Category: Multifamily

Apartment Developers Scout Adaptive Reuse Possibilities

That math will become easier for developers if more distressed properties become available at a steep discount.

It’s too soon for most developers to sign a contract to buy a failed hotel—but apartment developers are watching and waiting for prices to drop to buy other property types damaged by the economic crisis to redevelop into multifamily buildings.

Even before the crisis, apartment developers were eager to buy well-located properties like old office towers and empty malls that they could transform into apartments. The chaos of the pandemic caused most of these developers to pause and wait for new opportunities, such as distressed hotels available at a discount.

“There is just little interest on the part of developers to jump into anything like that at the moment,” says Jim Costello, senior vice president for data firm Real Capital Analytics, based in New York City. “Assets are not being sold at substantial discounts … yet.”

Hotels may be the fastest conversions to apartment

However, at least a few redevelopers have leapt to buy hotel properties—6 percent of hotel assets bought in the second quarter of 2020 were acquired with the intent to redevelop or convert the properties to a new asset class, according to Real Capital. This rate of purchase for redevelopment was twice the average rate seen in a second quarter between 2014 and 2019.

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Become a Master Strategist: Today’s Key for Successful Landlords

Being successful landlords and property managers in today’s environment involves some key strategies, including your eviction process, that veteran landlord David Pickron sets out.

By David Pickron

I have always had a lead foot. It is hard to admit, but with my hard-charging personality, I just want to get where I am going… fast.

As a young man, to prevent countless tickets, I purchased a radar detector that allowed me to sense a police officer before he or she could see me. Police departments realized they were being outsmarted by this technology and needed to make a change, so they started using a different band that most consumer radar detectors did not have at the time.

The private market reacted as it always does, and soon you could buy a radar detector that included the new bands used by law enforcement. This produced a battle between radar-detector companies and police, with one making a move, only to be met with a counter move by the other.

Evictions tug of war

We find ourselves in a similar tug-of-war when it comes to evictions, where the CDC has now made a move to stop all evictions nationwide until Dec. 31 in an attempt to limit COVID-19 spread through homeless shelters or crowded family shelters.

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Small landlords dip into savings as their tenants struggle to pay rent

More renters are unable to make their monthly payments, and that is having an outsized impact on the nation’s “mom and pop” landlords.

More renters are unable to make their monthly payments, and that is having an outsized impact on the nation’s “mom and pop” landlords.

Nearly a third of renters who live in single-family or small multifamily properties owned by individual landlords were unable to pay their August rent, according to a survey by Avail, a technology and marketing platform for small landlords. That is up from just under 25% in July. Avail received responses from 2,225 landlords and almost 3,000 renters.

The main reason for their inability to pay was loss of employment or reduced income. Additional unemployment benefits put in place when the coronavirus pandemic hit were helping tenants to keep up with their rent, but those recently expired, and a growing number of renters are now missing their payments during a standoff between D.C. Republicans and Democrats over a relief package.

On the other end of the equation, about a third of small landlords rely on that rent for the bulk of their income.

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Is Your Rental Property Going off the Rails in the Pandemic? 4 Questions To Figure That Out

Whether you’re renting out one floor of your brownstone or you own a bunch of rental properties, it can all amount to a lot of work.

If you don’t want the hassles of chasing down rent and keeping up with repairs, hiring a good property manager can really help.

Property managers are paid to manage the day-to-day aspects of rental homes. Hire the right people, and they can make owning rental properties a breeze.

Property managers are an even bigger asset to rental-home owners these days, as we deal with the uncertainties of the COVID-19 pandemic.

“Choosing a great property manager is the single best thing an investor can do for the success of their rental portfolio, so it’s worth it to spend the time and effort upfront to avoid headaches later,” says Eric Hughes, founder and CEO of Rental Income Advisors and owner of 16 rental properties in Memphis, TN.

However, not all property managers are great—which means that it’s vital to keep regular tabs on their work, to make sure your rental property isn’t getting run off the rails.

