As Some Small Landlords Sell To Big Investors, Others Show What Residents Stand To Lose

Rental assistance is still getting to tenants and landlords fairly slowly, and the landlords who need to receive rent payments the most desperately are often the smallest, least likely to take advantage of assistance programs and, arguably, the most valuable.

Landlords who own just a few units have been disproportionately harmed by the economic effects of the coronavirus pandemic for a number of reasons: their tenants are more likely to work jobs that were vulnerable to cutbacks during lockdown, they are less aware of assistance programs, and they have less of a financial buffer against a loss of rental income. If they can’t afford to keep their units, the most likely entities to purchase them at the moment are large or institutional investors, whose practices are often less friendly to low-income renters.

“[Corporate landlords] don’t negotiate,” National Housing Law Project Director of Litigation Eric Dunn told Bisnow in an early September interview. “You have to pay what you owe or they send a collection notice [and leave it] out there. Many of them don’t even accept payment plans.”

Though many larger landlords did implement payment plans or other mitigation measures during the pandemic, the less formal nature of the landlord-tenant relationship when a building owner is an individual or small company allows for more flexibility, and crucially, more empathy, several landlords who own fewer than 20 units told Bisnow.

“I’m originally from Jacksonville, specifically the north side, where a lot of the homes [I own] are located,” said William Sweet III, founder of Sweet Ventures, which owns six single-family rental properties in the Florida city and is currently redeveloping a seventh. “I understand what it’s like growing up in Jacksonville, and I thank God that [being a landlord] allows me to give back to the community.”

Myers Development Group founder Jerome Myers, whose company owns fewer than 100 units across several small apartment complexes in Virginia and North Carolina, estimated that his company experienced a revenue decline of 20% to 25% last year due to rent payment interruptions, and that some tenants are still in arrears. Myers Development has evicted a handful of tenants for nonpayment, Myers said, though he maintained that as long as tenants were communicative about their situations, he was more than willing to find workarounds for those who couldn’t pay.

One of the tenants that Myers worked with is a retail worker who contracted the coronavirus and was laid off for missing work on two separate occasions, he told Bisnow. 

“That lady wasn’t evicted even though she was eight months behind,” Myers said. “The happy ending was that her application was accepted, and she paid the back rent and got the money for a couple of months ahead … An institutional landlord would not do that. They’d say, ‘Pay or you’re out.’”

Sweet Ventures experienced some loss of income from rent payment interruptions, as so many others did over the past 18 months. The smaller a landlord’s portfolio, the deeper revenue losses they likely suffered during that period, according to a study conducted by the University of California at Berkeley’s Terner Center for Housing Innovation published in July.

Kim Avant-Babb, a real estate investor and landlord strategist in Philadelphia, said her company, Babb Properties, was committed to being flexible with the tenants at its 15 properties.

“When Covid kicked off last spring, the first thing we did was draft a rent deferral policy, and I called all of my tenants and asked, ‘How are you doing?’” Avant-Babb said. “And I closed my mouth and listened.”

Babb’s portfolio is concentrated in the Philly neighborhoods of Graduate Hospital and Point Breeze, which have experienced among the sharpest increases in average income over the past decade as anywhere in the country. None of her tenants wound up losing income or missing rent payments, but Holloway Realty co-owner Michael Holloway owns one property and manages six others on behalf of other small landlords, all of which are in more economically disadvantaged areas of Philadelphia.

Holloway told Bisnow his company saw a 35% to 40% loss of revenue in 2020 due to missed rent payments, and though Philly’s rental assistance program has helped all of his tenants to pay off their rent debt, a stronger 2021 has not been enough to counteract those losses.

Philadelphia has been among the country’s biggest success stories in terms of distributing federal rental assistance, but only $7.7B of the first tranche of federal Emergency Rental Assistance, which totaled $25B, had been distributed to tenants and landlords by the end of August, according to data from the Treasury Department.

Meanwhile, Jacksonville has not had an eviction moratorium in place since last October, according to the Eviction Lab, and the city had distributed nearly half of its first allocation of federal rental assistance by the end of August, according to Treasury data. 

Sweet’s father, William Sweet Sr., has worked as the company’s property manager since it was founded in 2019 and was only brought on the official payroll at the beginning of this year. He told Bisnow that multiple tenants in the company’s portfolio remain behind on rent payments, but that he wasn’t aware of any rental assistance program having been launched and erroneously believed an eviction moratorium was still in place until October.

“Our state is screwed up, to say the least, and we are being led down a dark and narrow road because of the bureaucracy and the bullshit,” Sweet Jr. said. “Hopefully there will be some type of public service announcement, because I know the money has been distributed to the states by the federal government. Those dollars are sitting in an account somewhere, but nobody to my knowledge has taken advantage of any of the relief money for Covid assistance.”

Sweet Ventures is far from alone. About 40% of landlords who own between six and 10 units were unaware of federal rental assistance programs in a Berkeley study, which polled 1,690 landlords who owned nearly 30,000 units between them. Over 75% of landlords with five or fewer units were also unfamiliar with available rental assistance, the study found.

Though multiple landlords who spoke with Bisnow reported that they have been able to increase rents to match the rising market rate for newly rented units, small landlords are among the most reliable sources of naturally occurring affordable housing, as many of them don’t seek to maximize returns on their units, the Berkeley study found.

Perhaps as a result, the institutional investors that have been ravenously buying up small rental properties see the gap between what current tenants pay and what they could charge future tenants as a key value driver, Reuters reports. Once the Supreme Court overturned the Centers for Disease Control and Prevention’s second eviction moratorium, institutional landlords were more likely to simply file for evictions in bulk, regardless of the possibility that those tenants could potentially receive rental assistance down the line, Legal Aid of Southeastern Pennsylvania staff attorney Michelle Dempsky told Bisnow in early September.

Though the professional property management that comes with corporate ownership can be more reliable than a mom-and-pop landlord, its treatment of tenants, even aside from raising the rent, can often be bloodless, Myers said.

“It becomes very cold when there isn’t any connection between the resident and the person making the decision about what’s going to happen [to a rental unit],” he said. “The fact of the matter is that your property is some person’s home.”