Opportunities Emerge as Coronavirus Lockdowns Loosen
May 12, 2020 - By Percy Nikora, Owner, Co-Founder
Currently, we are about two months into the COVID-19 pandemic. While it is still unclear when things will return to “normal”—nor is it clear how long this return will take—there are a few signs that some restrictions and recommendations might be gradually lifted by the end of the month.
In the meantime, here at Penn Capital, we are remaining vigilant and ensuring that our property managers remain diligent and continue taking extra precautions to ensure the well-being of all residents and property employees. We continue our policy of implementing additional cleaning measures, limiting access to public spaces (gyms, pools, gathering rooms, etc.), and erring on the side of caution whenever possible. Opening spaces too soon or failing to keep things clean will inevitably create certain issues that we will want to avoid. We are in no hurry and protecting the health and wellbeing of our residents and staff is a top priority.
Leases Up, Rents Up
There has been some good news. Our focus on putting technology to work in all aspects of multi-family investing, from how we identify locations to scout for deals, to the way we underwrite, to how we manage operations – is bearing additional fruit during these unusual times. Despite strong sentiment industrywide that April 1 and May 1 receipts and leasing would be down, we have found quite the opposite has been true across our entire portfolio.
We have introduced entirely online payment systems in our buildings and have recently been offering virtual tours that have, somewhat surprisingly, enabled us to grow, even as we continue dealing with this pandemic.
Furthermore, despite general increases in unemployment and underemployment across the nation, we have actually been able to collect 97 percent of our expected rents. Being flexible and communicating with our residents in an effective, yet empathetic way has been extremely beneficial. We know our residents are at the core of our business, which is why it has been crucial to make sure their needs are being met to the greatest extent we feasibly can.
In some cases, demand for affordable rentals have actually been on the rise. Despite the outbreak, property demand for “workforce housing” has actually increased between March and April. Ultimately, we believe, this all about our fundamentals. The properties we have purchased were purchased well below their true value. We have also heavily invested in improving our properties, doing things such as installing brand new appliances, flooring, brand new kitchens, and other highly sought-after features such as covered parking and additional storage.
These features, regardless of the state of the market, are things that all people will view as inherently valuable. Investing in growing regions with expanding and diversified job markets has also proved to be a recession resilient thesis – one we always assumed but, until now, have never had to put to the test. Our properties in Alabama and Texas, for example, have enjoyed a growing level of interest and exposure beyond even the pre-Covid period.
Some of the changes we’ve seen, more likely than not, will be permanent, at least to a certain extent. In the past, many of the people visiting our properties would come by in-person to tour the units. As our property tours have shifted entirely online this has reinforced the importance of developing a stable and reliable infrastructure. We are not the only players in the space to benefit from this degree of technology use. Some online platforms, like Zillow for example, have seen a more than 500 percent increase in rental traffic as a result of the sudden reliance on technology to run a successful real estate business. While there is no doubt that at least some people will want to personally visit our properties before signing a lease in the future, this dramatic shift has clearly had a major impact on how people will decide where to rent property in the future.
In other words, having the capacity to adapt to changes—both changes connected to COVID-19 and other market changes—is something that we know is incredibly important and one we are glad we have the foresight to adopt. While this outbreak itself has been tragic, it has also created new opportunities.
Discounted Deal Flow
Due to our stable capital position and our strong connections with brokers and lenders, we are finding ample opportunities to capitalize on off-market deals that are currently falling through for other parties. In some cases, these deals are being offered with a 20, or even higher percent discount. While not all new opportunities will be this lucrative, it is clear that anyone who is willing to invest and wait for the market to return can earn a much greater ROI than would otherwise be possible.
Regardless of when things to turn around, these lucrative opportunities can be expected to persist throughout the rest of 2020. Because lending is tight in certain cases, our borrowing terms might be more stringent than usual—however, while accessing some capital will be a bit more expensive, our anticipated returns will more than offset any additional costs.
The future unknown is still a factor. We are not quite out of the woods just yet. But if we can continue being vigilant, taking precautions within our properties, and look for new opportunities that can be easily justified on paper, we still believe that we have plenty of reasons to remain optimistic.
5 Keys to Investing in Distressed Real Estate By Ed Rogan, Owner, Co-Founder Buying distressed real estate certainly isn’t for the faint of heart. An inexperienced investor can easily be swayed by the promise of a project sponsor who doesn’t actually have a plan for turning the property around. But that doesn’t mean you shouldn’t…READ MORE >
Gaining an Edge through Cold Calling By Ed Rogan, Owner, Co-Founder In many ways, commercial real estate is an “eat what you can kill” industry. The most successful investors, developers, brokers and other CRE professionals earn their living by scouring the market to uncover the next big deal. Ask the industry’s best and they’ll often…READ MORE >
Trial by Fire: How We Got Started By Ed Rogan, Owner, Co-Founder People often use the term “trial by fire” to explain how they learned something. In our case, the term is all too appropriate. Looking back on it, the story of how Percy and I got started almost seems unbelievable. We were just…READ MORE >