Why Multifamily Rents are Holding Up Better than Expected


A feared collapse in apartment rent collections amid the COVID-19 shutdowns has failed to materialize. But can that streak last?

Despite mass unemployment and underemployment, multifamily rental payments have held up far better than many industry experts expected amid the economic wreckage caused by the spread of the novel coronavirus.

 More than 36 million people have filed for unemployment in recent weeks and millions of others working fewer hours and taking reduced pay. That’s amid new estimates that real GDP growth for the second quarter will come in at -42.8 percent. Toss in a backdrop in which, as of December,  69 percent of Americans had less than $1,000 in savings accounts, and it would seem to paint a bleak picture on the ability of renters to meet their obligations.

Yet 87.7 percent of apartment households made a full or partial rent payment by May 13,  according to a survey of 11.4 million professionally-managed apartments across the U.S. by the National Multifamily Housing Council (NMHC). That’s up from the 85.0 percent who had paid by April 13, 2020, during the first full month of the crisis caused by the spread of the coronavirus. That’s also down from the 89.8 percent of renter households who made rental payments the year before when the U.S. economy was still strong and long before the coronavirus began to spread.

“Once again, despite the economic and health challenges facing so many, we have found that apartment residents who live in professionally-managed properties are meeting their obligations,” said Doug Bibby, NMHC President.

So what gives?

There are a few things at work. For one, NMHC’s dataset is weighted towards renters more likely to be able to continue working their jobs remotely and those with some savings as a backstop.

NMHC gathered its data from five leading property management software systems: Entrata, MRI Software, RealPage, ResMan, and Yardi. It does not represent all apartments in the U.S. For example, the data does not include many government-subsidized affordable housing properties. “These excluded properties are the ones more likely to house residents experiencing financial stress,” says NMHC’s Bibby.

The data also does not include smaller apartment properties that typically don’t use those software systems.

“There are thousands and thousands of buildings with 10 units, 20 units, 40 units,” says John Sebree is the senior vice president and national director of Marcus & Millichap’s Multi-Housing Division. “They generally don’t have property management software…. However, they generally have personal relationships with their clientele. [So,] their collections are a little better.”

In all, the percentage of renters who made full or partial payments at less-expensive,  class-C apartment properties continues to be lower —by about five percentage points—than the percentage of renters at class-A or mid-tier class-B properties who made payments.

“There’s a little more financial distress among residents of lower-priced Class C properties,” says Greg Willett, chief economist for RealPage, Inc. “Many of those who held jobs in hard-hit industries like hospitality and retail stores live in the nation’s class-C apartment stock.” These families often earn lower incomes and have little or no emergency cash reserves to deal with income interruptions, says Willett.

Still, even in class-C stock, the percent paying rent remains high.

A big reason: The expanded federal $600-a-week unemployment benefits put in place as part of the CARES Act on top of whatever each state normally pays out has left many workers making more money now than when they were in their jobs, enabling them to keep up with rental payments.

 As an analysis from Fivethirtyeight.com explained, Congress arrived at the $600 a week figure by looking at the national average unemployment payout of $370 per week and the national average salary for unemployment recipients of $970 per week. So the goal of the $600 was to make up the difference.

But given the income inequality in the U.S., far more workers’ wages are below that average figure than above. The net result has been that for millions of workers, being unemployed has led to a rise in their weekly pay. The multifamily sector has been a backdoor beneficiary of that federal largesse since it has translated into more people being able to pay rent than one would expect with an official unemployment rate approaching 15 percent.

“The enhanced unemployment benefits provided by the CARES Act are helping the financial burdens of those who have lost their jobs,” says Willett. “These households appear to place rent payments as a top priority.”

The issue going forward, however, is that the expanded benefits are scheduled to expire at the end of July. So the concern multifamily property owners were feeling before the CARES Act was enacted could rise anew later in the summer if the economy has not sufficiently recovered.

“As current federal support programs begin to reach their limit, it will be even more critical for Congress to enact a meaningful renter assistance program,” says Bibby. “It’s the only way to avoid adding a housing crisis to our health and economic crisis.”

Regional differences

Rental payment rates are also varying by region.

