Safe Haven Assets To Consider During Economic Downturns

2022 was a terrible year economically. One of the few bright spots was the safe haven asset of multifamily real estate. But otherwise, inflation skyrocketed to a 40+ year high, gas prices hit record highs, the S&P 500 was down 18.11 percent, and the bond market had its worst year ever. 

Most of us breathed a sigh of relief on New Year’s Day when we turned the page on 2022. However, the economic headwinds continued to blow into 2023. Household debt is spiking, savings rates are plummeting, and recent bank failures have people worried about more to come. 

Many economists are predicting an upcoming recession, and investors are scrambling to find haven assets.

What Are Safe Haven Assets?

If you Google safe haven assets, you’ll encounter various definitions of the flight to safer investments during times of uncertainty and instability. These assets hold or increase their value when the rest of the economy is turbulent. 

And during your search, you’ll find some of the following assets repeatedly mentioned as safe haven assets.

  • Gold
  • Cash & Currency
  • Treasury bills
  • Non-cyclical stocks
  • Multifamily real estate

Below, we will explore these different types of safe haven assets so that you can see if these options are suitable for your investment portfolio if the broader financial markets continue to trend toward a downturn. 


Gold is a precious metal that has been a store of value for millennia. This metal cannot be printed and has long been considered a safe haven asset and a hedge against inflation. 

The graph below shows that gold has been positive in 75% of financial market recessions.

Unfortunately, the performance of gold prices in 2022 was mixed. While it easily beat the S&P 500 with a +0.44% return, it did not keep up with inflation (CPI).

Cash & Currency

Cash is considered a true safe haven asset. That’s why most people will sit on cash during deep recessions. However, cash has no real return and is negatively impacted by inflation. Certain safe-haven currencies, like the Swiss Franc, Japanese Yen, and U.S. dollar, are often used to hold wealth during market turbulence. Then, once an investor feels that market volatility has leveled, the

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Treasury Bills

U.S. treasuries are government bonds backed by the full faith and credit of the United States government. With treasuries, the investor is loaning their money to the government. This loan is considered risk-free because of the solvency of our government and its ability to print money.

But if you’re following the Silicon Valley Bank collapse, you might disagree that government bonds are risk free.

U.S. treasuries can be purchased and held for prescribed periods.

  • T-bills: shortest maturity period (4 – 52 weeks)
  • T-notes: midrange maturity (2 – 10 years)
  • T-bonds: long maturity periods (30 years)

The safety of U.S. treasuries comes with holding them through maturity. However, like many safe haven assets, these securities are inflation-sensitive. Low returns have been the knock on treasury bonds for years. And unfortunately, rising interest rates can depress bond prices.

Non-Cyclical Stocks

Also known as defensive stocks, non-cyclical stocks have a history of lower volatility. Defensive stocks often represent investments in basic needs or essential items unrelated to the economic cycle.

Consumer staples, utilities, durable goods, pharmaceuticals, and medical stocks are defensive stocks frequently considered safe haven assets within equity markets.

Multifamily Real Estate: A Safe Haven Asset

If you research safe haven assets, you’ll discover that some articles include real estate while others do not. Why is that? The reason is that many property types don’t qualify as safe haven assets.

However, multifamily real estate is different; it’s an investment in the basic need of shelter. It follows demographic cycles and is insulated from economic uncertainty. Ultimately, people need a roof over their heads in good times and in bad. 

If you’re looking for substantive returns in a stable asset class, then multifamily might be right. What follows are five reasons why multifamily real estate is considered a safe haven asset class.

Top Sharpe Ratio

There are five crucial measurements of risk investors often use to evaluate assets.

  • Alpha
  • Beta
  • R-Squared
  • Standard Deviation
  • Sharpe Ratio

The first three are used for paper assets like stocks and bonds. Standard deviation and Sharpe ratio are the primary risk measurements used to evaluate real estate investments. 

Standard deviation is a measurement of volatility. The higher the standard deviation, the more volatile or risky the asset.

Sharpe ratio is also a measurement of risk. It looks to measure and compare the returns between asset classes after adjusting for risk. The best way to explain the Sharpe ratio is to use an example.

  • Investment A: 8% return and 5% volatility
  • Investment B: 9% return and 15% volatility

If you looked at returns alone, you’d believe that investment B was superior. However, investment B is three times as risky as investment A. 

So, in this example, investment B doesn’t adequately compensate investors for the risk they’re taking. That is why investment A will have a higher Sharpe ratio than investment B. 

The higher the Sharpe ratio, the higher the risk-adjusted return.

As the graph shows, private real estate has high returns and a low standard deviation. This combination gives real estate the best risk-adjusted return (Sharpe ratio) of the big three investments. The difference is even more significant than the graphic demonstrates. 

When you account for the fact that the average stock market investor underperforms the index (as reported by Dalbar), you realize that the risk-adjusted return for the U.S. stock market is overstated compared to the actual returns investors receive.

While real estate beats the stock and bond markets in terms of risk-adjusted return, it’s important to note that the NPI (private real estate index) includes multifamily, office, retail, and industrial real estate. 

