Apartment Rent Collections 'Came Crashing' In November For Some Landlords
With government support for embattled workers evaporating, apartment rent collections are worsening as the year comes to a close.
“In November, it came crashing. We saw the entire momentum shift,” The RADCO Cos. CEO Norman Radow said during Bisnow's multifamily digital summit last week. “I think we're starting to see parts of the economy shut down, and we're starting to feel the brunt of that.”
Apartment landlords like RADCO, which owns nearly 17,000 apartments across eight states, faced more difficulty getting renters to pays as the U.S. job market weakened and some governments renewed shelter-in-place orders amid the largest spike in coronavirus cases yet. And while some hope the Senate will pass a bipartisan $908B stimulus package this week, every effort at a stimulus bill has died in Congress since the spring.
Some 75% of renters made partial or full payments as of Dec. 6, according to data collected by the National Multifamily Housing Council. That was a 5% drop from November, when 80.4% of renters paid rents.
The U.S. economy made up much of the cratering loss that happened during the second quarter when many parts of the country were on lockdown orders. But the economy overall continues to struggle to reach levels prior to the pandemic, with many retailers, restaurants and hotels struggling to survive. By the end of 2019, the U.S. unemployment rate was at a record low of 3.5%. Today it is at 6.7%, and at risk of rising in the coming months.
Goldman Sachs officials recently said economic growth would be cut by half to 3% in the fourth quarter if Congress fails to pass a stimulus package, exacerbating a weakening economic recovery.
Job growth has slowed. U.S. companies added 245,000 new jobs in November, off from the 610,000 new jobs experts were projecting for that period, according to the Department of Labor.
While multifamily has outperformed office, retail and hospitality as an asset class, Radow said mandatory shelter-in-place orders, government moratoriums on evictions and a growing number of renters behind on their monthly payments, have forced landlords to navigate unchartered waters.
“There is no Harvard Business Review article on what happens when the government shuts down the economy,” he said.
Nearly 12 million housing renters will be behind on payments to rent and utilities in January by an average of $5,850 each, The Washington Post reported last week. That is an uptick from the 9 million renters who were behind in November, according to the Post, citing Moody's Analytics and the U.S. census.
But not all residents are experiencing the same pain, Radow said. More lower-income renters are struggling to pay rent than those in luxury apartments.
“People who are making under $40K a year are bearing the brunt of the pandemic,” he said, adding that those residents also have very few ways of catching back up on rent deferrals.
Asia Capital Real Estate Chief Operating Officer Melanie Gersper also said her firm was experiencing a similar dynamic, with residents in its Class-C portfolio struggling to make rent the most.
“We have spent a significant amount of dollars helping to keep residents in their homes, quite frankly,” Gersper said during the event.
ACRE rolled out a program in April at 170 of its apartment properties in 14 states that allowed residents to pay rents according to their individual cash flows. In return, ACRE deferred late fees and halted eviction proceedings as long as renters were complying with the program, according to the company. Some 30% of its renters enrolled in the program.
At Preferred Apartment Communities, which owns more than 30 Class-A apartments across the Southeast, the story has been different.
“We have seen much less of a runoff in tenant quality. Our delinquencies have not been very high at all,” Preferred Apartment Communities Chief Financial Officer John Isakson said.
Isakson said for them, the goal is to get existing renters to renew their leases, which makes it easier for the landlord to renegotiate lease terms versus breaking existing leases.
“What we're really focused on is retention,” he said. “The nice thing about a renewal is there's a lot more flexibility.”
Apartment renters are eyeing more suburban properties as they flew to what some perceive as safer properties that allow for better social distancing and more space, Gersper said.
“People may just want to desire and want safe comfortable space in their apartment with amenities that focus on a healthy lifestyle, versus a bunch of granite countertops,” she said.