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Responding To The Pandemic Will Mean More Costs For Multifamily Landlords, Even After It Subsides

Most multifamily landlords were relieved after tabulating April’s overall rent collection, but experts say May, the first full month under statewide shutdown orders and mass unemployment, will be a tougher test. Property owners will need to keep rental income flowing, not merely to keep their businesses afloat but because in the months and perhaps years ahead, many buildings will need updates and new technology that protect tenants from diseases such as COVID-19.

“The vast majority of renters are paying their rent, and as an industry, we’re grateful,” Waterton CEO David Schwartz said Thursday during Bisnow’s Chicago Virtual Deep Dish: Multifamily webinar.

A view of Ogden Commons, a new community in North Lawndale.
Rendering of Ogden Commons, a new multifamily community The Habitat Co. plans to develop on Chicago's West Side.

Chicago-based Waterton, which has a $5.5B portfolio in about 20 markets, including about 4,000 units in the Chicago region, collected 95% of its April rent, not far off the 98% collection rate in April 2019, Schwartz said.

That’s in line with the rest of the industry. According to the National Multifamily Housing Council, which tracks 11.5 million units nationwide, 92% of households paid at least a portion of the April rent, or about 4% below the April 2019 figure.   

But Schwartz is cautious about what will happen this month. At the beginning of March, the nation’s official unemployment rate was at a historic low, and most renters had the funds to pay the next month’s rent. But more than 30 million Americans filed unemployment claims since mid-March, according to the U.S. Department of Labor.

“There were good winds at our back for April, but May will be the big question,” Schwartz said.

If rent collection falls, it will put the multifamily sector in a bind. Landlords will struggle to pay their property taxes, and it will also be difficult to offer rent relief to tenants that are truly in need. To avoid that scenario, Schwartz said the government needs to be generous with unemployment insurance and perhaps offer other forms of rent relief.

“That’s the way to keep the system going,” he said.

Multifamily landlords may face higher costs in the years ahead due to the current spread of the novel coronavirus, The Habitat Co. President Matthew Fiascone said. Habitat has formed several leadership groups within the company to look at permanent changes its developments may need, and many involve new investments in technology, such as increased bandwidth for residents who want to work from home.

“That’s moved, if possible, even higher on the priority list,” he said.

Responding To The Pandemic Will Mean More Costs For Multifamily Landlords, Even After It Subsides
Clockwise from top left: Comcast Senior Director of Commercial Development David Lizak, Kastle Systems General Manager of the Midwest Region Andrea Kuhn, The Habitat Co. President Matt Fiascone and Waterton CEO David Schwartz.

“Over the last six weeks, we’ve seen a 33% increase in upload activity,” Comcast Senior Director of Commercial Development David Lizak said, and total WiFi usage is up around 40%.  

Habitat has also moved to virtual leasing, with prospective tenants taking video tours of units, and Fiascone, who said he had been skeptical about using such technology to communicate with residents, said these methods won’t vanish when the pandemic subsides.

“This has accelerated at a pace that no one could have anticipated, and that’s permanent,” he said.

Residents will likely have well-founded fears about the spread of disease, at least until a vaccine is developed that can prevent COVID-19, and perhaps even after that, Fiascone added. Landlords may have to reconfigure areas where people once congregated, such as fitness and business centers, and make sure they include barriers and individual spaces.

“People aren’t going to go down and share a computer the way they once did,” he said.

Renters will also stay leery of high-touch surfaces like entryways and elevators, according to Andrea Kuhn, general manager of the Midwest Region of Kastle Systems, a Falls Church, Virginia-based security firm. That will strengthen what has been a growing trend toward keyless entry, and landlords should be prepared to make such investments.

“That’s one that’s here to stay,” she said.

Kuhn envisions millions of residents using their smartphones to open doors and summon elevators, systems which will require tech support, customer-friendly software and high standards for security and encryption.

“The onus of that is on the property,” she said.