“Rent payments tend to be best in the places where the local economies are heavy on the tech sector or government defense tend to have the high shares,” says Willett. May’s best collections through about the middle of May 2020 are in Sacramento, Calif.; Virginia Beach, Va.; Riverside-San Bernardino, Calif.; Portland, Me.; Portland, Ore.; Denver, Colo.; and San Jose, Calif. “Some 93 percent to 94 percent of households in these places have paid their rent.”

Trouble spots include New York City; New Orleans and Las Vegas. These are locations where the spread of COVID-19 has been especially challenging or where tourism is particularly important to the local economy. The payment figures also are well under normal in Los Angeles, says Willett. Higher-cost markets like New York and Los Angeles are also cities where the expanded federal unemployment payouts are less likely to result in unemployed workers making more than they did while they had jobs.


Source: Multifamily Investor Bendix Anderson | May 19, 2020


New supply expectations fall this year, but future construction impact hinges on the downturn’s severity and length.

This was supposed to be a year marked by a healthy amount of new multifamily supply, as some 300,000 units were on pace to open by the end of 2020. But federal, state, and local stay-at-home orders and other responses to the coronavirus pandemic will likely reduce that to around 250,000 units, according to projections by commercial real estate brokerage Marcus & Millichap and REIS, the property research arm of Moody’s Analytics.

A recent National Multifamily Housing Council survey of 135 apartment developers with projects underway found that more than half had slowed their pace of construction due to permitting delays, moratoriums on construction, and, to a lesser degree, a lack of materials. Social distancing measures—allowing only one or two trade groups to work on a project at a time versus four—is also slowing construction, reported John Sebree, senior vice president & national director of the National Multi-Housing Group for Marcus & Millichap.

What happens beyond the end of 2020 remains a question mark and will depend on the extent to which the economy reopens successfully and remains open. For now, construction lenders have largely reined in financing for at least 90 days so that they can get a clearer picture of rent collections, unemployment, the decline in GDP and other economic conditions, experts say. Yet the observers are quick to point out that multifamily properties should weather the downturn better than any other property type with the exception of industrial assets.

“Once we get through this, the underlying thesis for multifamily development remains sound—the demographics are favorable and there is a good base of stable demand,” said Ryan Severino, chief economist for commercial real estate brokerage JLL. “The real question is whether this is a phenomenon that lasts a couple of quarters or is prolonged.”

Indeed, the impact on multifamily development could be relatively negligible if a rapid recovery ensues, said Victor Calanog, head of commercial real estate economics with Moody’s Analytics REIS. As it stands now, he predicts that the market will experience continuing supply reductions in 2021 and 2022 because developers are starting fewer projects today.

But muted development could extend into the next couple of years, depending on fundamentals. In its worst-case “protracted slump” scenario, REIS is projecting that the vacancy rate could end 2020 at 7.3 percent, or 260 basis points higher than the first quarter reading, and then climb to 7.7 percent at the end of 2021. Similarly, asking and effective rents could decline by 5.5 percent in 2020 and by 6.3 percent in 2021.

“If the downturn is as bad as some people expect—if the reopening doesn’t go as smoothly as we’d hoped and if the unemployment rate stays at a relatively high level longer than we’d hoped—then you’ll start to see people moving out and maybe hunkering down in mom and dad’s basement,” Calanog said. “I think at least 12 months need to roll by before people really start to commit to longer-term investments.”

Developers completed around 70,000 units in the first quarter, Sebree said. And even with tempered supply expectations, the number of completions this year won’t represent a dramatic plunge from the average of some 290,000 units added annually since 2016, he added. All else considered, multifamily professionals argue that the asset class is entering this downturn in much better shape compared with other slumps. In the Great Recession, Calanog noted, the vacancy rate spiked to 8.1 percent. Consequently, Sebree and others don’t anticipate a substantial drop in development going forward.  

“Historically what happens in mature multifamily development cycles is that the underwriting becomes more aggressive and the equity required by banks diminishes,” Sebree said. “That didn’t happen this time—we did not overbuild, and we didn’t have a spike in deliveries. If anything, the banks were underwriting more conservatively.”

