Why Multifamily Rents are Holding Up Better than Expected

A feared collapse in apartment rent collections amid the COVID-19 shutdowns has failed to materialize. But can that streak last?

Despite mass unemployment and underemployment, multifamily rental payments have held up far better than many industry experts expected amid the economic wreckage caused by the spread of the novel coronavirus.

More than 36 million people have filed for unemployment in recent weeks and millions of others working fewer hours and taking reduced pay. That’s amid new estimates that real GDP growth for the second quarter will come in at -42.8 percent. Toss in a backdrop in which, as of December, 69 percent of Americans had less than $1,000 in savings accounts, and it would seem to paint a bleak picture on the ability of renters to meet their obligations.

Yet 87.7 percent of apartment households made a full or partial rent payment by May 13, according to a survey of 11.4 million professionally-managed apartments across the U.S. by the National Multifamily Housing Council (NMHC). That’s up from the 85.0 percent who had paid by April 13, 2020, during the first full month of the crisis caused by the spread of the coronavirus. That’s also down from the 89.8 percent of renter households who made rental payments the year before, when the U.S. economy was still strong and long before the coronavirus began to spread.

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Financial Independence By Investing In Multifamily Real Estate

One of the reasons for going into business, particularly the multifamily investment niche of real estate, is solely to create wealth and passive income. Current investors in this niche have made it known over and over again, how multifamily real estate investing has done that for them. However, one fundamental question to consider is how one can create wealth, satisfying a need in the process without financial independence? If you are a real estate investor, now more than ever is the time to escape the corporate rat race and become financially independent. Based on the main goals of any investor, the main aim of this content is to highlight the tips you can make use of in achieving this sole objective. However, it is only reasonable we inform that achieving financial independence is not as easy as we would be stating here. You need to be intentional about being financially independent. Learning how to create wealth and improve your business dealings can be very challenging.
If we were to conduct a poll today amidst real estate investors on why they chose the real estate sector to invest their resources, sure we would have lots of reasons to consider. Although some might treat it as a partial source of income, others commit fully to it with financial independence becoming the unifying goal. This has been the dream of many, and real estate has been one of the best ways of achieving it. Financial independence is achieved by an investor when the passive income, the returns from activities in the real estate sector, is more than their monthly expenses. In such a way that you have lots to spare. Although this might sound risky or seem like a very long process that can only be achieved in years, one uphill climb, it is achievable and very realistic, giving the factors involved. It has even been confirmed that rental property investors make cool cash, achieve financial independence through investing in real estate. As mentioned earlier, here are a few tips we advise the reader to strictly adhere to if one is so particular about achieving financial independence. These tips include:

• Get Educated:

One of the best things one can do to improve oneself is to get educated. It does not cost a thing to stay updated with the latest developments in the real estate world. As a real estate investor with your eyes on the goal, you need to be abreast of all the back and forth going on between the bigwigs in the industry, and you need to have an idea of the latest moves to make that are sure to bring in the needed profits. In line with achieving financial independence, although there is no real need for formal education or a college degree, one still needs to dedicate lots of time to reading and to grow at the same time. Successful real estate investors have achieved financial independence by knowing how to play the right cards at the right time. Investors are constantly educating themselves about the best investment strategies and investment properties. With investment property types including either single-family homes or multifamily settings while strategies include rental properties, commercial real estate investing, with the inclusion of Airbnb rentals. They seem to be growing in value every day, and you should consider investing in them.

• Financial Planning:

How can one achieve financial independence without top-notch financial planning? For most real estate investors, there is always a template more like a written plan as to how to achieve financial independence. It was observed that having a plan makes you more likely to achieve the set-out goals and objectives. Financial planning in the real estate investment niche is said to refer to all the processes of determining all that is related to the financing of your rental property. In plain terms, it solely involves anything that settles all your real estate concerns; the acquiring of a mortgage that fully suits your real estate investment. It also supports the calculating of your expenses and the cash flow through the rental property in focus.
In terms of mortgage and mortgage payments, they are referred to as the foundations of real estate financial planning. Having debts is not bad, but continuously piling up the debts to such an extent, it starts to impede your ability to save, that is a source of concern. This development, in the long run, tends to affect your ability to achieve financial independence as early as you would have wanted. While in terms of expenses, optimum financial planning should involve defining your passive income. To determine this number, real estate investors should consider all the monthly expenses, which should include repairs, maintenance, utilities, electricity and water bills, taxes, vacancy rates, property management, etc. For a real estate investor to achieve financial independence with all that has been listed out, an estimate of the expenses must be made to determine the extent by which they affect the odds of achieving financial independence through real estate investments.

