The number of households who paid rent during the first five days of April plunged 12 percentage points from the same period in March, according to an apartment industry survey that offers further evidence of the economic toll that coronavirus is taking on US families.
The survey was compiled by the National Multifamily Housing Council, a group that represents developers who own and manage apartment complexes and other residential rental properties.
It found that as of April 5, just 69 per cent of households had made their monthly payment compared with 81 per cent in the same time period of March. During the first five days of April 2019, the figure was 82 per cent.
The NMHC did not include a geographical breakdown. But, anecdotally, several developers indicated that rent delinquencies were worse in Las Vegas and Orlando, two markets that are heavily-reliant on entertainment industries that are now closed.
In addition to showing the pain of households amid surging unemployment, the rise in rent delinquencies also poses a test to what had been regarded as one of the safest parts of the real estate industry. Multifamily housing is renowned for its ability to weather downturns because, the thinking goes, people will always need a place to live. In lean times, landlords can moderate rent increases, if need be.
The sector has been particularly popular in recent months, with investors pouring money into multifamily investments because of the shortage of housing in the US and as a way to hedge against a long-awaited recession. But the speed and intensity with which coronavirus has shut down the economy — prompting a record 6.6m Americans to file for jobless benefits in the last week of March — is far beyond what most investors had expected.
In an interview, David Schwartz, chief executive of Waterton, a Chicago property company with a $6.5bn multifamily portfolio spread across 15 states, called the economic news “staggering” and forecast that developers would struggle if the situation eroded further in May and June.
“There will be owners who have trouble. If you already have high vacancy, new leasing is going to be challenging. If you have high leverage, it’s going to be difficult to service that,” he said.
Mr Schwartz, who chairs the NMHC, held out hope that rent collections would improve in the coming days since many landlords waived late fees to help distressed tenants. He also voiced a widespread frustration within the industry that politicians — including New York City mayor Bill de Blasio and US congressional representative Alexandria Ocasio-Cortez — were encouraging delinquency by calling for rent suspensions during the pandemic.
“There is going to be an element of moral hazard where people who did not lose their jobs are electing not to pay their rent,” he said, arguing that this “compromises the ability to work out arrangements and payment plans for people who legitimately need it”.
The multifamily industry varies from huge private equity firms, such as Blackstone and Starwood Capital, to small collections of family-owned complexes. Its offerings also range widely — from luxury apartments to affordable housing units whose inhabitants are often living pay cheque-to-pay cheque and with government assistance.
At the lower end of the market, many developers are now banking on the federal government’s emergency relief act to help their tenants pay their rent in the months ahead. Some are urging the federal government to replace cash payments to unemployed workers with vouchers that can only be used for rent.
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Raj Dhanda, chief executive of Black Creek, a Denver-based company that focuses on higher-end properties, argued that the government was in a difficult position: it shut down much of the economy to try to slow the pandemic, driving up unemployment. At the same time, it did not want to see property owners fail.
“It’s early and individuals don’t have a grasp yet of how long they will be out of work,” said Mr Dhanda. He forecast a 50 to 100 basis point decline in rents nationally but added: “You’ll see certain geographies outperform others.”
Depending on how long the slowdown lasts, several developers said it could test their relationships with lenders. As one put it: “The renters aren’t paying the landlords, the landlords aren’t paying the bank and the bank is hoping the government will bail them out.”