higher than they would be for standard multifamily. Since senior housing is a spectrum, varying as the need for care increases (independent vs. assisted), this asset type can add value by including specialized services such as respite care, reduced home maintenance, convenient access to healthcare, salons, trails, libraries, gardens, and various other amenities. Assisted living is also positioned on that spectrum, where residents need support and structure, not daily medical care. Then, there is palliative and memory care, which are specific to residents with serious illnesses or chronic conditions who need environments with robust safety measures in place. Finally, there are skilled nursing facilities where residents require around-the-clock care.

Disadvantages: Senior living incurs higher costs than other commercial real estate assets. However, this asset type is highly regulated and operationally complex. It also requires specialized management, healthcare professionals, and regulatory compliance. X-Caliber remarked on some of the challenges with senior housing, stating that “costs are a problem from several directions” and “[per-gross-square-foot] assisted living can cost $273 to $348 and $358 to $445. Skilled nursing runs $314 to $368 and $391 to $498.” [3] According to The Weitz Company data, the prices listed above did not consider special jurisdictional issues or code requirements. [3] These challenges extend to broader healthcare policies, so if an operator at the asset needs to be replaced due to a lack of compliance, customer service issues, or anything else, transitioning to a new operator can be highly disruptive because of the complexity of operations and resident care needs.

RETAIL

Advantages: Retail commercial real estate consists of department stores, storefronts, restaurants, and other property types, the primary function of which is the sale of goods and services to consumers. This asset has the potential for high returns if it is in a prime location. Also standard are long-term leases where tenants, not operators, are responsible for many property expenses. One example of this is a triple net lease (NNN). This is a specific lease agreement for commercial properties wherein the tenant is assigned sole responsibility for property taxes, building maintenance, insurance, rent, and other expenses. Such an agreement can provide steady revenue for owners.

Disadvantages: Retail properties are declining in demand due to increased accessibility to e-commerce and changing consumer habits. This lack of demand results in a higher risk of tenant defaults during economic downturns, and if the retailer is not performing well, it is more difficult for them to pay rent. High vacancy rates with this asset type also intensify risks—if the market is weak, locations not in A+ prime locations may struggle to lease space.

MULTIFAMILY REAL ESTATE CHARACTERISTICS

Multifamily communities can offer premier living experiences for residents and impressive returns for investors. With multifamily real estate comprising about 34% of the commercial property investment market, it is worthwhile to explore some of the characteristics of multifamily real estate. [4]

Advantages: Multifamily advantages directly result from economies of scale, the fund model, and portfolio diversification. Portfolio diversification involves spreading investments across different multifamily properties in various locations to mitigate risk. Economies of scale conceptualize unit volume within a fund to provide cost distribution benefits. Another advantage is the potential for passive income. General partners (GPs) manage and execute the business plan and are responsible for taking on more operational risk. Investors/limited partners (LPs) assume a more passive role, contributing capital and profit sharing. For multifamily investors, appreciation can provide several benefits. First, it can increase the equity in the property, allowing the sponsor to borrow against the increased value or sell the property for a profit. Second, appreciation can lead to higher rental income and property values, resulting in increased cash flow and higher returns on investment for shareholders. Finally, appreciation can hedge against inflation, as property values and rental income can rise alongside the general price of goods and services.

Disadvantages: Due to the property size and the leverage typically needed, multifamily real estate can have higher initial costs than other asset classes. Also, many investors do not have the skills to own and operate an investment property. They’d be ill-equipped to handle resident issues, maintenance, and operations in general. Passive investing is one thing, but effectively implementing operational efficiencies, analyzing market fluctuations, and accurately attending to property taxes and insurance are another. However, private placement is a popular solution for accredited investors who want to enjoy passive income and all the other benefits of multifamily investing without the burden of being a landlord. 

WORK WITH BAM CAPITAL FOR MULTIFAMILY PRIVATE PLACEMENT

Private placement is a real estate deal in which multiple investors pool their money to buy property, usually an apartment building or a portfolio. The investors are led by a general partner, also known as a sponsor, who is responsible for finding the property, managing the transaction, and managing the property after the purchase. One award-winning sponsor with a trusted track record for excellence is BAM Capital. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

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SOURCES:

[1]: Google Generative AI. (2025). “Advantages and disadvantages of investing in multifamily real estate.” https://www.google.com/search?q=multiffamily+vs+other+commercial+real+estate

[2]: Forbes. (2024). “Current Demand Drivers In Industrial Real Estate.” https://www.forbes.com/councils/forbesbusinesscouncil/2024/07/22/current-demand-drivers-in-industrial-real-estate/#:~:text=Sean%20Dalfen%20is%20President%20and,overseeing%20the%20firm’s%20investments%20strategies.&text=Industrial%20real%20estate%20plays%20a,for%20navigating%20the%20current%20landscape. 

[3]: X-Caliber. (n.d.). “Senior Housing: A Growing Opportunity In Commercial Real Estate.” https://x-calibercap.com/whitepaper/senior-housing-a-growing-opportunity-in-commercial-real-estate/ 

[4]: Statista. (2024). “Market share of commercial real estate investments in the United States from 2020 to 2023, by property type.” https://www.statista.com/statistics/789084/share-of-property-investments-usa-by-property-type/#statisticContainer