Rent Payments in June Reflect Resilience of Multifamily

June 25, 2020

Rent Payments in June Reflect Resilience of Multifamily

June 25, 2020

Financial assistance through the CARES Act has seemingly helped to stabilize living situations, allowing for a vast number of apartment households to make their rent payments. In our June Investor Sentiment Survey, 70% of respondents indicated that less than 10% of their tenants had requested or filed for rent forbearance as a result of coronavirus-related job or income loss for May collections.

The trend also reflects the extent to which the multifamily industry has been spared some of the immediate brunt of the economic fallout facing the rest of the country. Here we’ll dive deeper into the latest rent collection and apartment sales data to assess how far the industry has to go before returning to a sense of normalcy.

Rent Payments Strong in June But Uncertainty Looms

Cities like Salt Lake City, Utah enjoyed close-to-normal rent collections and payments in June.
Rent payments were most consistent in metros like Salt Lake City where tech and government jobs are abundant

A total 92.2% of apartment households made a full or partial rent payment by June 20, according to the National Multifamily Housing Council (NMHC). This compares to 90.8% of households in the same time period in May.

Examining rent collections and payments at the market level, we see strong numbers in metros that have a high percentage of knowledge workers and government employees. On the other hand, markets more dependent on tourism are experiencing greater vulnerability to economic hardship and delayed collections.

Furthermore, concerns are rising within the industry that a failure by the federal government to extend unemployment benefits past the July expiration could negatively impact occupancy levels and timely payments in the apartment sector. However, recent signaling from the White House about a second round of stimulus checks could help to offset these concerns.

Multifamily Outperforms Other Sectors Despite Drop in Deal Volume

Reviewing preliminary second-quarter sales data, it is apparent there has been a significant slowdown of sales activity taking place in the apartment market. Year-to-date volume (through May) registered $48.6 billion and is 27% off from where the market was last year. Separating out first-quarter data and looking at only May sales, the decline is even more pronounced. Sales during May totaled $3.1 billion, an 80% year-over-year drop-off in deal volume.

Despite the large drop-off in deal volume in May, the multifamily sector still outperformed the office and industrial sectors from a deal-volume standpoint. Office volume checked in at $2.3 billion in May, while Industrial registered $2.1 billion in sales during the same time frame.

Buyers may be exercising more caution with acquisitions because they anticipate more uncertainty ahead due to international trade disputes or localized surges of COVID-19. In the meantime, it seems unlikely that buyers and sellers will be able to meet on pricing in the near term outside of resolving financing hardships on the part of the owner or a 1031 exchange requirement.

Multifamily has also fared better in terms of rent growth than other asset classes despite a recent deceleration. In May, rent growth fell 0.5% year over year. However, the fall was a bit more pronounced month over month with the rate falling 0.7%. Time will tell if the reopening of state economies will buoy rents at current levels through the rest of 2020.

According to our survey, many investors are refocusing their strategy around clearer skies in 2021. Assets will need to be managed at an optimal level in the near term. Reach out to Berkadia to talk about how we can help you to better protect your returns as business conditions normalize.