Category: Multifamily

Rents are softening nationwide — but here’s where they are falling the most

The economic fallout from the coronavirus pandemic has made the high rents in some parts of the country untenable

With record numbers of Americans out of work because of the coronavirus pandemic, rents are decreasing in many parts of the country.

Apartment List, an rental listing platform, reported last week that its national rent index fell by 0.1% between May and June. Moreover, the index has fallen 0.3% since March, when the number of COVID-19 cases began ramping up in the U.S.

Over the past year, rents are up only 0.2%, even those this is the time of year when rent appreciation heats up. “This is by far is by far the lowest year-over-year growth rate that we’ve observed in June over any of the past five years,” Chris Salviati, housing economist at Apartment List, wrote in the report.

“The fact that we’re seeing rents decrease at what is normally the peak season for rental activity is reflective of the financial hardship and shifting preferences being imposed by the pandemic,” Salviati said.

In some parts of the country, the decrease in rents is happening at a much faster pace. Two cities, San Francisco and Orlando, Fla., lead the country in terms of rent declines. Rents in both cities have fallen 2.2% since March.

The two cities are emblematic of the parts of the country where rents are falling most quickly. In expensive markets like San Francisco, high rents were already a burden for residents, and that burden has only grown as a result of the pandemic-fueled loss of income.

Other cities where this is true include New York, which has had the third largest decline in rent since March with a 1.8% drop, and San Jose, Calif., where rents have dwindled 1.7%.

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Construction Costs Expected to Ease for Apartment Developers

Many of the pressures driving increases in materials and labor prices for multifamily construction have lessened as a result of COVID-19.

Heading into 2020, a robust development pipeline and rising costs of construction material and labor were major concerns for the multifamily sector. The economic devastation wrought by the COVID-19 shutdowns has put a halt to that, scrambling the projections of economists, developers and contractors.

Developers aren’t exactly finding bargains at the moment, since there’s now also downward pressure on rents and potential returns. The net result is that even as more companies re-open for business most multifamily developers are still hesitating to start big projects or sign big deals to purchase materials. Those big deals that could help establish a new normal for construction prices are largely in a holding pattern, especially now with worrying signs of new spikes in COVID-19 case counts and rising hospitalization levels in many states.

“Generally pre-COVID pricing is still prevalent,” says Paula Cino, vice president of construction, development and land use policy for the National Multifamily Housing Council (NHMC). “There is a lot of uncertainty.”

On balance, a minority of developers (17 percent) say that prices are rising for materials they need to build apartments, according to an NMHC survey. Prices plunged at the onset of widespread COVID-19 cases in the U.S. and government-imposed measures to contain the spread. Since then, prices have rebounded. The producer price index for inputs to new multifamily construction increased 0.6 percent in May 2020, compared to April (not seasonally adjusted), though the index was still down 1.8 percent compared to the year before, according to an analysis of Bureau of Labor Statistics data by the Associated General Contractors of America (AGC), based in Arlington, Va.

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When Will Building New Units Make Sense Again? Apartment Developers Remain Uncertain

Developers will likely delay starting new apartment projects until they see strong employment growth.

Some lucky multifamily developers will start work on new apartment projects at the perfect time, as the U.S. begins to recover from the economic crisis caused by the COVID pandemic.

They will likely pay far below last year’s prices for development sites. They should have an easy time negotiating with construction contractors. Their apartment units will open just as rents begin to rise again. That time—the right time to start new multifamily projects—is still months or even years in the future, according to many developers and economists.

“If I’m a developer, I am probably waiting untill the first part of next year to make a commitment,” says John Sebree, senior vice president and national director of the multi housing division with brokerage firm Marcus & Millichap. “Multifamily will come out of this in much better shape than the rest of the economy… But we’re going to be going through this for a while.”

