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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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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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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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Top Markets for Occupancy Growth Through April – Yardi Matrix

Earlier this week, Multi-Housing News posted an article highlighting takeaways from a recent Yardi Matrix report pertaining to occupancy growth through the first quarter of 2019. According to the numbers, the nation’s average occupancy rate decreased by 20 points year-over-year through April to 95 percent.

Despite the step back on a national level, the five markets highlighted by Multi-Housing News are defying the odds and have emerged as frontrunners for occupancy growth through April 2019.

The occupancy growth in these markets can be accredited to beneficial market characteristics such as strong demographic trends, favorable business climates, modest development in surrounding areas, and steady employment gains.

Click here for the full Multi-Housing News article and additional Yardi Metrix statistics regarding the highlighted markets and occupancy growth.

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Marcus & Millichap/NREI Investor Sentiment Survey

Earlier this week, Marcus & Millichap and National Real Estate Investor (NREI) distributed the results of their second-half Investor Sentiment Survey.

Researchers collected data by emailing invitations to participate in this online survey to public and private investors and developers of commercial real estate. Recipients of the survey included Marcus & Millichap clients as well as subscribers of NREI selected from commercial real estate investor, pension fund, and developer business subscribers who provided their email addresses.

The survey was conducted in the third quarter of 2018, with 543 completed surveys received. Survey respondents represent a broad cross-section of industry respondents that include private investors, developers, advisors, lenders, and REITs among others.

The largest percentage of respondents are private investors at 45%. Respondents are invested in a variety of property types with a majority of 66% invested in apartments.

Tax Reform and How it Has Affected Investor Sentiment

After the Tax Cuts & Jobs Act was approved, investor confidence was high and trending upward, but the most recent survey shows that same confidence level has regressed to 150 – the same level as the second half Investor Sentiment Survey of 2017. See Figure 1 for a visual representation.

Despite the lowered confidence level, many survey participants maintain positive views of tax reform. According to the collected data, 57% of respondents think the economy will grow faster as a result of the new taxes compared to the 68% who held the same view in the first half survey. Furthermore, one-third of respondents expect growth to remain the same and 10% expect slower growth in the future.

The 60% of respondents who said they consider tax reform to be favorable for commercial real estate also reflects a drop compared to the 71% who held the same view at the beginning of the year. See Figure 2 for a visual representation.

John Chang, senior vice president of research services at Marcus & Millichap, expressed uncertainty regarding the effects of tax reform by stating, “Investors are still getting their arms around the new tax law, so it’s still a little too early to anticipate a lot of change resulting from tax reform.”

That said, over 50% of survey respondents do expect tax changes to increase the flow of investment capital and 46% think the new tax laws will raise property values.

Interest Rates

Continually increasing interest rates have become one of the biggest concerns for investors. Approximately 65% of respondents note rising interest rates as their primary concern followed by unforeseen shocks to the economy at 48%. Both political uncertainty and rising operating expenses round out the top investing concerns for respondents at 44%. See Figure 4 for a visual representation.

“The Fed has implied that it will likely raise rates again in December, although whether or not they follow through with that remains to be seen,” says David Shillington, president of Marcus & Millichap Capital Corp. He also noted that there could be some risk to the economy if short-term rates were to rise above the long-term rates, which is often interpreted as a sign of an upcoming recession.

Apartment Outlook

Investors maintain a bullish outlook on apartment performance, but the desire to increase holdings has consistently declined over the past few years. 50% of apartment owners think it is better to hold, while the other half is torn between buying and selling. Although, buying confidence has decreased since hitting a peak in 2010 when over 70% of respondents were eagerly targeting multifamily properties.

The apartment sector has performed well for a number of years now, but investors are becoming concerned about the volume of construction coming into the market. On average, developers are delivering roughly 270,000 new units per year for the past five years.

However, thanks to the robust economy, absorption of new units has been keeping pace with construction. John S. Sebree, first vice president, national director of the National Multi Housing Group at Marcus & Millichap, credits the health absorption rate to significant household formation. In addition, Sebree noted that housing demand is expected to outpace completions on a national level.

The majority of survey respondents have a favorable outlook on apartment performance. Similar to past surveys, 62% of survey responders expect the general value of apartment properties to increase. The average expected value increase is 3.5%, down from the predicted 5% in the first half survey, but still, a very healthy level compared to other property types.

Investor Strategy

Despite indications of caution, survey responders are maintaining their optimism for the economy and real estate performance. 79% of respondents believe strong job growth will continue through 2018 and into 2019.

Most respondents agree real estate continues to offer more favorable returns than other investment classes and that it is better to invest in real estate rather than the stock market. Investors are also well-resources with 56% of respondents claiming they have an abundance of capital to invest.

Overall, investors are becoming more selective at this point of the economic cycle, but remain active and confident in the market.

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*All statistics, figures, and quotes accredited to Marcus & Millichap/NREI Second Half 2018 Commercial Real Estate Investor Outlook

Click here to view the Investor Sentiment Survey Report in its entirety

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Rent Control Battle in California and Beyond

“Certainly there is a housing shortage, so we need to be building housing, but what we are also seeking to address is the crisis of displacement…We’re seeing vulnerable communities — people of color, elderly folks, people with disabilities, single parents, low-income people and the middle class — being pushed out of California and becoming homeless.”

One of the hottest items on California’s November voting ballot is a rent control initiative called Proposition 10. The proposal intends to repeal a 23-year-old state law that tightly limits all forms of rent control within California. The desire for rent control in California has coincided with the rising cost of living throughout the state.

According to The Sacramento Bee, the nonpartisan Legislative Analyst’s Office (LAO) reports “Soaring housing costs have led to a net loss of 1 million citizens who have fled California from 2007 to 2016…and homelessness is higher here than any other place in the nation.”

Despite the widespread support from community groups like the AIDS Healthcare Foundation, California Teachers Association, California Nurses Association, and many others, the latest poll by the Public Policy Institute of California reports,

“A whopping 60 percent of likely voters say they will vote against Proposition 10, a measure on the Nov. 6 statewide ballot that would repeal the state Costa-Hawkins Rental Housing Act, which strictly limits rent control in cities across California. Repeal would restore broad authority to cities to enact any rent control law they choose.”

According to the LAO’s analysis of Proposition 10, the proposed repeals could result in more harm than good. LAO analysts warned of declined new rental construction, removal of units from the market, and the value of housing possibly dropping. Any of these factors would directly affect local government property tax revenue, which equates to ~$60 billion every year.  Furthermore, enacting new rent control laws would require millions of dollars per year to enforce, and result in a decline in income tax revenue, especially from the newly-affected property owners and investors.

It is important to consider how these restrictive laws and proposals affect citizens, property owners and investors, and a state’s overall economy. And while Proposition 10 is exclusive to California, and rent control laws vary from state to state, the negatives effects outlined in the LAO analysis showcases how impactful the ongoing battle of rent control is from a real estate professional, owner, or investor standpoint.

Click here to learn more about Proposition 10 and rent control.

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