For now, impacts on development vary by product type and location. With a vacancy rate of around 2.4 percent, affordable housing development should continue relatively unscathed, particularly because construction in that segment has remained essential across the country, Calanog said. Market rate projects are another matter.

Real estate investment trust Avalon Bay Communities has 19 apartment projects in development valued at $2.3 billion, for example, and halted construction at six in the first quarter because of state or local regulations. It was in the process of restarting work at four as of early May, according to the company’s first-quarter earnings report, but construction has slowed at other sites due to safety precautions, labor availability, and inspections constraints.

Developers are even pausing in markets where construction is allowed. Recently, one such developer in the Los Angeles area had completed some initial site work and was ready to tap his construction loan to begin building vertically, said Gary Tenzer, principal & co-founder of mortgage banker George Smith Partners. But given the chance that development could be shut down, he chose to delay the project’s start.

“Maybe the lender’s not so happy that he did that, but he paid the loan fees, and the money is there to draw when he needs it,” Tenzer said. “There were a lot of question marks, and he was at a good stopping point.”


Source: Multi-Housing News Joe Gose


Nearly half of multifamily mortgage debt outstanding is backed by the federal government and, thus, stands to benefit from the CARES Act and recent actions from the Federal Reserve.


In an effort to ease the burden caused by COVID-19 to both apartment renters and owners,  the CARES Act offers loan forbearance on federally backed mortgages to multifamily owners who suspend evictions for their tenants.

In its own response to the coronavirus pandemic,  the Federal Reserve has committed to purchasing agency commercial mortgage-backed securities, as part of a larger $200 billion mortgage-backed securities (MBS) allocation.

Given these federal actions, it is important to remember just how much multifamily mortgage debt is held by Fannie Mae, Freddie Mac, and other government agencies.

According to Federal Reserve data, Fannie Mae and Freddie Mac accounted for 39% ($619 billion) of the nation’s $1.6 trillion in total multifamily mortgage debt outstanding in the fourth quarter of 2019, the highest share on record. Ginnie Mae, meanwhile, held an additional 8%.

This means that nearly half (47%) of all multifamily mortgage debt outstanding is backed by the federal government and, thus, qualifies for the loan forbearance conditions detailed under the CARES Act.

For some perspective, this is a higher share than during the Great Recession. For example, in 2009, Fannie, Freddie, and Ginnie held a combined 36% of the total multifamily mortgage debt outstanding. A decade earlier, in 1999, they held just over one-fifth (21%).

The National Multifamily Housing Council (NMHC) views these federal legislative and regulatory actions as critical in supporting the multifamily mortgage market. While  NMHC Rent Payment Tracker information to date indicates that the vast majority of apartment households continue to meet their rent obligations, should the stresses of the COVID-19 crisis significantly affect apartment residents’ financial health going forward, it may, in turn, hinder apartment owners’ abilities to meet their mortgage debt obligations.


Source: Multifamily Executive Chris Bruen Posted on April 21, 2020 


This is typically the time of year where temperatures move up and apartment renters move out, shopping for better deals or relocating to new neighborhoods. Instead, COVID-19 has them sheltered in place. And in turn, we are seeing multiple indicators of an abrupt and unusual shift in seasonal resident turnover patterns. More renters are canceling move-out plans and requesting short-term lease extensions, and property managers are offering unprecedented flexibility to accommodate them.

That is a plus in the short term. Higher renewal demand offsets a drop in new-lease demand. Current trends in rescinded move-out notices and in lease renewals could propel the national average retention rate near 60% – unheard of levels for most of the country.

But the implications of a huge spike in leases extended on short terms into summer months also portends a potentially big looming challenge for apartment owners and managers: a summer leasing season with heavier exposure to lease expirations and lighter new-lease demand than we would typically see in a normal summer.

More on that shortly. Here’s where we stand right now.

First, we are seeing a huge spike in rescinded non-renewal notices. This occurs when renters who previously intended to move out change plans and decide to stay put. Compared to the same time last year, rescinded notices have nearly doubled. Looking at rolling seven-day counts on a same-store basis as of April 18, 3.7% of notices were rescinded, up from 2.0% at the same time last year, according to data from RealPage’s property management systems. That may not appear like a big number, but that increased share sustained for 30 days translates to tens of thousands of additional apartment households staying put.


