Rent Collection Plates Maintain Weight, Developers Hesitate to Rejoice

In the continuation of my LinkedIn article series, interviewing commercial real estate stakeholders to discuss trends, nuances and interpreting data, I delved into the performance of the multifamily sector. More content can be found at mariahbrownproductions.com.

Rent Collection Plates Maintain Weight, Developers Hesitate to Rejoice

Revenue from rent collections over the past several months has held up as the predicted decline in rent payments at the start of coronavirus, also known as COVID-19, has not materialized. And while this could serve as cause for multifamily developers to exhale, they're looking out for headwinds if lawmakers do not extend government aid.

According to the National Multifamily Housing Council’s rent payment tracker - surveying 11.4 million professionally managed apartment units nationally - 92.2 percent of apartment households paid rent as of June 20. This number remains unchanged from those who paid rent through June 20, 2019 and compares to 90.8 percent that had paid rent by May 20, 2020.

Multifamily stakeholders were bracing for revenues to cumulatively decline in the second and third quarters of the year, landing between 13 percent and 19 percent in a worst-case scenario. Due to April rent maintaining some strength, the cumulative revenue decline initially predicted was adjusted to 7 percent to 12 percent, according to a BTIG report.

Because of unemployment benefits, stimulus funds, and apartment community owners and operators assisting residents impacted by COVID-19 and the resulting financial hardships, “most renters were once again able to meet their obligations,” said Doug Bibby, NMHC President. “It will be vitally important that lawmakers continue to support the nation’s renters and forestall even greater economic harm.”

The BTIG rent-collection data tracked revenue generated from April rents, and for that month rent collections dropped 1.4 percent to 4.6 percent. However, property managers expect to collect a portion of the difference.

Riaz Capital, a developer and operator of workforce housing in Oakland, California, amid decentralization of its operations with its staffers working from home, deployed its break-even analysis to navigate rental-income uncertainty. Riaz aims to collect 65 percent of each dollar of rent collected on every apartment building to ensure total operation costs and total revenue at least remain even.

"Step one of the analysis was to identify what share of rent on every given building do I need to collect to break-even," said Riaz Taplin, founder and CEO of Riaz Capital. "And then how far above break-even on every given dollar am I."

Riaz's break-even analysis is to ensure the buildings under its ownership, those under construction, the operating company, and holding company of its assets do not bleed into each other in the event the effects of COVID-19 impact one part of the business over another.

The break-even analysis tracks net absorption, whether occupancy is going up or down, and what share of tenants are making rent payments. "Most times in this business, we're focused on making money, but in this environment, we're focused on not losing money,” Taplin said.

Although revenue from rent collections is not as grim as predicted, multifamily stakeholders expect non-payments to occur in the fourth quarter of this year and through 2021, according to the BTIG report.

In the meantime, landlords and multifamily developers are preparing for their worst-case scenario, cutting all non-essential spending and identifying other aspects of the business to lower overhead costs.