To help you suss that out, here are four questions worth asking your property manager today.

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The Current Status of Eviction Bans by State

Many elected leaders enacted emergency bans on evictions as part of COVID-19 relief measures. Those have now come to an end in some states.

A big part of COVID-19 relief policy in the early days of the crisis was a ban on evictions. At the federal level that included a 120-day ban on evictions as part of the CARES Act, which has now expired.

Separately, the FHFA has ordered Fannie Mae and Freddie Mac to keep in place moratoriums on foreclosures and evictions on enterprise-backed, single-family mortgages only. That ban is scheduled to expire on August 31. In addition, the FHFA has mandated that multifamily property owners with government-backed loans in forbearance inform renters about the eviction protections the policy extends to them.

Aside from that, many states and cities put in place additional bans. Eventually, some of these prompted legal challenges that are still winding their way through the court system.

Having evictions on hold was an adjustment for multifamily property operators, although by and large, the fact that many renters have been able to keep current on rents made it less of a pressing concern.

Now, with both extended unemployment insurance benefits and eviction moratoriums expiring, the number of evictions could quickly explode.

Legal website NOLO.com has been maintaining a regularly updated list of the current status of local eviction bans. Based on the information from that site, which was last updated Aug. 7, here is a list of the current status of eviction bans in states across the country. For further info on the situation by state, go here.

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Cheapest Apartments at Biggest Foreclosure Risk as Payments Fall

Tenants at class-C apartment buildings paid 54 percent of their total rents due for the month by the middle of June, according to LeaseLock.

(Bloomberg)—Covid-19 has exposed a disparity in America’s rental housing that threatens to get even wider.

While landlords at the priciest, amenity-rich apartments have collected most of their rent payments during the pandemic, owners of older, less fancy units — the backbone of the nation’s affordable housing supply — haven’t fared as well.

Tenants at so-called Class C buildings paid 54% of total rents due in June by the middle of the month, according to a study by LeaseLock. In July, even with emergency unemployment relief still flowing, the figure slipped to 37%.

Rent Collections Decline

The decline highlights how hard the lockdown has squeezed the country’s lower- and middle-income renters, who are more likely to live in Class C housing and have service jobs that have been severely cut back by social-distancing rules.

Further erosion in those rent payments would endanger America’s affordable housing supply and put mom-and-pop landlords at the biggest risk of mortgage default. Should their buildings go into foreclosure, the buyers may not keep them affordable, or even as rentals, said Robert Pinnegar, chief executive officer of the National Apartment Association, a landlord advocacy group. High construction costs make adding any new supply unlikely.

“If we lose this product through the crisis, we’re never going to be able to build it again,” Pinnegar said. “We risk making the affordability crisis much worse on the other side.”

Just outside Denver, Debi Stobie and her husband own a 24-unit building that’s their only source of income. It’s not a fancy place — some of the apartments still have vinyl floors and ’70s-era kitchen cabinetry, while others got some modern upgrades from Ikea.

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The Rush to Refinance Multifamily Properties Continues

The low rate environment continues to make it a good time to refinance apartment properties, assuming you can find a lender willing to cut a deal.

As has been the case for much of the recent crisis, borrowers are continuing to try to capitalize on favorable rates to refinance apartment properties—that is, when they can find lenders willing to close deals.

Long term interest rates—like the yield on 10-year Treasury bonds—fell below 1 percent at start of the economic crisis caused by the spread of the coronavirus in March 2020, and stayed below 1 percent well into mid-summer.

Freddie Mac and Fannie Mae lenders have proven to be consistently willing to make loans to qualified apartment properties with interest rates fixed at a spread over these historically low interest rates. Other types of lenders, including many banks and life insurance companies, have been more cautious.

