A YEAR OF UNCERTAINTY AHEAD By Les Shaver
Everyone knew that the apartment industry’s 10-year run of
growth would end. What no one could have predicted was that a global pandemic would thwart the unprecedented streak of rent growth. As COVID’s lockdowns closed retailers, restaurants, movie theaters, airlines, bars and many other businesses across the country, the layoffs, pay cuts and furloughs piled up. Owners and operators helped to bridge the gap through payment plans, waiving of fees and other creative strategies while government assistance in the form of The Coronavirus Aid, Relief, and Economic Security (CARES) Act offered Americans a desperately needed income supplement to pay for rent and other essential items. But those funds didn’t last forever.
For the most part, the apartment industry has held up. But there were some signs that segments of the market began to struggle as the year came to a
close.Moody’s Analytics REIS says national asking and effective rents had fallen by 1.8% and 1.9%, respectively, in the third quarter. That is the largest quarterly decline since 1999 when the company began publishing quarterly data.
As apartment executives turn the page from a dreadful 2020, they are hopeful that 2021 will be better, even if the U.S. is mired in a recession. “Apartment renting tends to be stronger in downturns,” says Diane Batayeh, CEO of Southfield, Mich.-based Village Green. It’s hard to know precisely how occupancies will shake out
in 2021. But, for those apartment firms that aren’t facing financial stress, 2021 could be a year of opportunity. They might be able to find more acquisitions and development opportunities than they’ve had in previous years. As the pandemic has driven the adoption of onsite technological upgrades, many executives expect to continue looking for ways to make their communities more efficient.
WEAKENING FUNDAMENTALS
Early on, 2020 looked like another in a string of healthy years for the apartment sector.
“Coming into the start of 2020 and through the first quarter, it
looked to be a strong year of growth across the portfolio,” says Sue Ansel, President and CEO of Atlanta-based Gables Residential. But the COVID stay-at-home orders hit during peak leasing season, traditionally when the industry has the greatest pricing power. “As a result of this and the various regulations put in place to address the pandemic, there was a strong downward impact on leasing and sales activities,” Ansel says.
After problems in the spring, Ansel says the Gables portfolio hit
normal seasonal levels of activities and is approximately 95% to 96% leased, and 94% occupied, similar to 2019’s numbers. But because of the pandemic’s early impact on sales, net operating incomes (NOI) will be well less than anticipated for the year.
“There is likely more pricing power in suburban submarkets than urban submarkets in general, but like all things, it is market- specific,” Ansel says. In his portfolio, David Schwartz, Chairman and CEO at Chicago- based Waterton, says that vacancies have moved up a bit and rent growth is “elusive.” “It’s a typical recessionary environment with soft demand,” says Schwartz. “But this recession is very market dependent. Some of these Sun Belt suburban markets are perform- ing quite well. In the urban gateway markets, rents are going down with higher vacancy levels and lots of concessions. Collections and delinquencies are also more exacerbated.”
Pinnacle’s collections have been off slightly during the pandemic, but there haven’t been dramatic problems, according to Rick Graf, President of Dallas-based Pinnacle and 2021 National Apartment Association (NAA) Chairman of the Board. Its occupancies have held steady. “I think the impact has not been as significant [as people expected],
but the unknown is: What are the long-term implications?” Graf says. “I get a daily report of delinquency on every property. Every month seems to be the same or a little better than the month before.”
Regional Multifamily Finance Forum The Panelists
Griffin Cotter, Senior Director of Production and Sales Freddie Mac Focus on agency loan products including conventional, small balance, senior and student housing
Ann Atkinson, Senior Director of Multifamily Customer and Partner Management Fannie Mae Focus on agency loan products including conventional, small balance, senior and student housing
Donald Dibble, Vice President of Mortgage Loans & Investments Protective Life Focus on life company loan products including conventional, participating and construction
Zachary Fischer, Executive Director of Securitized Products Morgan Stanley Focus on CMBS loan products
Sara Behrman, Executive Vice President Bellwether Enterprise Real Estate Capital Focus on all loan products in the permanent market
Register online at
www.gcnkaa.org Sponsored by
Free for GCNKAA Members
Friday, March 5, 2021 8:00 am to 10:00 am Zoom Room
A Guide To Today’s Lending Environment and Outlook For The Future Moderated by Dave Lockard of CBRE
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