31 Mar 3-31-2020 COVID & Multifamily News & Information Links

Here’s a collection of articles relevant to your multifamily real estate investments.

• Apartment Owners Association has a collection of forms, petitions, employment, health info, find it here. 
• CoStar Sate of the Apartment Market, find it here.
• Multi-Housing News – U.S. Renters May Need $12B in Monthly Support, find it here.
  • renters may need $7-$12B over the next 3-6 months
  • 15-26% of all rental households will experience significant hardship
  • Many Americans will be unable to pay rent by April 1st
  • Apartment owners collect more than $22B in average rent each month
  • “California last week placed a statewide moratorium on evictions, following similar measures to protect renters in other jurisdictions including New York State this month.”
    • “Renters are also required to declare in writing that they cannot pay all or part of their rent due to the coronavirus no more than seven days after the rent comes due.”
    • “As part of the order, renters are also required to retain documentation but are not required to submit it to their landlord in advance and renters will still be obligated to repay full rent in a “timely manner” and could still possibly face eviction once the moratorium is lifted, according to Newsom’s office.”
    • “Three of California’s biggest cities—Los Angeles, San Francisco and San Diego—had already enacted eviction moratoriums before Newsom announced the statewide measure.”
  • “Coronavirus-related business shutdowns are likely to have the greatest impact on hourly wage workers, especially in the leisure, hospitality and transportation industries. Manufacturing, construction and retail trade employees will also feel the effects. “
• Multi-Housing News – Why Apartment Investors are Returning to Core Markets, find it here.
  • “over the past several years, many investors looked to place capital in secondary and tertiary”
  • “Paradigms have shifted as they look at the shrinking value-add inventory in secondary and tertiary markets. That, combined with the fact that cap rates in non-core markets are approaching core-market cap rates in the range of 4.5 percent to 5 percent, confirms that core markets are starting to offer more compelling risk-adjusted returns than their non-core counterparts.”
  • “In Los Angeles, for example, tech and creative firms focused on content creation, such as the FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks, have been a catalyst for job growth and rising demand for housing options”
  • “Ultimately, some of the fundamental ingredients of a core gateway market are high barriers to entry, low incoming supply, a growing skilled labor force and robust foreign capital investment. “
  • “The combination of COVID-19 taking its toll on the overall economy and broader business climate, the likelihood of a recession on the horizon and historically low interest rates provide plenty of reasons for investors to return to the attractive fundamentals of core markets as a hedge against the unknowns over the coming months and years.  “
• GlobeSt – Are Unlawful Detainer Actions Still Available – find it here.
  • “There is currently no moratorium on evictions or unlawful detainers in the State of California. Instead, each local municipality has authority over both residential and commercial evictions, and evictions must be related to nonpayment of rent due to the coronavirus pandemic.”
  • “unlawful detainers can only be restricted where the basis for eviction is nonpayment of rent arising out of a ‘substantial decrease in business income caused by a reduction in opening hours or consumer demand…caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19, and is documented”
  • “municipalities cannot legally restrict unlawful detainer filings that arise from non-monetary defaults, or monetary defaults that are unrelated to the COVID-19 pandemic”
  • “moratorium has already taken effect in San Francisco until April 13, 2020 and in San Diego until May 31, 2020”
  • “In addition to moratoriums, other obstacles to eviction of non-paying tenants have been posed by state-wide court closures”
• GlobeSt – One Apartment Investor is Moving Forward on Deals – find it here. 
  • “A lot of transactions are going to depend on what happens in April with collection loss. If it is what we expect, which is 20% to 30%, then we can recover from that.”
  • “During downturns, physical occupancy goes out the window,” says Sharkansky. “When the rent roll says 95% occupied, that means nothing. It is all about collections.”
  • “We had an amazing economy going into this. We think this will be somewhat of a V-formation-type recovery”
  • “There are going to be long-term behavioral habits that will need to re-adjust the way they were in the past,” says Sharkansky. “Ultimately they will, and I don’t see any reason why we can’t get back to sub-4% unemployment in the next 12 to 18 months.”
• What the $2T Fed Package Means for Multifamily – find it here. 
• Now is the Time to Prepare for the Future of Multifamily – find it here.
  • “raffic to multifamily property websites are down 15% year-over-year and guest cards are down nearly 3%. Lead volumes will likely plummet further as more cities adopt shelter in place ordinances, according to a new report from RealPage”
  • “the economic fallout could translate to sustained job losses and weak demand for housing”
  • “Protect rent rolls in order to capitalize when markets improve. Simply slashing rents won’t necessarily buy demand if that demand isn’t there.”
  • “We also observed revenue-managed properties maintained higher occupancy rates and deployed strategies that enabled them to come out of the recession earlier,”
  • “Aligning pricing strategy with investment strategy is critical. For example, NOI or cash flow versus focusing aggressively on rent level appreciation.”
  • Lock in renters on longer lease terms.
• Homeownership Has Been Declining for Generations – find it here.
  • “Suburbs continued to flourish as boomers came of age, but obviously for gen-X and millennials the momentum was curtailed by the Great Recession and slowly worsening shortage of affordable housing.”
  • “Coupled with that is the reality of supply and demand in the housing market. There is a huge shortage of affordable homes in the places that millennials want to live, and many are unwilling to move out to the suburbs or start super-commuting just to be able to buy a home. Instead, they continue renting.”
• Multifamily Investors Expect Modest Impact from Virus – find it here.
  • “the multifamily market may be a safe place to shelter during a time of turbulence”
  • “Nearly two-thirds of respondents to the survey said their firms expected only a slight decrease in multifamily rents over the next six months, while 17 percent foresee a significant drop. Almost 41 percent anticipate that vacancy rates will stay the same or decline.”
  • “Multifamily remains in a relatively strong position due in large part to our nation’s shortage of available housing units, with multifamily vacancy rates at just 4.2 percent as of Q4 2019,”
  • “Nearly 40 percent of investors told IPA they had put all acquisition activity on hold, while more than half are delaying dispositions.”
  • “social distancing means that the vast majority are unable to travel for basic diligence activities such as property tours, and most said their firm wouldn’t purchase a property based on a virtual tour”
  • “Disrupted and postponed deals may help explain why just over 77 percent of respondents anticipate a slight decrease in asset values over the next six months. More than 53 percent expect a slight rise in cap rates over the same period of time, while another 8 percent expect a significant increase.”
  • “While construction is still deemed an essential service in states such as California and New York, getting permits is another matter at a time when municipal offices are closed across large parts of the country. The majority of investors believe that both permit activity and construction starts for their firm will significantly drop over the next half-year.”
  • “Uncertainty in the job market, projected rent growth, and interest rates will increase the cost of capital and temporarily slow the pace of permits and construction starts,” he added. “However, given the high propensity to rent, we believe those who stay the course will benefit from the resurgence of demand and supply decrease.”