• Endeavor to Grow Your Real Estate Portfolio:

This is no rocket science, but the more your investments, the higher the passive income you can derive from it. Growing your real estate investment portfolio is one sure way of attaining financial independence. The more you invest in real estate properties, the more passive income you earn. That is not all therein, and you are likely to earn more passive income from diverse real estate holdings. This also protects the real estate property investors from the dynamic economy and real estate investing market fluctuations, which ultimately allows for financial stability regardless of the conditions around.
To achieve this talked about financial independence, we have a lot to discuss about strategies one can apply to attain it in no distant time. Some of these are discussed as follows:

• Calculate Your Freedom Number:

This is one of the first things to do; the freedom number is not a unit or a property count. It refers to the amount of income you need to cover your current expenses or the amount of passive income. Which is more or less equal to the amount you are receiving from your current active full-time job, or that which can fully afford your full lifestyle. The best way to arrive at this number is to open up an excel spreadsheet and make a list of all current expenses. If you also intend to replace the current income and become a full-time real estate investor, then your freedom number automatically becomes your pre-taxed income. If you intend to improve or keep your current lifestyle, then you need to determine how much it would cost you, and that is referred to as your freedom number. To make this clearer, imagine a scenario where you currently earn $50,000 a year at a job, and you make calculations that you would need an additional $10,000 to maintain your current lifestyle. Your freedom number is about $60,000 yearly.

• How Much do I need to invest in real estate to achieve my calculated freedom number?

The next thing on the list is to calculate how many rental properties a real estate investor needs to be involved in before you achieve the calculated freedom number. This calculation is solely based on specific investment criteria as a real estate investor. For example, if your investment specification is only to purchase certain properties that are sure to achieve a 10% cash-on-cash return. Then you will need more money to achieve your $60,000 a year freedom number, Roughly about $600,000.

• Creating a Freedom Timeline:

After calculating your freedom number and the amount, you would need to invest in real estate to get that much as passive income, which caters to all the expenses that maintains your current lifestyle. Next is to create a freedom timeline, which is all about how often you will purchase properties to achieve your freedom number. These timelines do vary with all depending on current situations, investment strategies adopted, market, etc. the best recommendation is to have a freedom date then backdate a timeline.
For example, if you already have it in mind to quit your active paying job in the next 10 (ten) years to focus on real estate investments, following from previous examples of your freedom number is $60,000. You need to purchase about 60 units for a start and a cash flow of about $100 a month. The money that would be available as a rising real estate investor to be used as down payment will be any amount of money you have saved up, which is money you have set aside from your full-time job.
After purchasing your first housing units, you will have an additional stream, which is the $100 a month; and how long can you wait before you purchase your next property? And as from that point, you will have an additional $200 a month towards the next payment. At some other point, you will ultimately have enough equity in the earlier rental unit purchases that will be able to be refinanced and, in the long run, buy more units.

• Implementing your Freedom Timeline:

The last thing to consider after calculating your freedom number, determining how many units you need to buy, is to create a timeline. As it is the time to start making high-level purchases like a new real estate entrepreneur. One of the strategies that have been adopted in recent times is the BRRRR strategy superbly coined by Brandon Turner at BiggerPockets. The named acronym stands for buy, rehab, rent, refinance and repeat. By buying, you can purchase old or distressed properties, which translates to the level of distress you are capable of managing, and this will go a long way in you achieving the financial independence you so much want. By rehab, you only need to subcontract to someone who is a great general contractor to carry out random property repairs and general renovations.

As for renting, you need to lease your newly renovated asset to great residents who, to an extent, share your ideas. Individuals who would adequately make use of your property; as their use would not make you accumulate unnecessary expenses on repairs. Then on to refinancing, you can choose to obtain a new loan on the property in a bid to pull out the equity created from the rehabilitation carried out. By repeating the entire process, by using the money from refinancing, you can achieve financial independence. Honestly, we can only outline these steps and hope they work for you. The number of obstacles you are likely to face as a real estate investor or entrepreneur varies in a lot of ways, as achieving financial independence can be very daunting without mincing words. However, this is not to discourage you. Still, with consistent effort, partnering with reliable individuals, patience and resourcefulness are one of the positive ways to work through the many obstacles you are likely to face.
Many professionals or veterans in the real estate sector have spoken on some tricks that worked in their favor. Some of these tricks have helped them to quickly navigate the many obstacles that have barred others on their way to achieving financial independence from real estate investing:

• The use of Tax Benefits.

