Rental Agreement

Eviction Ban Expires: What It Means For Renters and Owners

After numerous extensions over the last 12 months, the federal eviction ban expired this past weekend. With millions of Americans facing eviction and landlords looking to catch up on delinquency a wide variety of questions surrounding the expiring ban have been asked.

In a recent article from Multi-Housing News, author Jeffery Steele outlines how the expiring eviction ban will affect delinquent tenants and landlords moving forward. Some major takeaways include statements from both sides of the eviction ban debate. Gary M. Tenzer, principal & co-founder of real estate capital advisor George Smith Partners, told Multi-Housing News:

“While the moratorium has been beneficial to many (residents) who have been unable to work and pay rent during the COVID pandemic, it has imposed an undue hardship on landlords who must continue to pay the operating expenses and mortgage payments throughout the moratorium”

Tenzer continued his sentiment by point out another extension to the eviction moratorium would have resulted in an increased amount of loan defaults and “inevitable” foreclosures.

Another interesting point in the article was from a study conducted by a non-profit organization called The Aspen Institute. According to their study, 6.5 million American households are behind on their rent obligations. The average debt is in excess of $3,000. Across the U.S. renters owe approximately $20 billion to their landlords. More than 15 million people live in households with overdue rental payments.

Click here for the Multi-Housing News if you want to read it in its entirety.


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Multifamily Market Shows Signs of Improvement

According to the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for April 2021, the multifamily market is showing signs of improvement.

“We are finally seeing improvement in most markets around the country,” noted NMHC Chief Economist Mark Obrinsky. “While gateway metros are still generally facing lower occupancy and rent levels compared to a year ago, conditions now appear to be on an upward trajectory. On the other hand, many Sun Belt markets continue to see substantial rent growth and strength in fundamentals.”

The survey includes responses from over 100 CEO and other senior executives of apartment-related firms across the nation and tracks four indexes including Market Tightness, Sales Volume, Equity Financing, and Debt Financing. Results of the survey include:

  • The Market Tightness Index increased from 43 to 81, indicating tighter market conditions for the first time in six quarters. Two-thirds (67 percent) of respondents reported tighter market conditions than three months prior, compared to only 5 percent who reported looser conditions. Twenty-eight percent of respondents felt that conditions were no different from last quarter.
  • The Sales Volume Index increased from 53 to 77, marking the highest index level since October 2010. More than half (60 percent) of respondents reported higher sales volume than three months prior, while 31 percent deemed volume unchanged. Just 7 percent of respondents indicated lower sales volume from the previous quarter.
  • The Equity Financing Index increased from 58 to 68. While 42 percent of respondents reported that equity financing was more available than in the three months prior, a similar share of respondents (39 percent) believed equity financing conditions were unchanged during the same period. A smaller portion (6 percent) of respondents indicated equity financing was less available.
  • The Debt Financing Index decreased from 49 to 44. As the only index below the breakeven level, 23 percent of respondents reported better conditions for debt financing compared to three months prior, while 35 percent felt that financing conditions were worse. An additional 34 percent of respondents signaled that conditions were unchanged in the debt market.

Respondents were also asked if they were afforded any rent relief funding in their areas of operation. Almost half, 47 percent, reported successful accessing funds in at least some of their areas of operation, and only five percent in all areas of operations. About 25 percent of respondents claim they have not received any rent relief funding at this point. 16 percent of respondents reported receiving relief funding from local government or charitable organizations despite receiving zero federal funding. The last 11 percent of respondents signaled that they do not plan on accessing any federal rent relief.

Click here for the NMHC Quarterly Survey of Apartment Market Conditions for April 2021

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What Is the Great American Move?

For the past few decades, major metropolitans have experienced substantial real estate growth thanks to exciting nightlife, walkability, and strong job opportunity. But as COVID-19 continues longer than most would have expected, real estate pundits are noticing a shift trending toward lower-density, suburban areas and away from high-density locations. This change of heart and action by the market is being dubbed the ‘Great American Move’.

The pandemic is not the only driving factor behind the spike in migration to suburbs and smaller metropolitan cities. Before COVID-19, suburban locations were already attractive alternatives to major cities thanks to quality school systems, lower-cost housing for more space, and a stronger sense of community. In addition, thriving suburban areas have expanded to offer more desirable entertainment and nightlife options historically only found in metropolitan areas.

According to the Urban Land Institute’s (ULI) Emerging Trends Report, young, Millennial professionals starting families are major proponents in driving the ‘Great American Move’. The population in family formation years (aged 30-49) is expected to grow by 8.4 million people in the next decade. The report projects “this family segment to be a boon to the nearly 80 percent share of household growth that we expect will be captured by the suburbs in the years to come.”