According to research done by NMHC, apartments have the highest returns (mean), lowest risk (S.D. – standard deviation), and best Sharpe ratio over any long-term holding period of any of the other real estate property types.

Looking at multifamily alone, the Sharpe ratio across 15 years was an impressive 2.45. With a Sharpe ratio like that, it’s easy to see why multifamily real estate is a safe haven asset.

Occupancy Rates

Looking at national multifamily real estate occupancy rates over the last seventy years, you’ll see that apartments have remained highly occupied in the +90% – 95% range.

During those seventy years, there have been ten recessions. And if you study those ten recessions, you’ll learn that occupancy rates have never dipped more than one percent. In contrast, the stock market has dropped an average of -28% over every recession during the last 100 years.

Ultimately, people have always needed a roof over their heads in good times and bad. That’s why the economy can be in freefall, and yet apartment occupancies remain stable with high demand. That stability is a crucial feature of safe haven assets.

Rent Growth

We should also look at rent growth since we examined occupancy rates over 70+ years. We know occupancy rates remain stable during recessions, but do rents decline?

To answer that question, you need to look at the chart above. Rents have grown nationally over the last seventy years. Only once (During the Great Recession) did rents decline. And even then, rents only declined -0.73%. Contrast that limited decline with the S&P 500’s drop of -46.13 during the Great Recession.

Rent growth was positive during the other nine recessions (shaded gray columns in the graph). That means rent growth was positive in nine of the last ten recessions. Sometimes that growth slowed, sometimes, it increased, and other times it went flat. Regardless, it remained positive. 

Growing rents in the face of a declining economy is another reason multifamily real estate is a safe haven investment.

Delinquent Rent Payments During COVID-19

COVID-19 was a black swan event. Schools closed, businesses shuttered, and the economy was on life support. If anything could create a rise in delinquent rent payments, it would be the pandemic.

But if you look at the graph above and focus on April 2020 and the following months, you’ll see that rent collection bottomed out at a low of 94.9%. That means that roughly 95% of renters were paying their rent. Today, rent collections are at a three-year high of 96.03%. Therefore, the dip in rent collections from April 2020 to February 2023 was only -1.04%.

Now let’s contrast that performance with hospitality and retail real estate. 

Before the pandemic, national occupancy rates for hotels were around 80%. However, occupancy rates tumbled to 10% – 20% once the pandemic hit. Over time, their occupancies have slowly improved, but a total return to pre-pandemic levels isn’t expected until later this year (2023). Ultimately, the lodging industry lost billions of dollars in jobs and revenue to COVID-19.

Brick-and-mortar retail real estate also suffered from the pandemic. COVID-19 fueled a flight from traditional retail use toward e-commerce. Online shopping allowed people to social distance and therefore captured a large chunk of market share from brick-and-mortar stores. As a result, physical retail centers suffered as their loan delinquencies sharply rose. During the pandemic, nearly one in five retail stores financed by CMBS debt was delinquent in paying their loans.

This high payment history is more evidence that multifamily real estate is a safe haven asset even in the face of calamity for the broader financial markets.

Distressed Debt

A book could be written about the safety metrics associated with multifamily real estate. However, for this article, I will limit myself to one more metric – distressed debt. And I specifically want to look at CMBS (Commercial Mortgage-Backed Securities).

It’s important to know that banks do not service CMBS loans. Instead, a third-party loan servicing company known as a master servicer manages these loans. But, when those loans become distressed and default, the loans switch to “special servicers.”

Special servicers look to resolve the debt in the best interest of the CMBS investors who own the debt. So with that introduction, let’s look at which real estate property type has the most loans in special servicing.

Source: Trepp

As you can see in this graph, multifamily real estate has the lowest special servicing rates compared to the other property types listed. This data only reflects one year. If you go back many years, the trend will be the same. Multifamily real estate has some of the lowest default rates in real estate. 

As low as the special servicing rate for multifamily is, it’s still too high. It’s important to understand that CMBS has looser lending standards. Given those more flexible terms, CMBS is the go-to financing for riskier projects. Lenders with stricter underwriting standards are GSE (Government Sponsored Entity) and insurance company lenders.

GSE (Freddie and Fannie) are the loans 37th Parallel Properties favor. The strict, conservative standards of GSE and insurance debt led to 60-day delinquencies and defaults well below one percent for most of the last 30+ years. As you can see from the graph above, those rates tend to hover closer to 0.1%. The conservative standards of these loans protect investors.

Safe Haven Assets Are Secure Assets

In an ideal world, all investment assets would maximize returns while minimizing risk. However, since every asset class has its benefits and drawbacks, modern portfolio theory demands that one construct a diversified portfolio. 

Most people balance their portfolios using the big three asset classes stocks, bonds, and real estate. Historically, multifamily real estate has had the best long-term risk-adjusted returns (Sharpe ratio) and stable metrics, making it a safe haven investment. 

The economic downturns in 2022 led to a rough financial year, and 2023 appears headed for a recession. For many reasons, multifamily real estate has become an essential portfolio component for numerous savvy investors.

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