Anxious April: Multifamily Braces For A Difficult Month
As April 1 approaches, multifamily owners and operators are steeling themselves for what could be a difficult month, with wide swaths of people unable to pay rent and new leasing slowing to a crawl as job losses mount across the country.
Roughly 3.3 million people applied for unemployment benefits in the week ending March 21 — an increase of more than 3 million from the prior week, the U.S. Department of Labor said in its unemployment data released today.
Moratoriums on evictions and foreclosures have been issued across a patchwork of U.S. states and cities. In most cases, it still falls to the landlord to decide on a course of action if a tenant is unable to pay rent on time.
Camden CEO Ric Campo told Bisnow his company is waiving late fees and has implemented a moratorium on evictions. The company, which operates 159 properties across eight states, is also sending out renewal notices with no rent increases.
“If somebody can't pay their rent, per se, because of a job loss or something else that's going on, then our people are empowered to work with those people on a case-by-case basis,” Campo said.
The Finger Cos. President and CEO Marvy Finger said his company, which operates 37 properties across three states, is also planning to deal with each tenant situation on a case-by-case basis.
“The last thing we want to do is evict one who has lost their employment,” Finger said. “We're going to attempt to be fair, and I'm not sure what the market can or cannot do, so we're going to do it on a case-by-case basis."
Dakota Enterprises CEO and founder Rick Guttman told Bisnow one of the more challenging aspects of managing properties right now is that various local, state and national bodies are all making different statements about evictions and rent payments.
“That's a real problem, that's a challenge. Because many people can certainly still pay the rent, and you don't want it to be out there in the market that people think that rent does not have to be paid — of course rent has to be paid,” Guttman said.
“There could be forgiveness, there could be forbearance agreement with the tenant, but you can't state a policy that rent is abated.”
Dakota Enterprises operates eight properties in Houston. As the April 1st deadline approaches, the company is asking tenants having difficulty paying rent to provide documentation from the Texas Workforce Commission.
“We are using the Texas Workforce Commission as a guideline because it's an official organization and likely, if you have lost your job or wages are reduced, one of the first places you turn to is unemployment,” Guttman said.
For those who are struggling due to coronavirus-related issues, the company is waiving late fees, and has eliminated the eviction process. Guttman said tenants could also split their rent into two payments.
“Right now, everything is going well, but we are incredibly concerned and challenged by what may be coming on April 4th or April 5th, which is a day or two after rent is due,” Guttman said.
While moratoriums on evictions can help in the short term, there is little clarity on what might happen down the road.
If the economy begins to bounce back, and people can find work within two to three months, then the situation may not be so severe, McClenny noted.
“It's going to test our resiliency in many, many ways, and I look forward to the day where we feel like we've got the virus in check,” McClenny said.
But multifamily properties have already started to see the effects on leasing activity, as fewer people are opting to move during such an uncertain time.
“Generally speaking, people stay put when there's something going on that's bad,” Campo said.
Schools and businesses have closed around the country in an attempt to slow the spread. Social distancing and shelter-in-place orders have also been issued to strongly encourage the public to stay home.
“What we think is going to happen to our properties in the near term is that we think our renewal rates will go up,” Campo said. “And we've seen that last week, for example, our renewal rates were up significantly on a relative basis on what we expect them to be.”
Campo said Camden secured 300 new leases last week, which was lower than usual. Instead, it saw substantially more renewals than usual.
Finger said his company is starting to feel the impact of not being able to physically show apartments to new potential tenants.
“It's already happened in the last two days, since we implemented the program of not allowing nonresidents to knock on the door and show the product. The ability to rent an apartment without having personal contact is going to have a huge negative effect,” Finger said Monday.
Like Campo, Finger believes renewals are likely to increase in the coming weeks, as people choose to hunker down for the short term.
“I think the majority of occupants will probably stay put until they know the direction of what the health requirements will dictate,” Finger said.
Many multifamily apartment complexes have restricted access to certain shared amenities, such as pool and gyms, and have restricted in-person interactions with leasing staff. This extends to leasing tours, which are traditionally an important part of securing new tenants.
With no clear end to the coronavirus outbreak in sight, the need to embrace technology as a marketing tool has accelerated in the multifamily market.
“Right now, we're on 100% virtual tours. We actually just implemented it this week and we've already had cases of somebody went online to this Camden apartment, called and asked for a virtual tour,” Campo said.
Camden has 360-degree virtual tours to view different interior models. It is also arranging FaceTime or Skype tours with potential residents, where a leasing consultant can walk around the apartment and conduct a tour.
The company invested about $20M in moving its systems to the cloud over a period of two years. Campo said the experience was painful and expensive, but has paid off.
“It allows you to be much more efficient and ultimately provide better customer experiences and better customer service and ultimately, that creates value long term,” Campo said. “We've already started making leases that way, in the virtual lease scenario, when we've never have had any physical contact with the customer.”
Finger said most of The Finger Cos. properties have technology that allows for virtual tours, but it isn't the same as an in-person leasing tour.
“We feel somewhat comfortable being able to show the product, but it doesn't replace one-on-one in the marketing and selling,” Finger said. “If this continues for the foreseeable future, we for sure will try and expand that part of the marketing program.”
Dakota Enterprises is still conducting leasing tours, but taking care to maintain appropriate distances between leasing staff and prospective tenants.
“We can't tell people they can't look at our stuff, and if people come, we're not rejecting them,” Guttman said.
The company has been working to improve its online services, including marketing materials. Guttman said he is also conscious about being too reactive to the situation.
“Some of that movement obviously changes some of your marketing expenses and some of your costs and expenses, in terms of bringing in companies that can do that in a well way,” Guttman said.
Campo, Finger and Guttman told Bisnow they are not aware of any current positive cases of COVID-19 across their properties.
Finger said his company heard from residents who were choosing to self-quarantine out of caution, following travel or potential exposure to other people who might be sick.
“We know that we have those people living in our apartments. We are not aware, certainly, of anyone with the disease,” Finger said.
Campo noted that if residents self-reported they were in quarantine, it didn't actually indicate whether they have COVID-19. He estimated that about 75% of Camden apartments are occupied by one or two tenants at most, which could play a role in reducing transmission.
“I'm sure that out of the 56,000 apartments and 90,000 people living there, we probably have the same percentages as everybody else does, whatever that is,” Campo said.
As of Thursday afternoon, the U.S. had more than 75,000 confirmed cases of COVID-19, trailing only China and Italy. That number is expected to continue to rise in the coming days and weeks.
“For us, the good news is, everybody needs a place to live, it's not like an office building or a retail center or something, where structurally you have problems,” Campo said.
“As long as you are charging a fair price and giving customers a reasonable home, and providing the customer service that they require, business is going to be fine.”