Regional Players Win Deals While Using Localized Knowledge to Their Advantage

In the apartment world, now might be the time of the little investor.

While sales of multifamily properties are cratering,  recent deals show a new pattern: Small- and medium-sized firms are getting them done.

A case in point: Last week, Dallas’ Knightvest Management paid $42 million for  Hawthorne at the Trace in Raleigh, North Carolina. That 15-year-old, 250-unit property is a quintessential value-add strategy, where upgrades can be made in order to boost rents. But it’s also one that gives a lot of big investors pause: Will the tenants be able to pay rent as U.S. unemployment claims top 44 million during the coronavirus pandemic?

Knightvest is relatively small, having acquired just about $1.9 billion of rentals over the past few years. The firm holds on to properties longer than the giant public real estate investment trusts and private firms that like to flip properties every three to five years. Of late, buyers such as Knightvest have been more active than big investors such as Aimco, Mid-America Apartment Communities, Greystar, and others.

While some companies don’t like to discuss their strategies, those analyzing the moves and apartment brokers say this time of economic disruption and uncertainty could be a heyday for regional operators.

“Smaller, more local buyers may feel they have better information about their local markets — and may have a more optimistic outlook,” said John Affleck, vice president of market analytics at CoStar. “And, with many national buyers taking a ‘wait and see’ approach, the local players are winning deals that might have gone to larger players last year.”

‘Looking Down the Road’

Another large deal this month was in Georgetown, Texas, just north of Austin. BSR, a REIT based in Little Rock, Arkansas, paid $51.6 million for the 303-unit  Retreat at Wolf Ranch.  BSR’s done about $600 million of purchases in the past five years, according to CoStar.

Also this month, Miami’s Westside Capital Group won the bidding for The Residences at Veranda Park in Orlando, Florida, paying $45 million for the 150-unit, 12-year-old property. The firm has done about $124 million in deals over the past five years.

Without the massive fund shops and apartment operators to contend with, smaller players can put their localized knowledge about management to work. And their confidence in the markets they know well can help them handle potential confusion surrounding how apartments will perform in the next year or so if the coronavirus and economic downturn continue to spread throughout the country.

But that doesn’t mean the big dogs are completely out of the game.

Greystar, the giant based in Charleston, South Carolina, picked up  Avana Thornton Station in suburban Denver on June 10. It paid $119 million for that 18-year-old, 480-unit complex.

Larger buyers are taking a wait-and-see approach generally. If prices are falling and regional players are making money, the big investors aren’t worried too much.

“The massive equity houses, they can afford to be a little bit late to the dance,” he said. “It’s true that in the last few weeks we’ve seen a lot of local and regional players winning deals. But trust me, it won’t be long until the biggest household names are back in the game in a big way.”

 

 

Source: By John Doherty CoStar News June 17, 2020 | 08:07 P.M.

Investors Avoid Fixer-Upper Apartments

CoStar Analysis Shows Buyers Fleeing to Safer Middle-Tier Properties

Apartment investors are getting nervous about buying fixer-uppers, according to CoStar’s latest analysis.

Property sales fell about $10 billion from normal levels in April and May.

But things are even more shaken up than that. The trend toward buyers favoring older, suburban properties to spruce up and boost rents in a value-add strategy seems to be over.

“If we zoom in on the recent period, we see that the number of lower-priced trades has really dropped off. Investors just don’t seem willing to take a chance on value-add and opportunistic deals right now,” said John Affleck, vice president of market analytics for CoStar, in a new video. Lower-end deals, which began to dominate the sales market before the coronavirus shutdown, are becoming rare, he said.

He pointed out the lowest-priced U.S. deal over the past two months was a $10.3 million sale for 184 units in a 1979 garden-style complex in Shreveport, Louisiana. The seller acquired the property in 2014 for $6.2 million, earning about 10% per year.

At the same time, listings and sales of high-end properties are also down.

“Investors in the time of COVID have favored the middle market,” said Affleck, pointing as an example to a 480-unit, 2002-vintage complex outside Denver that sold for $119 million, or about $248,000 per unit. Eaton Vance, the seller, bought the property in August 2012 for $68 million, earning a price gain of about 7.5% per year.