COVID-19 has only accelerated the market’s shift in demand toward lower-density locations.  Trends like working from home (WFH) have provided residents unprecedented flexibility when deciding where to live. As a result, residents are capitalizing on the lack of a commute while their dollar goes further in terms of living space. An important trend to note as many real estate professionals expect the majority of businesses/companies to permanently implement at least partial WFH policies in the future.


Click here for the ULI Emerging Trends in Real Estate 2021 report

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Gathering Accurate Submarket Data

When property managers are analyzing the performance of their communities and the surrounding competition, it is absolutely vital to collect accurate data. But the value of submarket data varies from metric to metric. So, how do you know what information to value the most?

Metro market reports provided by industry leaders in research offers undeniable value in terms of summarizing how a market is performing. But any manager relying on submarket information provided by such reports would be acting as a major disservice to the property they manage. Ultimately,  the surefire way of understanding how your property is performing in its specific submarket is to analyze the performance of the competing properties in the immediate surrounding areas. And the only way to understand how your competition is performing is by conducting market surveys.

Metro reports are great for providing a snapshot summary of the overall economic and housing trend in any given market. This is great information for managers when making strategic, market-wide decisions, predicting where/when certain locations might become more desirable in the future, and how to position in order to capitalize on unexpected opportunities. However, the most indicative information comes from strong submarket analysis and knowing what to do or how to apply the information in a productive manner.

The reason metro market reports are not a good source of submarket data is due to how the surveys are produced and conducted. For the most part, only a handful of properties are directly contacted by the researchers. The amount of time, money, and effort it would take for researchers to contact every property in a certain state would be immense and overwhelming. So the picture of a market’s performance has to be painted with a broader brush. Consequently, the submarket data suffers and the information can become misleading.

So, if metro reports are only good for a more general snapshot of a market’s performance, how does one understand performance on a submarket level? In the end, market surveys are the most effective way of gaining specific information about a submarket and how a manager’s property compares.

However, market surveys come with their own hurdles while gathering pertinent information. Onsite employees are often already stretched too thin to obtain accurate information or they are not always trained in knowing what to look or ask for. Other property managers can refuse to provide metrics on their community’s performance or might even give false information.

One way to combat uncooperative operators is simply building a relationship on a personal level. Property managers in the same submarket working together can result in a better product for all through healthy competition, so sometimes a rising tide raises all ships.

Another effective method is using a secret shopper. Sending someone to shop apartments at a competing complex who knows what questions to ask and what information to look for can provide invaluable data that can be difficult to accurately obtain using other methods. While an operator might resist providing occupancy numbers or upcoming amenities to a competing manager, they could be much more likely to divulge that information to a prospective tenant.


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Emerging Opportunities During COVID-19

As the COVID-19 pandemic continues longer than any of us may have predicted, the real estate landscape continues to shift. Some housing trends increase in prominence and some come to a grinding halt, all while new, emerging opportunities for growth present themselves. One door opens as others close, so to speak.  For example, the millennial-led migration from cities to suburbs has only gained momentum. Conversely, multifamily developers and managers have shifted strategies to attract new residents by promoting health and wellness movements rather than property amenities.

“Times of great change always present significant opportunities,” said Urban Land Institute (ULI) Global CEO W. Ed Walter during the recent ULI virtual fall conference. “In the near term, our suburbs will benefit from new growth spurred by shifting demographics and changes to living and working patterns resulting from the COVID-19 crisis.”

Earlier this month ULI published its Emerging Trends in Real Estate 2021 report, referencing insight from over 1,500 leaders in the real estate industry. Some of the following trends are on the rise during the COVID-19 pandemic:

  1. Smaller office footprints
    • Online meeting services such as Zoom and GoToMeeting have made working from home (WFH) easier and more efficient than ever. Businesses are realizing they can cut costs by reducing their office footprint with employees working remotely. According to the report, over 90 percent of real estate professionals expect companies to adopt at least a part-time WFH policy.
  2. Suburban migration
    • As previously mentioned, suburban migration, especially among Millennials, was a popular trend before the pandemic. Now, the desire for low-density living is higher than ever. As a result, the south has seen a large influx of growth from movers longing for the greater housing affordability the region has to offer.
  3. Retail vacancy
    • Over 80 percent of ULI survey respondents believe the pandemic has only accelerated a shift in the retail sector that was already emerging due to online competition. For example, large department stores like Macy’s experienced disastrous sales in March after closing stores for almost two weeks and reportedly losing the “majority” of its sales.
  4. State/local fiscal issues
    • The loss of revenue across the board is expected to cause a wake of fiscal challenges for state and local communities over the next few years. Real taxes, the main source of revenue for local governments, will likely fall due to a drop as hotels and retail centers lose value. Furthermore, pandemic concerns create a snowball effect by encouraging consumers to shop online even more while actively avoiding spending money in-person at retail stores, restaurants, or other local businesses.
  5. Safety and sanitation concerns
    • If anything positive has resulted from COVID-19 it is health, safety, and sanitation practices. Businesses around the world are (re)enforcing sanitation practices by requiring customers to wear facemasks, providing free hand sanitizer at common contact locations in-store, limiting maximum occupancy, and implementing social distancing efforts where a line or queue may form.

