Wake Surfing To Multifamily Success With David Davidenko
Ronny Philip dropped out of college at 21 to pursue a career in real estate. By the age of 25, he along with his partners have purchased over $40 million in real estate. Ronny has massive goals for himself and is looking to grow his assets under management to $1 billion+ by his mid-thirties.
As we are going into a 3rd month of the global pandemic we wanted to offer some statistics and thoughts on what has been happening in the world of multifamily. Below are a few of our observations concerning the performance of multifamily as an asset class during COVID-19 crisis, current market activity and what the future holds.
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Long story short, multifamily is proving itself, at least for now, as a very resilient asset class yet again. In the end of March, multifamily operators across the country were bracing for the worst and expecting painfully high delinquencies in April. Based on the many conversations that were had at the time, the expectation was that Class C properties could have delinquency rates as high as 40-50% (high exposure to service sector jobs, very low/non-existent savings and moral hazard resulting from many states halting evictions), Class B was expected to show 25-30% delinquency rate. Instead, things turned out way better than that. Most Class B properties collected 97%+ of the rents billed (in many cases 100%), Class C – depending on the location and other factors – mostly 85%-95%. See the National Multifamily Housing Council’s chart on April rent collections:
May collections are similarly strong and better than April. Delinquencies are indeed materially higher (on a relative, not absolute basis), but not nearly as bad as market participants anticipated. Other trends we see:
- Lower turnover as less people are moving during COVID-19
- Many operators have no rent increases on lease renewals (location dependent)
- Negative rent growth on new leases for many operators – location and property-Class dependent. Some data points from public REITs on April rent growth: Camden: -2.5%, MAA: -3.3%, Equity Residential: -4%, Nexpoint: -1.65%
So far so good – the situation has not become a complete meltdown as many feared. However, is this sustainable? Rent collections have been strong, in large part, due to state and government programs providing unemployment benefits. Under the CARES act, those receiving state unemployment benefits are entitled to $600 per week in expanded unemployment compensation through July 31st. But what happens once federal benefits stop at the end of July?Below is the chart for 40 major metros showing how much in state benefits will be remaining per tenant, after rent payment, once (and if) $600 federal benefits stop (and you can click here for the link to the source):