The number of new apartments that developers will begin to build over the next few years might be less than half that of the years immediately prior to the pandemic, according Greg Willett, chief economist for RealPage Inc. a provider of property management software and services. “There’s certainly an interruption in development right in front of us,” he says.

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Joe Biden has called for rent forgiveness during the coronavirus pandemic — here’s how that would work

Progressive activists say mortgages and rent should be cancelled while the coronavirus pandemic slows the economy, but what would that mean for landlords?

Former vice president Joe Biden has thrown his support behind canceling rent.

During a recent appearance on the Snapchat SNAP, +0.93% show “Good Luck America,” the Democratic presidential candidate said he supported the idea, which has so far been promoted by progressive activists.

“There should be rent forgiveness and there should be mortgage forgiveness now in the middle of this crisis,” Biden said during his appearance. “Not paid later, forgiveness. It’s critically important to people who are in the lower-income strata.”

(Biden’s campaign did not return a request for comment.)

Renters are feeling the adverse effects of the coronavirus pandemic and the resulting economic slowdown acutely.

“The tenant is the most vulnerable person in the economy right now,” said Tara Raghuveer, housing campaign director at People’s Action, a political network devoted to grassroots organizing.

The unique attributes of the coronavirus-fueled economic downturn have indeed hit renters harder than homeowners. Tens of millions of Americans have lost their jobs or been furloughed as businesses shut down to comply with stay-at-home orders.

Overwhelmingly, those job losses occurred in the service sector, according to an analysis from title insurance company First American Financial Services FAF, -0.78%. A third of the jobs lost in April were in the leisure and hospitality sector — and most of those jobs were in food service, an industry that is more likely to employ younger workers with less education.

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The LIHTC Market Weathers COVID-19 Pressures

Despite taking some hits, experts expect the market for low-income housing tax credits and affordable housing properties to hold up in the face of COVID-19.

Despite voracious renter demand for affordable and workforce housing, investors in that sector have not been immune from fallout from the COVID-19 economic crisis. Some have hit the pause button as they reevaluate strategies and market risk. However, data that shows that rent collections have not dropped as much as some had feared is giving investors greater confidence in buying both Low Income Housing Tax Credits (LIHTCs) and LIHTC-backed assets.

The LIHTC market was in a very strong position at the start of 2020, and despite a slight pause and dip in pricing, many in the industry are optimistic that the sector is on course to regain some of its pre-COVID momentum. “As you would expect, the demand for affordable housing is incredibly strong. It was strong when we were at full employment in the economy, and you could say it is even stronger now,” says Beth Mullen, CPA, partner and affordable housing industry leader at CohnReznick, an accounting, tax and business advisory firm.

Last year marked a record high amount of equity raised from tax credit investors. According to a CohnReznick survey as reported in its March 2020 Tax Credit Monitor, approximately $18.3 billion of investor equity was closed in housing tax credit funds/investments in 2019. That volume reflects a 10.5 percent increase of $1.7 billion over the 2018 volume. CohnReznick notes four key reasons for the increase in volume that include:

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E-Commerce Deliveries Are More Common Than Ever. How Can Apartment Managers Handle Them Safely and Efficiently?

With a massively ramped up volume of online orders, handling package deliveries has become a priority for property managers.

One of the biggest questions right now for urban multifamily property managers is how to deal with ramped-up package delivery while ensuring social distancing rules.

Even before the pandemic, many apartment building managers were already experimenting with improving their package delivery processes. But the pandemic has accelerated the demand to find more efficient solutions for deliveries. For example, technology tools can help make it easier to practice social distancing at multifamily buildings, according to Robert Gaulden, director of multifamily channel strategy at Allegion U.S., a provider of security solutions. There are technologies that allow for access control on a particular room inside the building, meaning property managers have the ability to set schedules for when residents can enter the room and ensure they do not have more than a certain number of people in the space at any given time. This technology can apply not only to package delivery rooms, but also to other common areas of the building, says Gaulden.

