Owners, investors, and property managers of multifamily real estate have experienced the impact of COVID-19, but not to the extreme that was originally anticipated. The degree to which a market has been affected is a direct result as to whether the market contains essential diverse industries.
The Dallas-Fort Worth market is one of the strongest markets to combat the negative effects of COVID-19 on the multifamily sector. According to an analyst at RealPage, only 8% of DFW renters missed April payments. Heavy tourist and hospitality hubs have been hit the hardest when it comes to rent collections. Las Vegas market has seen nearly 30% of tenants who have requested rent deferrals or some type of rent relief. DFW is a highly diversified market with multiple high-level industries, such as healthcare, financial services, defense, technology, oil and gas, shipping, and of course, aviation.
Our study includes feedback from area property managers, with units under management ranging from 20 to 26,000 units. Different owners have different challenges depending on their partnership and debt structures.
The Allen Multifamily Team at Colliers International study indicates 60% of multifamily owners expect COVID-19 to have a positive or neutral effect on occupancy, with some expecting a 5-15% increase in occupancy for the Class B and C assets.
By and large, investors have agreed that they will most likely continue to hold rents flat moving forward over the next 12 months, with and an optimistic 30% believe increases in rents shall be between 1-3%.
Without the possibility to evict tenants until at least May 18th in Dallas County, and indefinite in Tarrant County, and various dates in other Texas counties, landlords are taking different approaches on how to deal with non-payments. Nearly 70% of landlords surveyed report that they are actively working with their tenants on a “case by case” basis to allow for any unpaid rent to be paid back through the remainder of the lease. Some landlords, around 30%, are taking a more rigorous approach and have decided not to offer any flexibility or payment options for tenants for April. Many of these landlords have reported having high rent collections (90-95% collected) or have chosen to remain firm as to avoid requesting forbearance from their lender.
Please note some of the creative ways landlords are working with tenants below;
- Waive credit card processing fees upon request for tenants that have demonstrated a hardship — an average cost of 2.95% of total rent to be waived via concession.
- Accept partial payment of at minimum 50% of total rent amount with signed promise to pay balance and demonstration of hardship.
- Waived Amenity Fees until amenities are reopened
- Payment plan for one month's rent or partial balance due with a payback period over three months with a signed payment agreement
- Payment plan for two month's rent with a payback period over six months with a signed payment agreement
- Apply cash security deposit on hand towards monthly rent
- April, May and June lease renewals with no increase
- Early terminations due to health-related issues or job loss will be considered on a case by case basis with owner approval. Proof of hardship required
- Encourage tenants to seek payment deferments with companies such as Charter Spectrum, AT&T, Municipal Water Departments, Verizon, Medicare and Medicaid, Reliant, Stream Energy, and the providing locations of area Food Pantries.
- Applying for the PPP program as a company (property manager on behalf of owner clients) and if approved, clients will also receive the benefit of leveraging a certain percentage of payroll tied to each site
- With roughly 20,000 multifamily units under management, Swapnil Agarwal, CEO and managing partner, Nitya Capital and Karya Property Management through his foundation Karya Kares is helping his tenants who have lost their jobs due to by offering $1,000 towards their apartment rent. The total amount being made available is $4M, as recently reported on ABC 13 Eyewitness News.
Fannie Mae and Freddie Mac’s stricter guidelines each requiring higher debt coverage ratios and substantial debt service reserves held from three to twelve months pending loan amount all at lower loan to value ratios. Prior to the pandemic, lenders were allowing 80% loan to value ratios as compared to today’s 65-70% loan to value ratios. Thus, causing many syndicating deal sponsors to halt their acquisition activities and several transactions to fall out of contract throughout the country. Private clients and small family offices that can execute without the complexities of large syndications are in a strong position to execute transactions in this climate.
According to CoStar Dallas-Fort Worth seen 94 multifamily investment sales transactions in the second quarter of 2019, 115 in the first quarter of 2020, and a dismal four transactions throughout the second quarter of 2020 attributed to COVID19. The inability for out of state investors to tour assets due to “Shelter in Place/Stay at Home” regulations has had its impact. Despite technology, many investors prefer to visit the assets, drive the areas, as well as conduct property management interviews. Appraisers are viewing vacant units only, and many are traveling no more than three hours from Dallas-Fort Worth.
Therefore, the Dallas Fort-Worth market remains awash with capital on the sidelines seeking opportunities. Our team predicts extreme record-breaking activity once the market thaws and people get back to work. Although opportunistic funds are being established in hopes of acquiring extreme below market assets, we do not anticipate price per unit costs will drop anywhere near the 2008 financial crisis levels.
For more information and insights regarding the state of the Dallas Fort Worth multifamily market, please contact any member of the Allen Multifamily Team or contact Mark Allen, CCIM and Nick Laessig using the contact information above.