Thursday, July 9, 2020

As US Rent Collections Soften, Concerns Grow for Apartment Owners

By John Doherty CoStar News

Apartment landlords, as well as their tenants, are now feeling the heat as the coronavirus pandemic drags on.

Industry executives say worries for landlords are mounting. Demand for higher-end rentals is falling with a half-million new units set to hit the market. And rent collection is down at Class B and C properties just as the federal unemployment benefits that kept many of those renters afloat are set to expire at the end of the month.

Payments have been halted on hundreds of Fannie Mae and Freddie Mac loans to apartment landlords — a wait-and-see limbo often followed by default. The concerns were laid out in a webinar Wednesday hosted by the National Multifamily Housing Council.

“Those are harbingers,” said Jeff Adler, chief operating officer of Yardi, one the five big rent-collection software companies that contribute to NMHC’s rent-tracker survey. “There is a recession going on. There have been job losses. There has been demand destruction.”

Declining rent collections and falling revenue because of waived fees and concessions are putting owners on edge. The suspension of late payment and credit card fees has become standard while new tenants are offered free rent.

NMHC reported Wednesday that 77.4% of renters nationwide made a full or a partial payment for this month’s rent through Monday. That’s down from the collections of 80.8% during the first week of June, and down from the 79.7% rate the first week of July last year.

Margette Hepfner is the chief operating officer of Dallas-based Lincoln Property Company, which owns or manages about 200,000 apartments in the country, second only to Greystar. On the webinar, she expressed concern that some of the biggest coastal markets, New York City and Southern California for instance, were showing the lowest collection rates.

“New York City was an early lagger,” she said. But collection rates were better in June than May, before new problems. “But [for Lincoln] New York in July had the lowest payment rate in the country.”

NMHC tracks rent collection at about 11 million occupied apartments around the country. The industry advocacy group does not break down how many paying residents made only partial payments — but to date most big operators say it’s a small percentage.

Most of the landlords reporting their rent-collection data to NMHC are relatively large: professionally managed properties big enough to hire a company such as Entrata or ResMan to handle rent collections.

Smaller landlords — owners of properties with 50 units or fewer — seem to be suffering more, said Adler. Another wild card weighing on the apartment sector is the soon-expiring moratorium on evictions. Renters who have fallen behind in payments could soon be kicked out, but that would also mean a rise in vacancy, which could affect owners’ agreements with their lenders.

Hepfner, though, said that's not a pressing concern.

“We are not facing an eviction bomb,” she said.
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