Federal Government Action, Strong Pre-Coronavirus Fundamentals Assist Multifamily

Marcus & Millichap, Calabasas, Calif., said the federal government’s quick response to COVID-19-caused market volatility should relieve some stress that hangs over multifamily owners and tenants.

“The federal government has been fast-acting in its response, exhausting numerous fiscal and monetary measures to keep the economy afloat and provide income to those who suddenly face hardships,” Marcus & Millichap said in its Global Health Crisis – Multifamily report. It noted unemployment benefits were increased and expanded to support laid-off workers’ ability to pay rent. Unemployment benefits were expanded to include freelance workers, the self-employed, contractors and part-time personnel.

The federal benefit period lasts until July 31, and state benefits will extend an additional 13 weeks beyond the regular benefit period, Marcus & Millichap said.

Challenges from the virus differ by market. “Some markets and niches are better prepared to weather the storm,” the report said. “The risk level that the apartment industry will face differs throughout the country, as some markets and population segments will have to combat more pronounced headwinds. Lower-tier space may be burdened by the fact that their tenant base is more likely to be affected by job losses and financial hardship, whereas mid-tier space might be better suited to maintain cash flow. Additionally, upper-tier space has a stronger ability to avoid losses from missed rental payments as more tenants are able to work from home and have savings built up; however, newly built luxury apartments will find it difficult to build a tenant roster over the short term.”

At the moment, apartment leasing traffic is “not as horrendous as you may think” given the health and economic circumstances, said Jay Parsons, Deputy Chief Economist with RealPage, Richardson, Texas. “[But] make no mistake: Leasing traffic numbers are not good. They are bad,” he said, noting guest card counts at leasing offices plunged 27.5 percent year-over year and new lease signings plummeted 40 percent.

“But as bad as the numbers are, they aren’t as horrific as you might expect given quarantines, social distancing and mass job losses tied to the COVID-19 epidemic,” Parsons said. “Yes, leasing traffic has plummeted. But we’re comparing them to second quarter 2019, one of the highest-demand periods of the high-demand era of the past decade. I wouldn’t have been shocked if the latest traffic and leasing volume numbers registered two or three times worse than they did.”

Jay Parsons Marcus & Millichap Multifamily RealPage