Most rescinded notices came from renters who made move-out decisions prior to COVID-19 shutting down the U.S. economy. Apartment renters who received renewal offers since that point likely have leases expiring sometime between late April and June. The share choosing to renew or go month-to-month will certainly increase as many renters won’t or can’t move. (Retention is calculated as of the lease expiration date.)

As a result of rescinded notices, more month-to-month leases, and more renewal demand, the U.S. apartment industry has seen an unusual surge in retention rates counter to the normal seasonal patterns. For the seven days ending April 18, retention jumped 863 basis points (bps) compared to the same time last year. For April to date, the increase measures about 550 bps.

In normal times, we’d avoid making hay over a mid-month retention rate, since most renewals are still processed at month’s end. But these are not normal times. And furthermore, retention rates were trending only slightly above 2019 levels before jumping higher when COVID-19 hit in the second half of March. Typically, retention rates are highest in February when it’s cold and few people want to move. For the past decade, we’ve seen an average decline of 90 bps in retention between February to March. In 2020, retention actually inched up 30 bps to 54.1%, easily the high mark for any March since RealPage began tracking retention two decades ago.

As property managers have these conversations with renters, they’re finding many want to stay put, but only for the short term while they wait out COVID-19. Apartment managers are providing unprecedented flexibility to help them out.

For starters, many apartment operators are following the National Multifamily Housing Council’s guidance to keep rents flat on renewals (which we do see playing out in our data),  offer payment plans, and hold off on evicting delinquent renters  – even where they’re still legally able to.

But they’ve also gone even further. In some cases, they’ve allowed renters to remain in units that were already leased for a future date by a new resident – leading to a scramble to then re-sell the new renter on a replacement unit. Many have waived premiums for month-to-month leases or other short lease terms.

These accommodations are the right things to do in this environment and reflect how much apartment managers have done to step up. But they are not without risk. One big challenge looms.

Extending tens of thousands of leases into summer introduces a potential glut of additional availability. This would be problematic for two reasons.

First, most apartment operators intentionally schedule a disproportionately large number of lease expirations for summer, when new-lease demand is typically strongest. These were decisions made long before COVID-19 based on historical demand patterns.

Second, the apartment demand outlook appears pretty bleak this summer due to mounting job losses and potentially prolonged closures in sectors like entertainment, hospitality, education, and retail. Where we sit today, it’s difficult to imagine a “return to normal” scenario this summer where all restaurants and retailers re-open, spending ramps back up, and 22 million newly unemployed Americans find work.

Adding one and two together sums up to the big challenge we noted earlier: a summer leasing season with heavier exposure and lighter new-lease demand than we would typically see in a normal summer.

How do you manage through that challenge?

Lease expiration management becomes more critical now than ever. Under normal circumstances, you would offer big premiums for short-term leases to help stagger expirations. That may not be an option right now for property managers concerned about both optics and the reality of taking care of residents in need. Even without short-term premiums, though, you can certainly incentivize longer-term renewal commitments.

Additionally, continue to prioritize strong resident engagement. Retention is easy now when no one wants to move, but once social distancing rules subside some, it’ll become more challenging, and active virtual engagement programs help move the needle.



Source: RealPage by Jay Parsons Posted Apr 21, 2020, in COVID-19, Resident Retention


Federal Government Action Will Assist Renters in Maintaining Income; Strong Multifamily Fundamentals Pre-Coronavirus Provide Sturdy Framework


Unemployment benefit expansion mitigates financial impact. Many throughout the nation are faced with uncertainty as COVID-19 rattles the economy and labor markets. The federal government has been fast-acting in its response, exhausting numerous fiscal and monetary measures to keep the economy afloat and provide income to those who suddenly face hardships. Unemployment benefits have been both increased and expanded, supporting laid-off workers’ ability to stay up to date on important bills, including rent. The new criteria for unemployment benefits include freelance workers, the self-employed, contractors, and part-time personnel in addition to those who would typically meet specified standards. The federal benefit period lasts until July 31, and those who qualify for unemployment will receive $600 per week on top of a state benefit, which varies throughout the nation and generally aligns with the cost of living. State benefits will also be extended an additional 13 weeks beyond the exhaustion of the prototypical benefit period. This action will be wide-reaching and relieve some of the stress that hangs over both tenants and owners of multifamily. Although, the process of distributing payments will likely be delayed as unemployment offices are being overwhelmed with requests.


