I have always heard that changes in real estate do not normally happen as fast as the rest of the economy. Covid-19 sure changed everything amazingly fast this cycle.
In a span of a couple of weeks, the closing velocity for multifamily closings has decreased by nearly 90% YOY for April. The income for many investors has essentially gone to zero as they: stop distributions, stop or defer asset management fees, and sponsor fees in order to save cash. Rental collections in May and June are projected to be lower than April and the rest of 2020 will most likely not see too much in terms of revenue increases. There are deals still getting done, but investor sentiment in the industry has mostly been to take a wait and see approach. The questions we keep asking ourselves today are: When will the economy reopen? How quickly will people get rehired? Will this be a V-shaped recovery, a U shaped recovery, or a Nike swoosh? These are many questions, many of us hope or believe we will have answers for by mid-May.
The apartment industry had strong fundamentals coming into this crisis. We think workforce housing is well-positioned in DFW to weather this storm. In DFW, 130,000 new residents called DFW home, and over 112,000 new jobs were added in 2019. It’s a very different environment than in 2008. Comparing the beginning of this crisis and the last one in 2008, working-class families have about $17K more in household income, about $14K lower household debt, and employment gains over the last cycle tripled over the last cycle.
April saw many habits change. Apartment asset managers on the hunt for new assets have been focusing on maintaining operations and collections of their current holdings. They have stopped all major rehab projects and followed the guidelines by the CDC and local governments concerning eviction notices. Most owners took a 5-8% rent loss in April, and May collections are assumed to be worse. The focus for asset managers has shifted to retaining the value of their assets. They are attempting to achieve this value retention strategy by focusing on resident retention which should reduce expenses to preserve cash-flow. Some owners have developed stress tests to determine if more cash infusions will be needed in order to save their asset(s) (no pun intended). Communications with lenders, investors, residents, and all industry professionals have increased as everyone is looking for more information to understand what actions would be best to employ.
As I write this, underwriting apartments is changing. Acquisition managers are making different assumptions based on today’s information. Lenders are continuously changing their lending criteria but the agencies are still there to lend.
Contact me or your favorite Greystone advisor today if you would like some help navigating through this storm we are currently experiencing and want to learn more about the options you have. We talk to many owners, lenders, and other thought leaders in the industry every day. We value our clients and want to be a valuable resource.
About the author:
Angel Flores is an Associate Director at Greystone | Investment Sales Group in Dallas, TX. If you want to learn more about our Off-Market Opportunities, Multi-Family Listings, Land Sale Listings, Property Valuations, Debt Platform, or meet for coffee to exchange value-add ideas, contact our office:
Greystone Investment Sales Group
6320 LBJ Freeway, Suite 228, Dallas, TX, 75240