CoStar data shows an estimated apartment price discount of about 10% as a result of the coronavirus.

“Does that mean apartment prices are down 10% across the board? Well, we’re not quite ready to say that yet. This analysis is based on a relative handful of repeat trades, and there may be other reasons why these deals are selling for relatively lower prices. But, the falloff in returns on repeat trades is a leading indicator of the impact of the pandemic on multifamily pricing.”

 

 

Source: By John Doherty CoStar News June 16, 2020, | 07:44 P.M.

 

With some unemployment benefits from the CARES Act set to expire at the end of next month, industry groups are pushing for more federal aid.

As multifamily owners and landlord groups wait on the Senate to pass more rent relief legislation for those financially impacted by the ongoing coronavirus pandemic, some cities and states have wasted no time launching their own relief efforts to help renters make ends meet.

But with the extra $600 in weekly unemployment benefits for eligible individuals poised to run out soon, many in the industry are worried that more support may not come soon enough to prevent big problems for landlords and renters alike.

“I think that despite what has been provided with unemployment insurance and stimulus checks, at some point, there will be a breaking point for a lot of residents,” said Cindy Chetti, senior vice president for government affairs at the National Multifamily Housing Council.

Congress passed the latest coronavirus relief bill last month, but it has not yet been taken up by the Senate. In the current version of the HEROES Act, there is $100 billion in rental assistance and a 12-month eviction moratorium that also includes protections relative to forbearance.

The jobs report released earlier this month that showed the unemployment rate in May had dropped from the previous month, leading many to believe that this would further stall the Senate from picking up the HEROES Act, which in its current iteration, includes extended unemployment, additional stimulus checks and maintains the added weekly unemployment benefit of $600.

Both New York and New Jersey passed $100 million rent relief bills last month aimed at assisting renters impacted by the COVID-19 health crisis, while the city of Houston passed a $15 million COVID-19 rental assistance program earlier in May. Other states have proposed similar legislation, but will it be enough in the absence of federal aid?

“I think it’s too early to tell whether or not it will be enough,” said Chetti, pointing to a recent study that estimated 26 percent of the 43.5 million renters in the U.S. would need temporary rental assistance due to business closures or other issues related to the coronavirus outbreak.

Researchers from the Joint Center for Housing Studies at Harvard University have estimated that rental assistance for Americans with at-risk wages—including those in services, retail, recreation, transportation and travel, and oil extraction—could range anywhere from $274 million up to $7.5 billion.

Meanwhile, Chetti has been working with the Senate on key issues related to emergency rental assistance, forbearance issues, and limitations on eviction moratoriums. In particular, NMHC is pushing for “guard rails” on eviction moratoriums that would include more definitive timelines and be tied to those impacted financially due to COVID-19.

“While action on new legislation may not happen tomorrow, I think there will be a growing urgency for lawmakers to take action and push deadlines or pass something like a rental assistance fund,” she said. “I think the timelines for when those benefits sunset will be a time when the Senate will have to make decisions about what to do.”

 

Source: Multi-Housing News By Holly Dutton June 11th, 2020

 

The continuing long-term decline in turnover has accelerated recently due fewer tenants moving because of the COVID-19 economic downturn

 

A commercial real estate services company is reporting seeing that landlords of multifamily property are seeing turnover fall to the lower levels in more than 20 years.

According to a report by CBRE, turnover, which is the percentage of total rented units that are not renewed each year, fell from 47.5 % in 2019 to 42.1 % in April. The report attributes the decline to historical trends that have been exacerbated due to the coronavirus pandemic.

“The continuing long-term decline in turnover has accelerated recently due to fewer tenants moving because of the COVID-19 economic downturn,” the report said.

The report, however, said the new isn’t all bad since the benefits of lower turnover generally outweigh the disadvantages. Specifically, the report said landlords can see cost savings from continuing rent income and from having fewer “make-ready expenses,” which can range between $1,800 and $3,000. Rent increases are also generally higher on renewals than from new leases, the report said.

