Apartments Adapt to the Changing Landscape: Q&A with the NMHC

May 05, 2020

As the novel coronavirus causes upheaval for families and communities around the world, it also carries financial repercussions for every property sector.

Greystone spoke with Doug Bibby, president of the National Multifamily Housing Council (NMHC), and Mark Obrinsky, chief economist and senior vice president for research for the NMHC, about the short-term and long-term implications of the COVID-19 pandemic on the multifamily property sector.

Q. What are the short-term impacts of the pandemic on the multifamily sector? Have government programs helped apartment owners?

Bibby: From a collections point of view, 89% of residents in all types of apartments made at least some payment by April 19th, which meant our members breathed a huge sigh of relief. Renters in Class A paid at the normal rate (95% paid), tenants in Class B were pretty solid, and even renters in Class C paid at a pretty strong rate.

We were disappointed in the CARES Act because the limited period of forbearance for multifamily mortgages is much shorter than the moratorium on evictions. That sets up future stress. The direct payments and extra unemployment help but that won't be as helpful in high-cost coastal markets. We want to see direct assistance to renters and to landlords in the next bill.

Obrinsky: The economy is in effect in a medically induced coma, where the goal is to recover the patient and then bring the patient out of the coma. But you need life support during the coma. We think the best way to handle this is to make renters whole upfront with direct payment assistance, then the landlords won't need help.

Q. What is the expectation for the long-term impacts of the coronavirus and the financial fallout on apartments?

Obrinsky: In the near term a big slowdown in the multifamily market is expected, but for the long-term there's kind of a push-pull on residents.

If the economy starts back up slowly, they won't be in rush to buy a house or move. They'll be cautious, and we can anticipate renewals at a fairly high level. But people who are trying to preserve their assets by living with roommates or their parents are less inclined to move into their own place. The best-case scenario is that we get back to normal, which is where we were before the virus hit: a relative balance between new demand and new supply in most markets.

Q. Do you expect demand patterns to change because of this extraordinary experience? Will renters prefer less dense locations? Different types of apartments?

Bibby: We can expect that energy-dependent markets could be impacted if oil prices stay low. Tourism-dependent markets like New Orleans and Las Vegas are hurting, too.

Obrinsky: It will be interesting to see how long it takes Americans to start going to Disney World again, but I wouldn't bet on the notion that people will move from big cities. People thought that 9/11 signaled the death knell for big 24-hour cities, but within a year or so big cities took off.

Many people make a trade-off of living in smaller spaces to afford to live someplace with larger community amenities. People may want a little more space after this, but I don't think it's likely we'll see lots of people moving to small towns.

Q. Do you expect government policy changes in the wake of the pandemic that could impact investors, managers and owners?

Bibby: We were on track to modernize the multifamily industry and update rules around 1031 exchanges, opportunity zones and Section 8 housing. But Congress has its back to the wall to focus on how to fix the economy, so they're less prone to think strategically now.

Q. Any predictions about liquidity in the market? Will developers have access to capital?

Bibby: In the short run we'll see some debt and equity sources pull back, but there's still adequate capital available, especially for refinancing and acquisitions. Looking ahead, if I'm an international investor or a domestic investor looking at U.S. real estate, I want to be in residential real estate or industrial real estate, not retail, hospitality or office properties. Capital naturally flows to where it gets the best returns, which will be residential.

Q. How has the apartment industry handled the pandemic?

Obrinsky: Many apartment owners have been able to work out a payment plan with their residents and one of the larger owners set aside a bucket of money to support its residents. If you're well-connected with your residents, it's easier to make it work.

Bibby: Some communities are increasing their use of an intranet communication system with their residents to reach out to them to check on their wellbeing and to schedule maintenance requests. We've seen an uptick in the use of credit cards to pay rent and a lot of owners are waiving credit card fees for residents. They're also using more virtual tours to handle leasing and renewals. On the operations side, trash collection, maintenance requests and package deliveries are through the roof, so they're all learning how to manage those issues too.

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