• Appreciation:

You must have heard of the common term in real estate that units with proper management appreciate over time. It is certainly one factor that comes into play in the real estate sector. For these individuals, they have been able to do an equity strip from the properties, and they do not have to pay taxes when they borrow money against the properties. The equity that was created by the appreciation of the properties acquired can be pulled out and used as a down payment to purchase other properties.

• Leverage:

Financial independence can also be achieved by leveraging properties with debt; in this way, they were able to control virtually 100% of the property by putting less than 100% down while also compounding the benefits of inflation. There are many ways to arrive at financial independence, but one central factor is the diligence and patience to see the processes through. We can only wish you the very best on your journey.

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The Mall of America hasn’t paid its mortgage in two months

The biggest shopping center in the country, The Mall of America, has missed two months of payments on its $1.4 billion mortgage.

Retailers aren’t the only ones struggling to pay the bills.

The biggest shopping center in the country, The Mall of America, has missed two months of payments on its $1.4 billion mortgage, a sign of just how much retail real estate owners are reeling during the coronavirus pandemic.

The mall, operated by private developers Triple Five Group, skipped mortgage payments in April and May, according to Trepp, a New York-based research firm that tracks the commercial mortgage-backed securities, or CMBS, market.

A spokesperson for Triple Five Group did not immediately respond to CNBC’s request for comment.

Mall of America closed its doors because of the Covid-19 crisis on March 17. It has now notified notified Wells Fargo, the master servicer that is overseeing its mortgage, of the “hardships” it faces. But it is not clear if Triple Five Group will seek forbearance on its loan.

Mall of America, located in Bloomington, Minnesota, is planning to reopen its retail stores on June 1, according to its website.

“Next to hotel owners, retailers have been the hardest hit by the Covid-19 crisis,” Manus Clancy, Trepp senior managing director, told CNBC. “The percentage of delinquent retail loans has already surpassed the highest percentage reached during the financial crisis and could be headed higher.”

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Borrowers Pony Up More Cash Reserves to Move Loans Forward

Some underwriting standards across the board have being tightened up as lenders begin to finance deals again.

Many lenders that hit the pause button on new originations at the start of the pandemic are stepping back into action, albeit with a more conservative playbook than they had at the start of the year.

One big difference: lenders have new requirements for debt service reserves. Pre-COVID-19, reserves were not required on stabilized assets and generally only used to reduce risk on properties in transition, such as major rehabs or redevelopments. Now debt service reserves ranging between six and 18 months are a standard requirement on new commercial and multifamily mortgages—even those backed by the GSEs.

“Across the spectrum, you’re seeing borrowers being asked to produce higher cash reserves. Some of the underwriting standards across the board are also being tightened up,” says Lonnie Hendry Jr., MSRE, vice president, CRE Product Management at Trepp. Metrics being used to evaluate the underlying collateral, loan-to-value ratios, debt yields and debt service coverage ratios are all being underwritten more conservatively, he says.

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Warehouse Giant Seeing Insatiable Demand from Amazon, Walmart

Prologis Inc. is seeing growing demand for warehouse space.

(Bloomberg)—Prologis Inc., the largest owner of warehouses in the U.S., is getting a boost as social-distancing pushes consumers deeper into the embrace of e-commerce.

Companies including Amazon.com Inc. and Walmart Inc. have an “almost insatiable” appetite for more warehouse space, Chief Executive Officer Hamid Moghadam said in an interview on Tuesday.

“We’re not seeing those guys slow down, they continue to be very active in making new deals,” Moghadam said. “The strong continue to be taking a lot of space.”

Prologis and Blackstone Group Inc. have gobbled up warehouses in recent years, betting in part that more and more shopping will move online. Still, e-commerce is a relatively a small piece of the warehouse business, which is more tightly tethered to the overall economy.

Even as the pandemic fuels job losses and batters the economy, the surge in online shopping, including for groceries, is keeping vacancy rates low at Prologis properties.

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10 CRE Deals That Had Fallen Through Due to the Pandemic

The disruption from the pandemic and the subsequent liquidity pullback have spelled the end for a number of planned acquisitions.

Two months into the lockdown, the pandemic has disrupted a number of high-profile real estate deals, including stand-alone building sales, portfolio transactions and entity-level equity infusions. Some had fallen apart because the buyer couldn’t secure financing in a market that had become less liquid. In others, the acquisition just no longer made sense, given the economic outlook. A number of these disrupted deals have even led to legal disputes, with the seller insisting the buyer uphold its end of the contract.

