Yardi Matrix talks COVID-19 and multifamily

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On April 1, Yardi Matrix held a webinar to discuss the impact of the COVID-19 outbreak on the multifamily housing industry. The webinar ran for 90 minutes, including the question session. Highlights of the presentation are discussed here.

Everything you need to know

The webinar was very wide-ranging covering topics such as the state of the economy, the progression of the pandemic, the responses of the financial markets and the government. It brings together a broad collection of data and it would be valuable to download and look through the slides even if you don’t have time to listen to the entire webcast. For example, the presentation includes a slide with 18 estimates for how Q2 GDP will be impacted by the response to the coronavirus. They range from a drop of 9 percent to 40 percent on an annualized basis, demonstrating that there is no consensus on what’s going to happen.

Impact of COVID-19 on apartment finance

It appears that deal that are currently in process with proceed, usually at the terms previously agreed to. However, the volume of new deals may fall until the extent of the downturn is more apparent. Still, over half of mid-sized companies say that they will continue looking for deals during the downturn.

Fannie Mae and Freddie Mac have announced that they will allow borrowers to defer loan payments for up to 90 days if they have been impacted by COVID-19. They, in turn, must not evict residents for failure to pay during that time span. However, multifamily borrowers who got their financing through Collateralized Mortgage Backed Securities (CBMS) may not have that flexibility. Those loan covenants may not provide that option and agreeing to changes may be difficult due to the number of parties involved.

Impact of COVID-19 on apartment demand

Demand, as measured by activity on apartment listing websites was down 20 percent in late March but may be stabilizing. At the same time, call center volume was down 80 percent. Overall prospect volume is down, but somewhat less so in the workforce housing segment of the market. In general, more people are choosing to stay put with both move-ins and move-outs down. This impact is seen more in the coastal cities that have been most affected by the virus so far than in the interior cities.

While demand may be down, the drop is not being caused by pricing. Although, cutting prices is the expected response from a revenue management system to falling demand, that may not be the correct response in this case. Rather, it may be better to keep rents stable at this time.

Impact of COVID-19 on rent collections

So far, 27 states have imposed moratoria on evictions. At the same time, some renters have had their incomes cut and may be short on cash until unemployment benefits start to flow. Yardi Matrix recommends that landlords work with their residents to stabilize their rent but to extend their lease terms to give them more time to make up missed payments.

The big question for apartment operators is whether their renters will continue to pay their rent when the threat of eviction is off the table. This is where screening renters based on “willingness to pay” will be a benefit. The next few months will test the integrity of your residents and we will soon know how big a problem non-payment will be. Maintaining good relationships with your renters will be key.

An observation repeated both at the start and at the end of the webinar is that the US went into this crisis with a shortage of housing and it will exit the crisis with a shortage of housing. The big questions are how long it will take to get through it and what happens along the way.

The full presentation can be found here.