In this article we explore property level strategies and other programs that have helped maintain rental income for apartments thus far through the pandemic.

Preserving Multifamily Real Estate Income in the era of COVID-19

The global pandemic has had far-reaching effects on employment and household income. Millions of Americans have either lost their jobs or experienced reduced employment resulting in a loss of income. The loss of income has hit various real estate sectors as well. For example, the hospitality sector and retail real estate have struggled. Leisure travel has been markedly reduced, resulting in lost revenue for hotels and the hospitality sector. Similarly, the reduction in commerce for brick and mortar storefronts and restaurants has reduced income for retail real estate investors. 

In contrast, multifamily real estate has maintained its income stream despite the global pandemic. Collections data from the National Multifamily Housing Council indicate strong collections over the past few months, remarkably similar to pre-COVID numbers. In the month of June 2020, for instance, 95.9% of rent was collected, compared to 96.0% of rent collected in June 2019. This is illustrated below.

What are the reasons for strong income collection for multifamily? Apartment tenants are susceptible to layoffs and workforce reductions like the general population, yet rent payment remains resilient despite the current unemployment numbers. This article will review some of the strategies and factors at play in the current multifamily market affected by COVID19.  

Government Programs

Undoubtedly, government stimulus has played a key role in helping tenants continue to pay rent on time. Unemployment benefits have been a source of income for those who have lost their jobs, and record numbers of individuals have applied for these benefits. The Coronavirus Aid, Relief and Economic Security (CARES) Act has assisted millions of Americans through direct relief. The CARES Act authorized a $1200 economic impact payment for all eligible taxpayers. Apartment dwellers often meet the income eligibility requirements. For employers and owners of small businesses, the Paycheck Protection Program provides resources to help businesses continue operations. Loans provided under this program will be fully forgiven if employers maintain salaries of their employees or quickly rehire them. Each of these programs help to maintain income for individuals, enabling them to make their rent payments. According to a recent survey by J Turner Research, when people are faced with several bills in difficult economic times, they will often prioritize payment of rent before other bills1.

Property Management Strategies

Proactive apartment owners have also employed a variety of their own strategies to maintain profitability. When economic conditions threaten to impact income stream, expense control becomes paramount. Shrewd operators review expenses line by line to see which are vital to operations, and which can be reduced. This is also an opportunity to negotiate contracts with vendors for the purpose of more efficient expense management. Attention to expenses is a basic business principle which is vitally important in uncertain times.

Savvy property managers have also taken this opportunity to proactively communicate with their tenants about rent. There has been a nation-wide freeze in evictions, but the moratorium is gradually being phased out on a state-by-state basis. Managers must firmly communicate with tenants that rent is still due. If tenants are having difficulty paying rent, then management should encourage them to communicate early so a payment plan can be arranged. Rent can be collected on a bi-monthly basis, over several months, or in some other graduated fashion. Other managers have allowed rent to be paid by credit card and waived the fees. Tenants need to know if they cannot make a full rent payment, then some portion of payment is still due. The remainder can be made up later. At the same time, management must be respectful and listen with empathy because these are difficult times for everyone. The goal is to work with tenants and create mutually beneficial plans.

Property management should also strive to be a source of information and provide relief options to struggling tenants. Proactive managers provide information about government programs to residents in need of these services. Managers should be knowledgeable about the state and local programs and be able to readily share this information. Knowledge about job resources and who is hiring in the community is valuable information as well. A concise document of resources or referral to financial counseling services is beneficial. Tenants will likely feel more connection to the apartment community if they feel management is supportive of their personal situation and helping them to find solutions. In the long run, retention of a tenant without a rent increase may be more profitable than turnover costs and vacancy for an unknown period. 

Evergreen nature of multifamily real estate

Thus far in the economic downturn of COVID-19, multifamily has fared well as an industry. Best in class operators have utilized the aforementioned strategies to protect the viability of their investments. The other factor in multifamily real estate’s favor is the primary need for shelter. Basic housing is a non-discretionary expense for most people. Consumers may be able to shop online rather than going to a brick and mortar store, or avoid the office and work from home during a pandemic, but the need for housing persists. Household formation may slow in the coming years, but the need for housing, especially rental housing, is anticipated to grow. Young adults may remain in their parents’ home longer, or roommates may decide to share a two-bedroom unit rather than each rent on their own, but as the population expands, the need for affordable housing will increase. Furthermore, if the recession persists, then home ownership is expected to decline. Economic hardship means a smaller percentage of the population will be able to attain the financial requirements for owning a home. The demand for multifamily remains strong for the foreseeable future.

The global pandemic has meant uncertain times for everyone, from both a population health perspective and from an economic and financial standpoint. Multifamily as an asset class has fared well as an alternative investment in these uncertain times. Property managers have employed various proactive strategies to engage tenants, provide assistance and operate in a fiscally responsible manner. The goal of effective multifamily ownership is to provide a safe, clean affordable place to live in a viable business enterprise.