VIDEO: Apartment Fundamentals Hold Strong in Pandemic, But Questions Remain
By Paul Bubny
Three months into the COVID-19 pandemic that has dramatically altered the landscape of daily life for the near term, multifamily fundamentals have been more resilient than early expectations may have indicated. Renters have kept up with their monthly payments, and state and local economies are in various stages of reopening.
However, a return to normal market conditions is still down the road, as the experts gathered for Connect Media’s June multifamily update webcast made clear. Among other factors, they cited the haircuts in transactional values and the continuing need for Congressional support.
Sharing their insights during this candid and informative discussion were Doug Bibby, president of the National Multifamily Housing Council; Jeff Day, president of NKF’s Multifamily Capital Markets division; and David Schwartz, chairman and CEO of Waterton, which owns and operates thousands of units nationwide. Connect Media CEO Daniel Ceniceros moderated the half-hour conversation.
Click on the video above for the complete discussion. What follows below is a summary.
The NMHC’s latest Multifamily Rent Tracker, issued as the discussion was recorded, continued the recent trend of “very strong payments” in the 11.5 million professionally-managed apartments the council surveyed, Bibby said.
“We’re continuing to see the fruits of owners and operators reaching out to tenants,” he said. Moreover, those tenants value their credit ratings and thus are motivated to make timely payments.
That track record of on-time remittance doesn’t extend across all apartment classes, though. Bibby noted that Class C properties have lagged in terms of timely payments, and Schwartz observed that renters in these properties may be more impacted by job losses as well as backlogs in overwhelmed unemployment insurance operations in their states.
On the plus side, Schwartz noted that Congress’ backstopping of unemployment benefits has helped maintain performance levels in rent collection. Howver, he expressed concern that this support could lapse after July 31 if lawmakers don’t renew it.
Day cited “a high degree of optimism” in the multifamily space relative to sectors that have been affected more severely by the stay-at-home orders, such as retail and hospitality. This is especially prevalent in Sunbelt markets such as Texas, which haven’t seen the kind of impact in terms of COVID-19 infections that New York and other Northeastern states have experienced.
In the southern half of the U.S. especially, apartment assets priced at $25 million and under continue to trade, said Day. “Those kinds of transactions are still happening,” and with less of a discount than might be expected, he said.
However, he pointed to a significant bid-ask gap generally, an observation shared by Schwartz. “The transaction market has been shut down compared to pre-COVID levels,” said Schwartz.
Panelists cited a discount of 5% to 10% on pricing compared to what we saw prior to the pandemic, along with lower sales volume. Day pointed out that the market hasn’t seen much forced selling at this point in the downturn. Yet, he cited one area where volume has been especially strong recently: refinancing.
From the standpoint of property management, Schwartz said conditions are “not normal” yet, even as amenities are reopening and some in-person leasing is occurring. Social distancing is still the norm, and there are rules in place around amenities such as onsite fitness centers.
These restrictions haven’t been met with many complaints, though. “The residents are happy about this,” said Schwartz. “They want to be safe.”
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