Click here for the ULI Emerging Trends in Real Estate 2021 report

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Uncertain Trends During COVID-19

As the COVID-19 pandemic maintains momentum, the real estate landscape continues to shift. Some housing trends accelerate and some become a thing of the past, all while new opportunities for growth present themselves. For example, the millennial-led migration from cities to suburbs has only accelerated. Conversely, multifamily developers and managers have shifted strategies to attract new residents by promoting health and wellness movements rather than property amenities.

“Times of great change always present significant opportunities,” said Urban Land Institute (ULI) Global CEO W. Ed Walter during the recent ULI virtual fall conference. “In the near term, our suburbs will benefit from new growth spurred by shifting demographics and changes to living and working patterns resulting from the COVID-19 crisis.”

Earlier this month ULI published its Emerging Trends in Real Estate 2021 report, referencing insight from over 1,500 leaders in the real estate industry. Some of the following trends are decelerating during the COVID-19 pandemic:

  1. Working in-office
    • As COVID-19 regulations forced many businesses to implement work from home (WFH) policies, managers and employees are started to realize the benefits of working remotely. Thanks to technological progress in teleconference tools and advanced information technology systems, effective communication and collaboration is easier than ever from remote locations. Programs like Zoom, GoToMeeting, and other online meeting services have seen a massive spike in users as businesses realize they can productively communicate in an online medium.
  2. Leisure travel/tourism
    • Coronavirus rates are all over the map both literally and figuratively, so travel restrictions widely vary on a case-by-case basis. Some countries have minimal restrictions like simply requiring a mask to board a plane. Other countries are more restrictive by only allowing travel to and from specific locations. As a result, many travelers have elected to stay put until the uncertainty surrounding tourism clears.
  3. student housing
    • Similar to the travel and tourism industries, student housing and university pandemic safety measures vary from school to school. Many schools and universities have shifted to online classes by utilizing online meeting services resulting in a downward trend for economic activity and housing occupancy in university towns/cities.
  4. live entertainment
    • Only a few countries have been successful in fighting COVID-19 enough to safely resume usual live entertainment practices such as concerts, sporting events, and festivals. We’ve seen a slow climb in fan attendance at sporting events around the world as restrictions lighten, but still only a small percentage of the full capacities.
  5. mass transit use
    • As safety and wellness becomes the main focus of the masses, many have aired on the side of caution by avoiding public transit. Cities have implemented extensive sanitization measures to prevent possible contamination and ensure confidence in the cleanliness of public transit.

Click here for the ULI Emerging Trends in Real Estate 2021 report

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Major Takeaways: Yardi Multifamily Report – October 2019

The extended period of good performance has produced one bad side effect: legislation enacted in three states to limit rent growth and pressure to act in more states. After a period of below-par growth in housing stock, the U.S. needs more units built, but rent control moves the needle in the opposite direction.

Earlier this week, Yardi Matrix issued its National Multifamily Report for October that highlighted supply and demand, rent growth trends, and political activity as we approached the end of Q4.

Yardi

 

According to the report, multifamily rent growth inched upward in October, as the average U.S. multifamily rent increased by $1 to $1,476. Year-over-year rent growth remained at 3.2%. Despite the expected slower month during the fourth quarter, Yardi expects continuous demand a slowly growing economy to keep rent growth above its long-term average.

The multifamily sector’s continuous strength over multiple years has resulted in an elevated number of rent-burdened households. In consequence, an increase in political pressure has yielded new rent control laws in three states: New York, California, and Oregon.

According to the Joint Center of Housing Studies at Harvard University, “More than 20 million renter households spend over 30% of income on housing, and 80% of renters and 63% of owners making less than $30,000 are cost-burdened.”

Yardi dubs rent control as counterproductive as it reduces investment, limits new development which perpetuates unaffordability, increases the cost burden on those who move or enter a new market, and reduces the incentive to make capital improvements which leads to degradation of already existing stock. Outlined affordability solutions include reducing exclusionary zoning, allowing more density, and more subsidized new developments.

