Apartment Landlords Ready Themselves For Wave Of Unpaid Rent
The spreading coronavirus — and the drastic measures governments are imposing in a bid to slow it — is wreaking havoc on the country’s economy. Multifamily landlords are now working out how to handle the weeks and months ahead if their expected rents fall short.
Some 5 million jobs in the United States could be lost as a result of the virus, some private sector economists estimate, and tens of thousands have already applied for unemployment benefits in the New York Tri-State area.
In New York City, nearly half of residents spend at least 30% of their income on housing. When the income dries up unexpectedly, the next month's rent in one of the highest-cost places to live in the world is not guaranteed.
As they expect their rental incomes to slow, apartment landlords are looking to the local, state and federal governments to enact measures to help renters pay their bills and give property owners some form of tax relief in order to keep the ecosystem from collapsing. Some are hoping their lenders will be forgiving as the fallout takes place.
“It’s a chain effect. Landlords can’t forgo rent unless lenders are on board,” Slate Property Group co-founder David Schwartz said.
His company owns some 3,000 rental apartments in New York City, including affordable housing and market-rate units.
“There needs to be some sort of program in place for those who can’t pay their mortgage or rent, but not for those who just don’t want to pay, because that would start an absolute economic spiral,” he said. “For those who just lost their jobs, the federal government needs to step in.”
Negotiations over a massive federal government stimulus package stalled over the weekend, after Senate Democrats griped over the level of support for businesses without guarantees for workers. Senators continued to spar over the $1.8 trillion spending package Monday afternoon, with the latest bill falling 11 votes short of approval.
Schwartz said he wants New York state and city governments to consider waiving real estate taxes for property owners who are missing out on rent, but he said his No. 1 priority would be a national action plan.
“I think we will learn a lot this week about what is going to happen and what the rules of the game are. It's impossible for New York City to just make rules without the rest of the country,” he said. “We have banks from overseas … It needs to come from the federal government for us to fix anything.”
New York now has more than 20,000 confirmed cases of COVID-19, the disease caused by the coronavirus; more than 12,000 of those are in the five boroughs. A statewide, 90-day moratorium on eviction proceedings is now in place.
Gov. Andrew Cuomo has in place a suspension on foreclosure and mortgages, but it doesn't apply to commercial loans and is only guidance, not a legal requirement, The Real Deal reports. On Friday, Mayor Bill de Blasio said he supported the idea of a rent moratorium for residents and small businesses, but as of Monday afternoon, he had taken no action.
“The governor is saying no evictions and foreclosures can proceed, but that's not the answer,” Seiden & Schein attorney Alvin Schein said. “There are just many things converging at the same time that are problematic ... If you don't collect the rent, you may not [be] able to pay the mortgage."
He said a 90-day rent moratorium would be a disaster and would offer some who didn’t need it a “free pass.”
“The mayor is not willing to discuss the moratorium or real estate taxes,” he said. “Landlords still have to pay real estate taxes, property costs and debt services.”
Choice New York CEO Michael Feldman said he remains concerned about the kind of subliminal message the concept of moratoriums will send to the public. His company manages around 7,100 rental units in the city.
“You hope the number of people who are opportunists — who choose not to pay rent even though they can — are few and far between,” he said.
He said he hasn't yet been reaching out to tenants to ask about their ability to pay rent, but he is expecting rent collection rates to go down next month. So far, he said, he has terminated seven people’s jobs and reduced executive salaries.
“What we are planning to do is ask more often for rent, when people are delinquent, but more nicely,” he said. “[We’ll be] asking with more kindness and compassion, but asking more regularly.”
As offices and businesses have closed up, and the city and state governments have imposed ever stricter measures on people’s ability to move around the city, people are in their homes more than ever before.
Durst Organization Vice President of Public Affairs Jordan Barowitz said the company has diverted much of its cleaning supplies and workers from the 13M SF office portfolio in the city to its 2,300 residential units.
He said they are waiting to see what will happen next week when the apartment rent comes due.
“We’ll see in a week … The residents will come to us,” he said, adding that he is watching closely for detail on the federal government’s stimulus package. “Anything that is going to help individuals pay their rent and businesses pay their rent is going to help us."