How is the Multifamily Market Performing During COVID-19?

David Cohn
Aug 31, 2020
Multifamily Properties

The pandemic has turned the commercial real estate market upside down. Now more than ever, multifamily property owners—and their renters—need access to resources that will help them navigate these rocky waters.

Below we have compiled actionable information that can help multifamily landlords and investors keep renters in their properties—and ultimately help renters hold on to their apartments.

After all, everyone needs a stable and safe place to live, especially in these uncertain times.

Key Highlights

COVID-19 will affect one in four (25%) of working small multifamily households. New and ongoing government support for tenants and multifamily operators at the local, state, and federal level will be critical in giving stability to the rental market.  

Multifamily operators need to make some changes regarding property maintenance, rent collection, and property sanitation and safety.

State of Affairs

Within seven months, the coronavirus has gone from one domestic case in January to over 5.5 million cases by Aug. The issuance of stay-at-home orders last March covered over 80% of the US population.

In compliance with social-distancing measures, office and school closures forced families to stay indoors, consumers to severely curtail discretionary spending, and businesses to scale back if not completely shutter operations. These events have resulted in a series of job and income losses.

In the two weeks after a national emergency was declared in March, over 10 million people filed for unemployment, with the joblessness rate suddenly climbing to 4.4%–the biggest month-over-month spike recorded in 45 years. By June, the US officially entered a recession.

The multifamily CRE sector is starting to be affected by the mounting job losses as renters become increasingly unable to pay rent. On the operations side, apartment managers have to make critical changes to ensure the safety of renters and the orderly handling of day-to-day processes.

How COVID-19 has Affected Multifamily Demand

Household rental lease defaults are expected as unemployment numbers worsen in the medium term. Renters who work in industries that depend on discretionary spending—including retail, personal, and food services—will likely experience work hour reductions if not complete job loss.

This puts multifamily apartments in cities at risk because they are home to higher concentrations of such workers.

People who work in high-risk industries that are severely affected by main street closures—including retail trade, food services, accommodation, arts, recreation, and entertainment, etc.—make up a strikingly larger share of people who live in multifamily apartments compared to the national average.

Almost 27% of households in small multifamily apartments are headed by workers who are employed in these high-risk industries. This means that more than 1 in 4 leases in small properties may fall under rent default pressure.

Households that face the biggest threat are those where the heads work in lower-skilled occupations in high-risk industries, such as customer services. They make up about 18% of renter households in small multifamily properties.

Educational support for multifamily owners, lenders, and renters

Fannie Mae has recently introduced educational efforts to assist multifamily owners, investors, and renters in navigating this new landscape.

The company—which is one of the biggest financing providers to the US rental housing market—launched a “Here to Help” program to provide information resources to assuage fears and provide some stability in the market.  

The Here to Help program outlines the changes Fannie Mae has made to help lenders during the pandemic, including:

  • Amendments to credit terms
  • Modifications in site inspection requirements
  • Focus on digital loan document delivery

It also outlines different forms of assistance that are available to borrowers. With COVID-19 annihilating jobs and income sources across all industries, many renters are struggling to make rent, which directly impacts multifamily borrowers. The latter may then find it difficult to make monthly payments.

Forbearance relief may be available to borrowers in these cases. The Here to Help program lists the latest information for lenders who are thinking of granting forbearance to their multifamily borrowers. It’s also a good resource for borrowers who want to learn more about the latest forbearance guidelines.

Recently, lenders were allowed to extend existing forbearances by three additional months (for six months) for multifamily borrowers. Once the extended forbearance period ends, the borrower may apply for a program that gives them up to 24 months (2 years) to repay their missed payments.

Late fees and default interest charges have been waived by Fannie Mae, too, in efforts to encourage multifamily lenders to not charge their borrowers.

In exchange for the forbearance, multifamily borrowers have to agree to provide certain protections for renters. When DUS lenders grant forbearance to multifamily borrowers, all renters are protected by the CARES Act, which provides different forms of relief from pandemic-induced difficulties, including housing hardship. All evictions for failure to pay rent must be suspended.

Here to Help information portal is a great source of reliable and useful information about the CARES Act for renters. If you own a multifamily property, consider letting your renters know about it to access complete information on the law’s provisions.

Renters in multifamily properties financed by Fannie Mae, who are currently experiencing COVID-19 related hardships, can also turn to the Fannie Mae Disaster Response Network, which offers free advice HUD-authorized housing counselors.

These counselors can help renters stabilize their housing situation and come up with a recovery action plan, among others. If your building is Fannie Mae financed, it’s important to tell your renters about this resource.

What’s important now is to work together—lenders, borrowers, and renters. And as CRE professionals, we have to do our part in helping ensure a stable supply of affordable rental housing in the US.

Managing Multifamily Properties for the New Normal

This rapidly evolving pandemic makes it imperative for multifamily operators to adopt a crisis management mode in property maintenance, rent collection, sanitation and safety, and even in handling home deliveries (which has seen a spike because of stay-at-home orders).

The goal of property managers is to work with residents to avert possible community spread while ensuring that the building’s essential staff stays healthy and capable of servicing emergencies. Routine environmental cleaning and social distancing remain to be the best defenses against a contagion.

Multifamily property owners and managers are advised to do the following:

  • Frequently disinfect common areas such as elevators or stairwells, laundry rooms, lobbies, and all high-touch surfaces such as stairway railings, door handles, elevator buttons, push plates, laundry room equipment, and reception desks (if any).
  • Implement social distancing policies and practices, including increasing physical distances among the building’s employees and residents to at least 2 meters or 6 feet. Both renters and building staff should maintain physical distancing when entering/exiting the building, when getting packages, etc.
  • Suspend non-urgent maintenance work and showings.
  • Close or at least limit access to gyms, lounges, swimming pools, and other common areas where it is difficult to maintain physical distancing. For small laundry rooms, building management can post signages telling residents to wait their turn and use it one at a time—absolutely no crowding.

Looking ahead with optimism

These are trying times for property investors. The pandemic is wreaking havoc on commercial real estate (CRE), and it hasn’t spared the multifamily sector.

But while the numbers may be disheartening, there are still opportunity zones for investors willing to take a longer-term position.

Some industry experts say that multifamily will continue to be one of the “brightest stars” in the commercial real estate galaxy.

The sector maintains strong fundamentals that can soften the blow of economic volatility, and multifamily apartments should remain viable assets in the long run.