Government payment provides renters with an income stream to offset financial burdens. The other vital aspect of the stimulus package is the one-time payment to all adult Americans that filed taxes in 2018. Most adults will receive $1,200 in addition to $500 per child under the age of 17, with installments phasing out for individuals that made over $75,000 and dropping off completely above the $99,000 threshold. The federal government has indicated that direct deposit payments will arrive by the end of April; however, those who will be receiving checks in the mail might not get them for at least a couple of months. The additional income should make up for some wage losses and supplement income streams for those who have not been negatively impacted. Based on early reports, 69 percent of renters were able to meet April rent obligations by the fifth of the month, down 13 percent year-over-year despite unparalleled circumstances. 


Apartment fundamentals on solid footing entering this year. Multifamily housing performed exceptionally well over the course of this cycle, driven by the affordability of renting an apartment relative to owning a single-family house, and the younger generations’ preference for leases and added amenities. Over the past few years, workforce rentals became increasingly undersupplied, as vacancy was near 20-year lows ending 2019. Among the three segments, Class C vacancy contracted by the greatest margin since 2009’s peak, dropping 570 basis points into the mid-3 percent range. Class B vacancy followed closely behind, dropping 330 basis points since the Great Recession peak into the low-4 percent area as of the beginning of this year. Tightening conditions have supported the need for rapid inventory growth; however, rising construction costs have led builders to construct more Class A units, which has not provided much relief for the budget-friendly rental segment. Despite the elevated construction of luxury apartments over the past decade, Class A vacancy has also dipped 230 basis points since 2009 into the 5 percent range, demonstrating robust demand throughout all echelons of multifamily housing.



Challenges Presented by the Virus-Driven Downturn

Will Differ Throughout the Nation


Some markets and niches are better prepared to weather the storm. The risk level that the apartment industry will face differs throughout the country, as some markets and population segments will have to combat more pronounced headwinds. Lower-tier space may be burdened by the fact that their tenant base is more likely to be affected by job losses and financial hardship, whereas midtier space might be better suited to maintain cash flow. Additionally, upper-tier space has a stronger ability to avoid losses from missed rental payments as more tenants are able to work from home and have savings built up; however, newly built luxury apartments will find it difficult to build a tenant roster over the short term. Working-class rentals in some of the nation’s more expensive cities will face obstacles as government payments don’t go as far as to cover monthly rental costs. On the other hand, metros with diverse economies will be less at risk as several sectors of the U.S. economy are still functioning, including technology, industrial and construction. 


Multifamily owners will have to overcome hurdles. In the short term, finances will have to be closely watched and managed, as a reduction in rental income is entirely possible, while expenses may arise concurrently. The extra costs to maintain clean common areas through increased labor and sanitation, as well as the likelihood of more maintenance expenses linked to wear and tear as residents spend more time than usual in their apartments will be hurdles. Additionally, owners of newly built apartments will find it more difficult to fill units, as fewer people are moving around and actively searching for residences. A longer-term headwind could be the slowdown of household creation amid more people moving back in with their families or seeking roommates due to financial burdens. These challenges will dissolve once the economy is returned to full functionality and the health crisis is over, but with no clear timetable, it is important for owners to be cognizant of the obstacles they will face.


National Insights:

• Large tourism-based economies are facing more direct impacts that will weigh on their labor force. These headwinds may linger until the population feels safe traveling again.
• Rentals in markets at the height of their COVID-19 outbreaks are more at risk from strict shelter-in-place orders. State and local government reaction will be vital to regaining economic momentum.
• Regional logistics hubs in the Midwest and the central U.S. may be more stable, as e-commerce will act as a tailwind in maintaining the job market. Although, international supply-chain disruptions may have an adverse impact on some coastal markets.

