Multifamily firms find new US stimulus too little, but not too late

A $25bn fund in the latest relief package will bring needed aid to apartment owners and renters, but pandemic losses continue to mount.

The latest round of federal pandemic relief includes several provisions that could provide a needed boost to multifamily owners and renters, but it remains to be seen if the array of tools will be enough to offset losses or reverse the creeping trends of rising vacancies and falling rents.

This week, Congress passed a $900 billion stimulus bill that will include a $25 billion Emergency Rental Assistance fund, 90 percent of which will be used to settle rental and utility arrears. The package also includes $300 per week in enhanced unemployment benefits; one-time checks for $600 to individuals making less than $75,000 and couples making less than $150,000; $285 billion in forgivable small business loans, and an extension for using unspent money from the $150 billion Coronavirus Relief Fund established earlier this year – some of which is already going toward rental assistance.

Still, an October estimate by Moody’s Analytics projects unpaid rents nationwide will swell to $70 billion by year-end, meaning the efforts are likely to fall short of making the industry whole. “Every little bit helps, so I’m grateful that they’ve done what they’ve done, but it’s still not a lot,” Daryl Carter, chief executive of California-based multifamily specialist Avanath Capital Management, told PERE.

In a joint statement issued Tuesday, Doug Bibby and Bob Pinnegar, the respective heads of the National Multifamily Housing Council and National Apartment Association, the sector’s two biggest trade organizations, called the package a “step in the right direction” but said more efforts will be necessary next year to keep the sector in good health.

Multifamily has held up better than retail and hospitality throughout the pandemic. The delinquency rate on apartments backed by securitized debt peaked at 3.33 percent in July, up from its pre-covid rate of 1.63 percent but remained safely below retail and lodging, which were still at 14 percent and 19 percent, respectively, last month, according to research firm Trepp. Housing investments have also faced less uncertainty than the office sector, which has been upended by widespread remote working.

However, there are signs that the multifamily sector is under pressure. National asking and effective rents were down 1.8 and 1.9 percent, respectively, in the third quarter, according to Moody’s Analytics, the worst quarterly declines since at least 1999 for the industry. The ratings agency expects year-end declines of 2.6 and 2.8 percent for asking and effective rents. Apartment returns tracked by the National Council of Real Estate Investment Fiduciaries speak to this trend, with the property type delivering a 0.92 percent return on income in the third quarter, down from 1.01 percent the previous quarter and 1.05 during the third quarter of 2019.

Jonathan Slager, chief executive and chief investment officer of Salt Lake City-based Bridge Investment Group’s multifamily platform, attributes the falling national average to steep discounts being offered in high-priced markets badly affected by the pandemic, such as New York and San Francisco. In effort to retain tenants, Bridge has largely kept rents flat for renewing tenants but has achieved some rental growth with new renters.

Like other institutional landlords, Bridge has seen collection rates in the mid-90 percent range throughout the pandemic. But Slager said the firm has not been immune to the effects of the pandemic.

“Virtually every landlord has had an operational impact resulting from the pandemic, between higher collection losses, units that are basically offline because of eviction moratoria and a modest increase in operating costs related to the pandemic with extra cleaning processes and other things,” he said. “Overall, it’s really too early to tell how quickly we’ll be able to revert to the mean in terms of rent growth expectations.”

Funds from the Emergency Rental Assistance program will be distributed proportionate to population size, with each state getting at least $200 million. Prior to this round of stimulus, some state and local housing authorities had already tapped into the CRF to begin making payments directly to landlords. The new initiative will be administered in the same way, only with uniform requirements for eligibility.

Matt Ferrari, co-chief investment officer at Los Angeles-based TruAmerica Multifamily, is hopeful for a smooth distribution process for this latest round of federal assistance. “The states have fixed their unemployment systems to make sure the enhanced benefits get to people quicker, but in some places, it was taking months and months to get people approved,” he said. “Having to wait up to three months for residents to receive assistance makes it difficult, but we have been able to manage. The more quickly and efficiently it gets into people’s hands, the better.”