Navigating the Rental Market in the Face of Coronavirus
March 29, 2020 - By Percy Nikora, Owner, Co-Founder
From whatever angle you look at it, there is no denying that the coronavirus (COVID-19) has already had a tremendous impact on both the American and global economy. In addition to the stock market losing roughly one-third of its value over the course of six weeks, a growing population of people—including many renters—have either lost their jobs or are experiencing severe cutbacks in the hours they are able to work.
These changes have affected property owners, as well as their renters. Unsurprisingly, we are seeing many people who are now unemployed, whether temporarily or permanently, that we are anticipating will have challenges paying their rent each month. Some of our tenants have already been making phone calls and asking for certain provisions to be made. Normally, most property owners ask for rent to be due on the 1st of each month and will begin assessing a late fee if that rent is not paid by the 5th. However, considering the current situation, we believe that it will be in the interest of both parties for all late fees to be waived and offer payment extensions, on a case by case basis.
Throughout our history, we have come to recognize that fostering a healthy relationship between the property manager and tenant is one of the most important elements of rental property management. We are deeply sympathetic to the situation our residents find themselves in due to no fault of their own and we do not wish to create an undue financial burden for those tenants that have already been affected. This means that, in addition to having flexibility during times of sudden economic distress, effective and timely communication is important. Being transparent, empathetic, and willing to work out alternatives will help create an environment of mutual trust that will help us all during this period of crisis.
Below, we’ll discuss some of the actions we hope to take that will help us all weather the current situation while continuing to pursue our long term goals.
Paying Attention to the Government
Currently, the federal government is attempting to pass a bill—which will be worth an estimated $2 trillion—that would likely offer at least some relief to both renters and property owners alike. Some parts of the bill, such as cash stimulus being distributed to all American adults (probably $1,200 per adult) have bipartisan support and will almost certainly be included in the bill’s final draft.
Beyond the stimulus being directed to individuals, we are also anticipating some (additional) short-term cash infusions that may affect our and our investor’s ability to access capital. Mortgage adjustments may also be included. By keeping a close tab on these developing stories, we will be able to generate more accurate rental projections and provide actionable guidance to the parties affected. The current situation is developing quite rapidly and, with most rents currently due to be paid within the next few days, needing to work within the pre-established legal and moral framework is very important to us at Penn Capital.
Sign up to receive our educational newsletter and to gain exclusive access to our next investment opportunity.
Creating a Safe, Clean Place to Live
In addition to the government’s potential stimulus package, we recognize that all multifamily property owners will also need to pay attention to the guidelines set forth by the CDC. Many of our properties, especially the larger ones, include common spaces that will need to remain open. Adhering to these guidelines, “luxury” spaces, such as gyms, pools, and common spaces, will likely need to remain closed into the foreseeable future. Laundry rooms, mail rooms, and other essential spaces, on the other hand, will remain open and will be regularly cleaned and sanitized.
We are ensuring that all property employees are washing their hands regularly and taking other proactive measures. Limiting group gatherings is highly recommended, if not required in certain states. Additionally, educating residents—whether through posted signs, emails, text messages or a combination thereof—can also help reduce the likelihood of an outbreak affecting multiple units, along with public spaces. Encouraging (or requiring) electronic payments vs dropping off a check in person is also beneficial—again, these changes may require some additional flexibility from both our residents as well as our staff.
Utilizing a Pre-Established Network
One of the silver linings of the current situation is that, due to the market’s sudden dip and the depreciation of many asset classes, an environment that offers potential for opportunistic acquisitions has emerged for anyone interested in long-term investing, including investing in residential multifamily rental properties such as those we focus on here at Penn Capital.
When compared to hotels and retail, two of the industries that have been affected by this crisis the worst, our data suggests that multi-family properties have remained relatively stable. Because everyone needs a place to live, the real estate market has a definitive floor and if the broader economy remains weak, the multi-family market could even experience an increase in demand as many people look to downsize their homes or rework their mortgages. Having said that, and because the underlying causes of the current market retraction are much different than they were in 2008, we believe there is little reason to assume home values will be affected nearly as severely as they were 12 years ago.
Lenders, like most other parties, are still experiencing a general degree of uncertainty, which is why working with a pre-established group can be incredibly valuable. Unlike firms that are attempting to enter certain markets for the very first time, companies with proven track records and established financing infrastructure—such as Penn Capital—will be in a better position to take advantage of investing opportunities as they inevitably emerge.
We want to protect our investors from risk while also looking towards a brighter future. These times, undeniably, can be quite scary for the average renter or even the average investor. Flexibility, increased cleaning, and effective communication will all be very important. If we keep calm and take actions to keep all parties safe and protected, we believe there is ample reason to remain optimistic.
Real Estate Partnerships Provide Scalability With Percy Nikora, Co-Founder So when you’re coming into, let’s say, a fund or a syndication that’s purchasing a property, you would typically do that to purchase a larger property than you would be able to buy by yourself. You know, the properties that are typically purchased are 100 units,…READ MORE >
Why Due Diligence is So Important For Apartment Real Estate Investors With Percy Nikora, Co-Founder It’s up to you to find that out during your due diligence because once you sign the contract, once you go through with the deal, there’s really not much recourse with the seller. There aren’t any consumer laws in place…READ MORE >
Benefits of Experience and Varying Skill Sets in a Real Estate Partnership With Percy Nikora, Co-Founder So when you are also coming into a fund or a syndication, you are again purchasing larger properties. You may be purchasing an asset class you’re not familiar with, but you’re doing this with an experienced team. So you’re,…READ MORE >