Federal agencies and local governments putting moratoriums on evictions. The CARES Act initiated a 120-day eviction moratorium that disallows borrowers of federally backed mortgages or who participate in federal assistance programs from beginning eviction proceedings for nonpayment, started on March 27. These same landlords must also give tenants a 30-day notice to vacate the property after the eviction moratorium period has passed as well as conform to local eviction laws. Landlords that fit into these classifications and have fewer than five units fall under the homeowner protections included in the CARES Act, which disallow evictions for 60 days started on March 18. Properties without federally backed mortgages or that do not participate in federal assistance programs would default to the state provisions. More than half of the state governments have enforced a pause on evictions, typically lasting between 30 and 60 days. Additionally, local governments, particularly in some of the nation’s most densely populated cities, have followed suit in halting evictions through at least the end of April. Owners that are not disallowed from evicting tenants should take into consideration that it may be more challenging to fill vacant units given the current conditions.


National Multifamily Housing Council Recommendations:

• Halt evictions for 90 days for those who can show they have been financially impacted by the COVID-19 pandemic. (Does not apply to evictions for other lease violations such as property damage, criminal activity or endangering the safety of other residents and staff .)
• Avoid rent increases for 90 days to help residents weather the crisis. Create payment plans for residents who are unable to pay their rent and waive late fees for those residents.
• Identify governmental and community resources to help residents secure food, financial assistance, and healthcare and share that information with residents.


Borrowers of federally backed mortgages granted relief. The Coronavirus Aid, Relief, and Economic Security Act includes protections for those with multifamily mortgages backed through federal agencies, including Freddie Mac and Fannie Mae. Borrowers of these agencies may request loan forbearance, given that they were on time with payments through February 1 and can provide proof of financial hardship from the new coronavirus. The period of forbearance is initially set at 30 days, with two additional extensions available for borrowers that request it within the time frame specified in the agreement. This may be a resource that provides owners an opportunity to cushion themselves, while being aware that it includes stipulations for owners, including bans on evictions and disallowing late payment fees. Additionally, those who seek forbearance will be required to repay within 12 months. Borrowers with mortgages through private lenders should communicate with their providers to discuss options that are available to help them through this challenging time.


Governments Pausing Evictions;
Loan Forbearance Available for Borrowers



Owners Acclimate to Changing
Conditions; Long-Term Outlook Strong


The apartment industry is adapting to combat headwinds. During times of uncertainty, owners may find it necessary and beneficial to be more hands-on with their investments. Open communication with tenants regarding their financial status could formulate realistic expectations for rental income so that owners can anticipate any losses and put plans in place to maintain cash flow. Additionally, owners facing financial uncertainty should reach out to lenders to discuss loan forbearance options and talk to property managers about logistics and operational procedures. Every owner will face their own unique challenges, and the ability to adapt while in the unchartered territory of a global pandemic will be favorable in prospering through these headwinds. Some may even find this is an opportunity to retain quality tenants through new leases, as they are less likely to explore other options during the crisis. Investors looking to buy and sell will have to discover new pricing as the eminent downturn will alter asset values and underwriting standards.


Multifamily remains a solid commercial real estate investment through periods of uncertainty. The $2.2 trillion stimulus bill provides a safety net for the short term while the population works together to slow the spread and medical researchers race to find a vaccine that can bring a sense of normalcy back to daily life. Multifamily owners are concerned with the financial impact that will come of this, but several factors support an optimistic viewpoint. Government payments and unemployment benefits will help renters replace lost income over the near term, enabling them to pay on time. The underlying trends that have supported apartments throughout this cycle continue to be in place and will sustain robust demand for rentals in the long term. One of the fundamental principles driving multifamily housing is that people will always need a place to live. The global pandemic will not push prospective renters toward single-family housing as an alternative as the rent to home payment gap remains significant.

National Multi-Housing Group
John Sebree First Vice President, National Director | National Multi-Housing Group

Prepared and edited by
Ben Kunde Research Associate | Research Services

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guaranty, express or implied, may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Federal Reserve; Global Financial Data; MBA; Moody’s Analytics; NYSE; Real Capital Analytics; RealPage, Inc.; Standard & Poor’s; TWR/Dodge Pipeline; U.S. Census Bureau; Yardi © Marcus & Millichap 2020