Positive Sentiment Among Investors as Deal making Resumes

David Cohn
Aug 12, 2020
Industry Insights

You are wondering whether it's a good time to get back in the real estate investing game?

This might be just the sign you are looking for. July data shows that multifamily rent collection has demonstrated steadiness despite the pandemic, allaying fears that the sector will be hit hard by economic uncertainties.

These new numbers have thawed the commercial real estate investment market. The apartment sector is back in full swing, and investors are showing positive sentiment. Multifamily owners, developers, and operators representing over 1 million apartment units across the country have noticed both acquisition and disposition activities going back up again.

A Significant Uptick in Overall Investor Activity

The percentage of investors who stopped acquisition dropped significantly from 39.6% in March to 22.9% percent in May and 17.1% percent in July. Long-term investor confidence also remains high.

What's more, only 46.4% percent of investors in this sector plan to delay property dispositions in July—that's 7% less from May. And as coronavirus restrictions ease across the U.S., a growing percentage of investors travel for basic due diligence activities, from just 15% in March to over 64% in July.

Case Study: NYCB Rent Collections

New York Community Bank—the biggest multifamily lender in New York City—said in July 29 statement that rent collections have remained strong in its multifamily portfolio, which is valued at $31.6 billion.

NYCB shared that multifamily rent collections are 85% to 90% of normal levels—higher than expected and certainly a great number considering the pandemic in its second-quarter earnings announcement. The bank also announced a 5% net income increase compared to the first quarter of the year.

NYCB was among the first lenders to roll out a forbearance program for its landlords, offering a deferral period of six months while other banks offer three (with options to renew later on). It had $3.7 billion in deferred loans as of June 30, with most deferments lapsing in September.

Representatives from the bank added that NYCB borrowers might be able to take advantage of the coronavirus's economic distress to buy foreclosed multifamily properties.

They highlighted the performance of the bank's rent-regulated assets, which make up 60% of its overall portfolio (worth $19 billion), saying that rent rolls in rent-controlled/rent-stabilized buildings have been very stable, perhaps because tenants want to hold on to their apartments.

These tenants are motivated to stay in those buildings because rent is reasonable and predictable—just the uncertain times they need.

Optimism in the Market

Likewise, the valuation outlook remains positive, with 83% of investor respondents anticipating either a "slight decrease" or "no change" in asset values in the next six months. Over three-quarters of them also expect rents to either "slight decrease" or "hold steady" for the year's remainder.

That said, experts are quick to warn that rent concessions will likely increase in the coming months.

Federal stimulus packages (including supplemental unemployment benefits) have managed to buoy collection activity. Despite this, but rent rolls still showed rent declines—and that will continue as help from the government dries up.

Some 74% percent of rental investors expect either an increase in rent reductions over the next two quarters of the year. This finding underscores the results of a recent National Multifamily Housing Council study, which highlighted concerns among investors about a potential upsurge of lease expirations throughout the summer leasing season.

Almost 92% of renters paid full or partial rent by July 20 across the country, according to the NMHC study. This covers 11.1 million market-rate, professionally managed rental units, and does not include payment statistics for subsidized/affordable housing properties and smaller landlords.

Rent collections hold steady.

Apartment rent collections are continuing to remain stable through this pandemic, which can be another good indicator of overall industry health.

Let's take a look at a report made by Apartment List. Here's what it says:

After an initial drop during the start of the coronavirus scare in April, apartment rent collections have remained constant, with 30% of renters not making payments. According to the report, this fell to 32% in July--a nominal decrease that is probably due to statistical noise.

Interestingly, non-payment stayed at 19% compared to June, but there was an increase in partial payments from 11% to 13%.

Experts think that more people have reached arrangements with their landlords—and landlords with their lenders—allowing everyone to pay what they can afford even if it's not the full amount.

Commercial Rent Collection Also Steady.

From April to May, numbers indicate stability in the industrial, office, healthcare, multifamily, and retail rent sectors, too. A survey of U.S. REITs (conducted by Nareit) found a minimal variance in commercial rent collection rates in the last two months, suggesting that even though REIT tenants in hard-hit industries are struggling because of business closings, their ability to make rents in May didn't substantially worsen.

Industrial REITs showed the strongest rent collection rates in this period, with 98.6% and 95.7% payment of rents. This pack-leading performance is attributed to the surge in e-commerce sales, which rose by 49% from March to April. It kept many industrial-sector businesses operating at full capacity, translating to more demand for distribution and storage space.

The bottom line

Increased collection losses are predicted in the short term. However, positive sentiment and yield expectations remain high. Deal making has resumed, and investor activity is on the up-and-up. There is a good outlook for multifamily investments over the long term.

Get the financing you need

If you are thinking of investing in income properties or adding commercial real estate assets to your portfolio, now is as good a time as any to take concrete steps. Capital Investors Direct can assist you in finding customized funding solutions for your project.