No industry has been unscathed by the COVID-19 pandemic, real estate included.
While some of the hardest-hit sectors include retail, hotels, and offices, multifamily real estate has certainly been impacted by this unprecedented global crisis. Here is our take on the current state of affairs.
Multifamily Real Estate: Pandemic Effects
Tenants are facing layoffs and changes in income, banks are becoming more selective about lending, and the long-term economic impact is still relatively unknown. Despite these challenges, there are several signals that have reinforced our investment strategy, our operating philosophy, and our belief that multifamily real estate remains a solid long-term investment.
Tenant turnover is decreasing.
With shelter-in-place mandates and job uncertainty, tenants are less likely to move. In fact, research from MRI Software showed a 4% increase in renewals and a 15% reduction in vacancy rates between March 15-April 30, 2020, compared to the same period in 2019. We expect this trend to continue, further reducing our operating and capital costs of finding and securing new residents.
The already increasing demand for rentals will continue.
According to the Wall Street Journal, homeownership rates have already been on a downward trend, particularly among young adults and minorities. With income stalled and increased borrower scrutiny due to the coronavirus, people will be less inclined to take out loans and the rental trajectory is only going to skyrocket. We also anticipate that folks who can’t afford homeownership or class-A rentals will move to more affordable rentals like those offered in our GSH communities.
Renters will demand safe, comfortable, multi-functional spaces.
As more businesses shift towards remote work and residents spend more time at home, the demand for quality amenities and functionality will increase. Whether that’s updated units, open outdoor areas for safe recreation, or even simply wider corridors or fewer-story buildings where elevators aren’t necessary, residents want communities where they can socially distance and shelter-in-place comfortably.
The current market presents opportunities for savvy investors.
The uncertainty surrounding the COVID-19 pandemic, real estate has slowed the fervor to purchase, especially multifamily units (meaning there is a smaller buyer pool and less competition to secure properties). Not to mention, properties with existing operational issues could fall into distress and begin seeking new ownership. The smaller buyer pool coupled with a need for savvy ownership presents opportunities for groups like ours to secure properties at a lower price and expand our portfolio. These opportunities are strengthened by the fact that banks are becoming increasingly selective and favoring relationship borrowers who they can trust. The deep relationships we’ve built with bankers and special servicers will help us continue to secure new investment opportunities even in the midst of an economic downturn.
Values-focused businesses will remain resilient.
It’s our philosophy that values of transparency, honesty, and integrity are equally as important as efficient operations and a strong balance sheet. The apartment communities that have been more negatively affected by COVID-19 are those that already had operational issues prior to the pandemic. If the property owners or managers weren’t doing a great job, the propensity for residents to pay rent is lower. This pandemic has only increased the need for open communication and a community-minded approach, whether that’s pulling together with residents to keep people safe and healthy or regularly communicating about needs and expectations around paying rent. This type of service philosophy ultimately leads to better morale and increased retention among our community members, keeping our properties resilient even during a downturn.
It has always been our belief that multifamily real estate is a long-term investment. With the COVID-19 pandemic, real estate has certainly had several short-term effects, but there will always be a need for good quality, affordable housing and intentional, relationship-oriented investors. Pandemic or not, we believe in the importance of building communities and improving lives through our real estate investments and we’re well-positioned to continue that mission for years to come.