Long-term interest rates fall to new historic lows
On July 28, the benchmark yield on 10-year U.S. Treasury bonds was 0.58 percent. It has hovered around 0.6 percent and 0.7 percent for several months. In comparison, in the months before the crisis, the benchmark yield hovered between 1.5 percent and 2 percent.

“The outlook is for a continuation of low rates through the end of the year,” says Tony Solomon, senior vice president and national director of Marcus & Millichap Capital Corp. “Could rates fall even lower? Sure, maybe a little, but they are very low now and we know that there is an ‘open window’ of various capital sources for the right asset and borrower.”

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How the eviction crisis across the U.S. will look

The impending eviction crisis will hurt some states more than others.

An unprecedented eviction crisis will soon hit the U.S.

On Friday, the federal moratorium on evictions in properties with federally backed mortgages and for tenants who receive government-assisted housing expired. The Urban Institute estimated that provision covered nearly 30% of the country’s rental units.

White House economic adviser Larry Kudlow said on Sunday that he would extend that moratorium, but these tenants are now unprotected from eviction. At the same time, some 25 million Americans will stop receiving the $600 weekly federal unemployment checks by July 31.

And most of the statewide eviction moratoriums are winding down.

The proceedings have resumed in more than 30 states.The moratorium in Hawaii and Illinois end this week, and in August, evictions will pick up in New York and Nevada.

By one estimate, some 40 million Americans could be evicted during the public health crisis.

“It’s like nothing we’ve ever seen,” said John Pollock, coordinator of the National Coalition for a Civil Right to Counsel.

In 2016, there were 2.3 million evictions, Pollock said. “There could be that many evictions in August,” he said.

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Coronavirus pandemic cuts rent growth to a decade low

Single-family rents grew just 1.7% annually in May on a national level, according to CoreLogic.

Back in February, just before the coronavirus hit the U.S. economy with a vengeance, rent growth for single-family homes had hit its highest pace in four years. Barely three months later, that growth plummeted to a decade low.

Single-family rents grew just 1.7% annually in May on a national level, according to CoreLogic. That’s the slowest growth rate in nearly a decade and a little more than half the growth these 12 million rental homes were seeing the year before. Single-family rentals make up 35% of all rental housing in the U.S., and these homes are valued at more than $2.3 trillion.

“Single-family rent growth slowed abruptly in May as the nation felt the full impact of the economic crisis caused by the pandemic,” said Molly Boesel, principal economist at CoreLogic. “Some metro areas, especially those that depend on tourism, were hit hardest by job losses. With unemployment rates predicted to remain high through the end of the year, we can expect to see further easing in rent growth as the economy struggles this year.”

The slowdown in rent growth was most severe at the high end of the rental market, while lower-priced rentals saw rents going up more markedly. That is likely because the demand for high-end rentals has dropped more dramatically than demand for lower-priced properties.

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Apartment Investors Begin to Navigate COVID-19 Deal Landscape

The properties hitting the market today tend to be smaller. Investors are holding onto stabilized assets if they can and distressed deals haven’t hit the market yet.

Verde Capital Corp., a private equity and investment management company, is negotiating a sale of several hundred apartments in Northern New Jersey. A buyer has agreed to pay $75 million, or roughly $250,000 per unit for the property, which Verde owns in partnership with a local real estate family.

“That’s the exact price we would have sold it for a year ago,” says Jacob Reiter, president of Verde Capital Corp., based in Conshohocken, Penn. He expects the sale to close in fall 2020 after several months of due diligence.

Deals like this illustrate there are signs of life in the market to buy and sell apartment properties, despite the economic crisis caused by the spread of the novel coronavirus. But deal volume remains down significantly year-over-year and buyers and sellers are continuing to navigate the re-set in property values resulting from the massive economic disruptions of recent months.

In May 2020, investors paid a total $3.1 billion to buy apartment properties in the U.S. That roughly one-fifth of the amount they spent in the same period the year before, according to data from Real Capital Analytics (RCA), a data firm based in New York City. It’s also even less than the $3.4 billion that investors spent in April.

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