According to the report, the COVID-19 lockdown mandates and related uncertainty have discouraged renters from moving, which has helped owners maintain occupancy and cash flows. The report also said turnover is expected to rise from April’s low, given that there’s been an acceleration of leasing activity in May. However, the report said, turnover is expected to remain low for the rest of the year.

Historically, turnover has been falling since 2000, when it was around 65%. The report said that turnover began rising in the mid-2000s because of greater economic opportunity for renters, increased units, and an influx of young millennials entering the market. The past recession led turnover to fall, however,  and only in recent years did it begin ticking back up again, according to the report.

Despite the overall trends, the turnover rate has differed greatly depending on the geographic regions. Some real estate investment trusts have reported that metro areas like New York and Washington, D.C. had the lowest turnover rates for the first quarter in 2020. The reports attributed this to the pandemic and seasonal trends. The South and West saw higher turnover rates, while the Northeast and the Midwest also saw lower rates, the report said.

These trends likely won’t significantly change due to the COVID-19 pandemic, the report said, but different infection rates and localized seasonal trends could influence the rate.

“Northern metros only recently entered the spring leasing season, so turnover rates were not as affected by the early stages of COVID-19 as they were in other warm-weather metros that were already well into the spring leasing season,” the report said.

 

Source: GlobeSt. By Max Mitchell | June 08, 2020, at 11:59 AM

 

Washington, D.C. – The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 80.8 percent of apartment households made a full or partial rent payment by June 6 in its survey of 11.5 million units of professionally managed apartment units across the country.

 

This is a 0.7-percentage point decrease in the share who paid rent through June 6, 2019, and compares to 80.2 percent that had paid by May 6, 2020. These data encompass a wide variety of professionally managed market-rate rental properties across the United States, which can vary by size, type, and average rental price.

 

“These are trying times for the country, and we are reminded on a regular basis how crucial safe and secure housing is during a period of uncertainty and upheaval, so we are glad to see that residents who live in professionally managed properties continue to pay their rent,” said Doug Bibby, NMHC President. “While our Rent Payment Tracker metric continues to show the resilience and strength of the professionally managed apartment industry, it does not necessarily tell the whole story, as it doesn’t capture rent payments for smaller landlords or for affordable and subsidized properties, and according to Harvard, more than half of renters with at-risk wages due to the pandemic live in single-family and small multifamily rentals with 2–4 units.”

 

 

“There are serious signs of economic dislocation outside of our reporting universe that underscore the need for Congress to pass a direct rental assistance program and extend unemployment benefits before it’s too late,” said Bibby. “According to the Harvard Joint Center for Housing Studies, nearly a fifth of households with at-risk wages in small multifamily apartments may have difficulty paying rent.  In addition, 32 percent of renter respondents to the Census Bureau’s Household Pulse Survey reported no or slight confidence in their ability to pay next month’s rent.” 

 

“At the beginning of the outbreak lawmakers took swift action to extend and enhance unemployment benefits as well as create other programs aimed at keeping individuals employed. Thanks to those forward-looking steps, millions of Americans have been able to continue to be able to afford healthcare, food, and shelter,” said David Schwartz, NMHC Chair, and CEO and Chairman of Chicago-based Waterton. “However, those benefits will expire on July 31. Unless policymakers move to extend them, the families and individuals relying on them will find themselves without a safety net, undercutting the initial economic recovery. We urge lawmakers in both parties to continue to sustain and support Americans as our nation and the economy begin to recover.”

 

The NMHC Rent Payment Tracker metric provides insight into changes in resident rent payment behavior over the course of each month, and, as the dataset ages, between months. While the tracker is intended to serve as an indicator of resident financial challenges, it is also intended to track the recovery as well, including the effectiveness of government stimulus and subsidies.

 

However, noteworthy technical issues may make historical comparisons imprecise. For example, factors such as varying days of the week on which data are collected; individual companies’ differing payment collection policies; shelter-in-place orders’ effects on residents’ ability to deliver payments in person or by mail; the closure of leasing offices, which may delay operators’ payment processing; and other factors can affect how and when rent data is processed and recorded.

 
Total unit counts may change as units are leased or vacated and survey methodology is refined.

Find more information, including the methodology, on the NMHC Rent Payment Tracker here.