In March, the most recent month for which data is available, 1.1 percent of real estate investment sales under contract had fallen through, according to New York City-based research firm Real Capital Analytics (RCA). From 2016 through 2019, the average for such transactions was 0.4 percent. But the fallout had not been spread evenly across sectors. Looking at collapsed sales in the first quarter of 2020, RCA found that they skewed toward office deals (37 percent of total), retail and hotels (21 percent each). The industrial sector contributed just 5 percent to the total of fallen transactions.

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Bankrupted JC Penney plans to spin its properties into separate real estate company

A piece of J.C. Penney’s proposal to emerge from bankruptcy includes spinning its real estate into a publicly traded real estate investment trust.

As part of a plan filed with the bankruptcy court, Penney would reorganize into a new retailer (“JCP”), along with a REIT that would collect rent checks from the retail business. Court documents say as much as a 35% stake in the newly created REIT could be sold to a third-party investor to raise cash, or to provide additional funding for the REIT.

Weighed down by a heavy debt load of more than $4 billion and hit hard by the coronavirus pandemic, Penney filed for Chapter 11 bankruptcy protection Friday evening. Some are now questioning if the department store chain, which has been around for more than a century, should still operate. It has been stuck in a sales slump for years. The department store industry as a whole has also been on the demise, with people shifting their spending away from the mall. When Penney filed, it still operated roughly 850 locations at malls across the country.

This would not be the first time a struggling department store operator has relied on its real estate value to come up with liquidity. Sears in 2015 spun off roughly 250 properties to form the REIT Seritage Growth Properties.

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Loaded with Cash, Real Estate Buyers Wait for Sellers to Crack

Private equity firms across the globe hold an estimated $328 billion in dry powder for real estate deployment.

(Bloomberg)—The world’s biggest real estate investors are sitting on piles of cash, preparing for once-in-a-lifetime opportunities created by the pandemic.

With economies around the world sputtering, commercial real estate prices are expected to come down. How much they’ll fall is the key question.

Sellers are currently willing to concede discounts of around 5%, while bidders are hoping for about 20% off pre-pandemic prices, said Charles Hewlett, managing director at Rclco Real Estate Advisors. That estimated gap, which is likely wider in specific cases, has put a freeze on deals.

“The mantra for anything that hasn’t gotten started is: delay, defer and, in many cases, renegotiate,” Hewlett said. “If I’m going to have vintage May 2020 on my books, I want to be able to demonstrate to my investors that I got an exceptionally good deal.”

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Warehouse Giant Seeing Insatiable Demand from Amazon, Walmart

Prologis Inc. is seeing growing demand for warehouse space.

(Bloomberg)—Prologis Inc., the largest owner of warehouses in the U.S., is getting a boost as social-distancing pushes consumers deeper into the embrace of e-commerce.

Companies including Amazon.com Inc. and Walmart Inc. have an “almost insatiable” appetite for more warehouse space, Chief Executive Officer Hamid Moghadam said in an interview on Tuesday.

“We’re not seeing those guys slow down, they continue to be very active in making new deals,” Moghadam said. “The strong continue to be taking a lot of space.”

Prologis and Blackstone Group Inc. have gobbled up warehouses in recent years, betting in part that more and more shopping will move online. Still, e-commerce is a relatively a small piece of the warehouse business, which is more tightly tethered to the overall economy.

Even as the pandemic fuels job losses and batters the economy, the surge in online shopping, including for groceries, is keeping vacancy rates low at Prologis properties.

The company has grown rapidly through acquisitions, but Moghadam doesn’t see buying many opportunities amid the current turmoil.

“I don’t expect anywhere near the kind of opportunities that came in other cycles,” he said. “I don’t expect fire sales.”

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Mortgage bailout swells to 4.1 million borrowers, but demand is slowing

In the past week, 225,000 more borrowers took advantage of government and bank mortgage forbearance programs, according to data firm Black Knight.

The rise brings the total to nearly 4.1 million homeowners not making their monthly mortgage payments, representing 7.7% of all active mortgages.

While the numbers are far higher already than federal regulators predicted, borrower demand for help during the coronavirus crisis is actually slowing. About half as many borrowers asked for forbearance in the past week, compared with the previous week.

“After surging at the beginning of April and then rising again near the 15th — when most mortgages become past due and late fees are charged — the number of new forbearance requests has declined in recent weeks,” said Ben Graboske, president of Black Knight Data & Analytics.

“What remains an open question at this point is to what degree forbearance requests will look like at the beginning of May — when the next round of mortgage payments become due, and with nearly 30 million Americans newly unemployed in the last month.”

Under the government mortgage bailout, part of the CARES Act, borrowers can initially miss payments for up to 90 days and then can apply for extensions of up to a year. They eventually have to go into repayment plans or mortgage modifications.

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