“Now, you also have to look at the design and say: ‘what do we want that flow to be, what do we want that experience to be, how do we manage this environment to be lower touch?’” Gaulden notes. “Do we put automatic operators in all the way from the exterior to the interior to make sure that the delivery people are not touching as many door handles for example, or entering into the package room? And there’s a question perhaps: does this help accelerate delivery [directly to residents’ units?]”

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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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Multifamily Owners Go Virtual to Get Leases Signed Amid COVID-19

New technologies let apartments shoppers to check out potential homes without ever being in the presence of a leasing agent.

Virtual and augmented reality have been available for some time and had seen sporadic use, but the mass COVID-19 precipitated shutdowns nationwide have led to rapid adoption of the technologies by multifamily owners in order to get leases signed during the pandemic.

“Owners of apartment buildings across the U.S. are looking for new ways to have contactless touring… anything to decrease one-on-one touring,” says Georgianna Oliver, founder of Tour24, a technology company based in Medfield, Mass.

New technologies let apartments shoppers to check out potential homes without ever being in the presence of a leasing agent. That includes virtual tours, video chats and even “self-guided tours” that let potential renters make an appointment to see a real, physical apartment without a real, physical leasing agent being present.

These technologies are likely to be helpful, even in places where the rules of social distancing, meant to slow the spread of the virus, have begun to relax. “It’s here to stay for some time,” says Dan Russotto, vice president of product for Apartments.com, based in Atlanta. “Even as things re-open, there are going to be people who want to practice social distancing.”

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Lease Insurance Could Come into Play Amid COVID Crisis

More than 26 million people have filed for unemployment in the five weeks since cities and state began to order non-essential businesses to close.

Millions of apartment renters across the U.S. have lost jobs and income in the economic crisis caused by the spread of the novel coronavirus. Many are working with landlords by making partial payments and creating payments plans.

But another aspect of the industry is being tested by the crisis: lease insurance products that have replaced security deposits for some renters.

Founded in 2015, Leaselock provides lease insurance that covers damages and lost rent for roughly one million apartment units. At the properties that use LeaseLock, renters don’t have to provide a security deposit to move in. Instead, they pay a deposit waiver fee of $29 a month for a standard lease insurance policy. In return, LeaseLock agrees to insure the property and pay for potential losses on the apartment, including up to $500 in damages and $5,000 in lost rent—or even $7,500 in high rent markets.

LeaseLock does not carry to risk of these policies itself, but sells the risk to reinsurance companies. Claims on LeaseLock’s lease insurance are triggered when a lease is terminated with damages or an unpaid balance owed. So far these reinsurance companies have not significantly raised their prices for new policies.

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Landlords are worried increasingly fewer tenants will pay rent as coronavirus job losses mount

As of April 26, 91.5% of renters in professionally managed buildings had made full or partial payments. That compares with 95.6% during the same period last year, according to the National Multifamily Housing Council.

Rent is traditionally due on the first of the month, and more tenants are becoming late on their payments.

The economic effects of Covid-19 continue to mount, with rising job losses and falling consumer confidence. As of April 26, 91.5% of renters in professionally managed buildings had made full or partial payments. That compares with 95.6% during the same period last year, according to the National Multifamily Housing Council.

“It is encouraging that apartment residents continue to meet their rent obligations whether that’s with the support of the federal relief funds, credit cards and alternative, flexible options provided by the industry’s owners and operators,” said NMHC President Doug Bibby. “But their financial security is unclear as many may not qualify for federal relief, while others are drawing down savings and facing greater financial challenges, including higher health-care costs.”

Walker & Dunlop is one of the nation’s largest commercial lenders with a $95 billion servicing portfolio, largely consisting of multifamily apartment buildings. There are more than 2 million apartment units in its portfolio, and CEO Willy Walker says his people are in contact with apartment owners and operators daily. So far, he said, just 1% of owners have asked for help on their commercial loans, but Walker is a realist.

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