The founder of one of the East Coast's largest multifamily companies with 70,000 units under management, Bozzuto Chairman Tom Bozzuto has serious concerns about May 1 rent collections.
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Bozzuto, speaking Tuesday morning on a Bisnow Town Hall webinar, said he and other multifamily leaders were pleased that the percentage of residents that payed April rent was only down slightly from the prior month. But he doesn't know if that will continue next month.
"We're all, frankly, frightened by May," Bozzuto said. "The governors, the president have all given residents permission not to pay rent. What they've said is that no one will be evicted if they fail to pay rent. So we're very concerned with our ability to collect rent."
The coronavirus has also created obstacles for the company in its construction business, which brings in $500M of annual revenue. Bozzuto said it has two projects where workers have tested positive for COVID-19. In both cases, he said the company followed Centers for Disease Control and Prevention protocol in shutting down the sites for four days to clean them and keeping the sick workers and those they came in contact with off the site for at least two weeks.
"Our staff has been terrific, but keeping all of the subcontractors and their employees maintaining the social distancing, wearing masks and doing the stuff they're supposed to be doing, it's a constant challenge," Bozzuto said.
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Another significant challenge Bozzuto faces is keeping a consistent level of service at the properties it manages, he said. The company has communicated frequently with its tenants, and it has hosted events such as virtual happy hours.
"The real challenge for a company like ours is that we're a high-touch company," Bozzuto said. "We command higher rents in many cases because we believe in providing extraordinary service ... It's very hard to provide high levels of service when you're not putting all your staff on the property at the same time, and when you're maintaining socially appropriate distances with your customer."
On the investment and development side, Bozzuto said this may be a good time to start looking for deals, but the state of the capital markets makes that difficult. He said banks have had to dedicate large portions of their staff to CARES Act lending programs and that may be distracting them from commercial real estate lending.
"I suspect that, for a few months at least, we're going to see constipation in the capital markets," Bozzuto said. "That will begin to loosen up, but my guess is, if this is like past cycles, we won't see it really loosen up for six months or so."
Bozzuto said he thinks the government and the Federal Reserve have taken the right actions in pumping money into the economy. He said a larger infrastructure bill could help boost the economy, but he doesn't expect it to pass during a presidential election year. He predicted the economy will be in a recession until next spring.
"My guess is, based on what I've read and based on what we've lived through, is there's far more likelihood it will be U-shaped rather than V-shaped," Bozzuto said. "I think the likelihood of a quick recovery is virtually nonexistent ... I would expect that by next year at this time we will be reading that the recession is now over and we're in the first stages of a recovery."
No stranger to recessions, Bozzuto said the makeup of his company was formed because of its experiences during the first downturn he navigated. After founding Bozzuto in 1988 as a company focused on development, he said the capital available for new projects nearly disappeared in 1991.
Needing to diversify, Bozzuto said he launched business lines for third-party construction and property management. Today, around 75% of the construction projects Bozzuto manages and roughly 90% of the apartments it manages are on behalf of third parties.
"That was a change that came out of that recession," Bozzuto said. "So my guidance for anyone is to spend their time not only focusing on how to survive today, but what the world is going to look like when they come out of this, and what changes they need to make in their business model to be able to take advantage of that new world."
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