While the pandemic hit some metros harder than others, and ongoing unemployment challenges, especially those in the service and hospitality industries, are having different impacts across apart- ment classes, Pinnacle hasn’t experienced significant issues with rent payments, according to Graf. “If people aren’t able to pay and they’re COVID impacted, we’ve been working with them,” Graf says. Los Angeles-based TruAmerica Multifamily generally owns


Class B workforce housing in first-ring suburbs in high-growth metros around the country. Noah E. Hochman, Co-Chief Investment Officer and Head of Capital Markets for the firm, says that it col- lected around 97% of its billable rent earlier in the pandemic. During the past couple of months, it has dropped a couple of basis points. Still, he says there has been rent growth in some Class B low-rise apartment communities.


However, there is a divergence depending on the state. In red states, with more liberal reopening policies, TruAmerica sees better collections and even some rent growth. In blue states, it’s a differ- ent story.


“In markets like Seattle and Portland, because of the regulatory risks that exist with some of the extensions of eviction moratoriums or the inability to raise rents on renewals, we see more deterioration of the fundamentals,” Hochman says.


Schwartz doesn’t expect a massive improvement in rents in the


year ahead. “I think 2021 will look a lot like 2020 on fundamentals,” Schwartz says. “We don’t expect material improvement until vac- cines are in place. Maybe toward the third or fourth quarters, we will see a more normalized economy and more demand, particularly in these urban markets.”


INVESTMENT OPPORTUNITIES AHEAD


Despite questions about apartment fundamentals in 2021, many apartment investors are active and confident in the long-term. “I think most investors see the COVID disruption as temporary,”


Hochman says. “Most people believe there will be a vaccine, and we’ll get back to normal at some point, whether it’s six months or 12 months from now. The bottom line in multifamily is, COVID or not, the fundamentals won’t change. There has been a housing shortage and we have an affordability issue. That doesn’t go away because of COVID.” TruAmerica has backed up that confidence by continuing to be an active buyer during the pandemic and is on target to reach its investment goals for the year, with the majority of the purchases made since the pandemic began. When COVID hit, transactions ground to a halt and prices fell 5% to 10%. After the capital markets stabilized, cap rates returned to pre-COVID levels, according to Hochman. “We started seeing over the summer that the capital markets calmed down, and Freddie Mac and Fannie Mae, in particular, really stepped up to provide the liquidity in the market,” Hochman says. “With interest rates at historic lows, people were able to borrow in the 2% range.”


Interest rates should remain low in 2021, encouraging investors


to make deals, even if NOI is sluggish. “Pricing in the market for acquisitions currently seems to be quite strong,” Ansel says. “We have several communities in the market for potential disposition and so far are seeing pre-COVID pricing in spite of declines in NOIs. The impact of the low cost of debt seems to be creating an aggres- sive buyer pool.”


Waterton expects to be an active buyer if the pricing is right. “This is a downturn, and usually, downturns result in a good vintage


34 FEBRUARY 2021 8


of investments,” Schwartz says. “So we expect to make acquisitions as we continue through the downturn.”


These investment opportunities often arrive in the form of distressed investments. The jury is still out on how much distress the apartment industry will experience during the COVID crisis. Pinnacle is taking over some projects that have moved into special


servicing. Graf sees specific properties running into issues. “We’ve taken on a couple of receiverships in the last month or two,” Graf says. “Most of those have been connected with a mixed-use situa- tion where the commercial piece of it is struggling,” Graf says. “The multifamily piece is not struggling as much, but they’re connected.” While Hochman says prices have settled in suburban markets, it’s a different story in the city. Buyers and sellers have differing ideas of what an apartment community is worth. “In some of these urban gateway markets, there have been very


few post-COVID transactions,” Schwartz says. “I would suspect it’s due to a large bid-ask spread. So I think we’ll see more of that price discovery next year, which will help the investment environment for groups like ourselves.”


Schwartz thinks Sun Belt suburban markets like Charlotte, Raleigh and Atlanta offer opportunity. “I think those could be rea- sonably performing markets where there’s not the distress, but it’s a good investment,” he says. As Gables puts some assets on the market, it is finding oppor-


tunities to refill its development pipeline, which could mean more construction in 2021. Ansel expects that when these projects deliver the “markets should be in a period of strong recovery.” “While debt is at historically low rates, construction financing has


become more difficult to place,” Ansel says. “And while equity is still available, pricing and terms have increased in reaction to perceived increased risks. These uncertainties have created opportunities for some development projects to come back to market.”


ONSITE UPGRADES


COVID hasn’t just accelerated the trend of people moving out of cities. It has also hastened the adoption of technology. “Our [owners] have been more than willing to invest in new technologies or accelerate that, whereas before they might’ve been a little slower to do that in the past,” Graf says. “I think COVID has moved the technology curve ahead in our business by at least five to maybe seven years.” Graf was experimenting in New York City and some other major metros before COVID. “Instantly, we went full tilt boogie on virtual tours,” he said.


Schwartz saw the same momentum. “The trend of virtual leasing


is something that started pre-COVID,” Schwartz says. “COVID ac- celerated it, and a lot of companies, like ourselves, made significant investments and will continue to make that a better, more streamlined process and beneficial to our customers.”


Waterton also looked at other technologies before the pandemic hit, like destination-based elevators that don’t require touch. These could grow more popular in the future.


As residents have worked from home during the pandemic, they’ve used more bandwidth and put more stress on maintenance. Expect that to continue in the year ahead. Still, there are limits to technology. While 2020 has shown that


virtual leasing and apps have a place, a property cannot run without people. “I still am a strong believer that you cannot replace human touchpoints,” Batayeh says.


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