Longer-Term Challenges to Multifamily Risk Outlook Emerge

The multifamily sector made it through the first half of the year with less turmoil as some anticipated. But the pandemic could create longer-term challenges for the sector, said Phoenix American, San Rafael, Calif.

“In the early weeks of the pandemic, multifamily fund managers faced the same challenges as the rest of the real estate industry: distributing their workforce to work remotely, responding to the new health safety requirements of tenants and employees and reassuring investors,” Phoenix American said in its Multifamily & COVID-19 Federal Support, Rental Payments and Risk Outlook. “In recent months, operational procedures have settled down and government policy has supported rental payments. As the general shape and size of the pandemic crisis has started to come into view, managers are looking at the risks ahead, the opportunities that have emerged and the overall prospects of the multifamily sector through the COVID-19 era and beyond.”

The report noted apartment sector was still holding up well into May with 92 percent of tenants making their April rent payments and supplemental unemployment benefits promising to help renters with payments through the summer. “But multifamily’s historical correlation to jobs clouded the outlook for owners given the uncertain trajectory of the pandemic and the economy,” the report said.

The multifamily sector gets support from the federal government through the government-sponsored enterprises, Fannie Mae and Freddie Mac. Multifamily property values had climbed to record highs coming as 2020 began and equity capital had been abundant through the current economic cycle. But today apartment owners are dealing with operational issues such as rent collection and maintaining occupancy rates in an economic downturn.

As an advisor to alternative investment real estate funds, Phoenix American said real estate fund sponsors must be able to respond operationally to pandemic-related changes in strategy with flexible back-office solutions including new approaches to fundraising, cash flow and deal acquisition.

“The economic disruption brought on by the pandemic forced some real changes in the way real estate funds operate,” said Phoenix American Senior Vice President of Operations Andrew Constantin.