Click here to view Yardi Matrix’s October Multifamily National Report in its entirety

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Statewide Rent Control in California

The California legislature recently passed a bill called Assembly Bill 1842 designed to enact rent control and protect tenants. Despite its intended purpose, many believe the new law will be detrimental to tenants, owners, developers, and the national apartment industry.

California Statewide Rent Control

The new law, Tenant Protection Act of 2019, outlines a cap on annual rent increases at 5 percent plus inflation for any and all buildings 15 years or older, determined by the property’s initial certificate of occupancy. An estimated two million additional apartments are expected to be impacted by rent control as a result of Assembly Bill 1842 passing.

Other key provisions include:

  • Does not contain vacancy decontrol provisions, so units can return to market rent prices when vacated
  • Beginning January 1, 2020, requires landlords to have just cause in order to evict tenants
    for tenants who have occupied a unit for at least 12 months, or up to 24 months when an
    adult tenant adds onto a lease (change in roommates)
  • Requires landlords to provide relocation assistance via one month’s rent or rent waiver for no-fault evictions within 15 calendar days of serving notice, and to notify tenants of the relocation assistance.
  • Contains a 10-year sunset, so the requirements in the bill will expire in 2030.

See this California Rental Housing Association Rent Control Fact Sheet for more information on Assembly Bill 1482.


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Rates Climbing

Multifamily Reaches Highest Occupancy Rates in Recent Years

In a recent article for National Real Estate Investor, author Bendix Anderson spoke with some industry experts to learn more about climbing occupancy rates and what they mean to the economy.

Multifamily occupancy rates have seen strong growth for over 10 years now, but the market continues to reach new levels. “Terrific absorption has pushed occupancy upward to highs for this economic cycle,” claims Greg Willett, Chief economist for RealPage, Inc.

The continued growth may seem strange to some as vacancy rates have been expected to increase with so many new builds coming to the market for years now, but rental demand has remained strong despite concerns of an economic downturn.

“You would think that the market would be mature… We’ve had 10 years now of really strong multifamily demand,” says Jeanette Rice, America’s head of multifamily research with real estate services firm CBRE. “It’s still positive as it has been for many years; in some ways, it is more positive.”

The average apartment occupancy rate in the U.S. rose to 96.2 percent in July, up 40 basis points from the year before, according to RealPage. That’s the highest the occupancy rate has been since 2000. So if occupancy rates are so high, why the tremors of concern?

In addition to approaching the end of the economic cycle, threats of escalating trade disputes with China and some volatility in the bonds market stand as threats to the economy’s wellbeing. Although, the multifamily market continues to see high demand thanks to larger demographic forces and low unemployment.

“There are more older renters than ever,” says Andrew Rybczynski, senior consultant with research firm CoStar Portfolio Strategy. “Younger cohorts, on the other hand, are renting at considerably higher rates than historical precedents… Millennials have delayed marriage and children.”

That said, Rybczynski also noted the high number of new builds are starting to slow which will result in a falloff in the market in the next two to three years.

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Click here to read the National Real Estate Investor’s article in its entirety

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Why Upcoming Fed Policy Changes Reinforce Positive CRE Outlook

Earlier this week, CNBC interviewed Marcus & Millichap’s President and CEO Hessam Nadji to discuss why upcoming Fed Policy changes and strong fundamentals reinforce a positive commercial real estate (CRE) outlook. Some major takeaways from the interview include:

  • Lower rates energize the market, Fed rates shifted from a headwind to tailwind.
    • Nadji explains how a Fed reversal turned what was considered a negative policy change at the end of last year into a positive one this year by stating, “The fed is now so accommodative in messaging that they’re going to be facilitating the life of this expansion, and not becoming a headwind to it. And of course, lower rates lubricate the market. “
  • Lack of overbuilding has resulted in a longer positive outlook for CRE.
    • Nadji attributes a lack of overbuilding in commercial real estate to the boom of E-commerce.

“Office space, for example, has been adding about 1/3 to 1/2 of new product compared to the prior peak of the cycle. Look at retail space in reaction to whats happened to E-commerce. The volume of any kind of retail being built is less than a 1/3 of what it was year-over-year prior to the last recession. That lack of overbuilding plus an economy that’s adding over 2 million jobs a year consistently in a low-interest-rate environment all spells a pretty good outlook for CRE.”

  • Tech expansion boosts demand for industrial real estates like warehouses, distribution centers, or storage facilities. E-commerce has been tough on traditional retail.
    • Tech-oriented metros experiencing increased rental demand for new hires.

Click here to watch the full four-minute CNBC interview with Marcus & Millichap’s President and CEO Hessam Nadji

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