Managing Partner, Evergreen Property Partners. Top 10 Family Office RE Professional, Top 30 Family Office RE Investor, Harvard Graduate.
Multifamily properties have long been a favorite investment of family offices. Though multifamily properties have been generally doing quite well during the pandemic, as I have mentioned in other articles I’ve written, a lot of that is artificial. In the coming months, I predict there will be an opportunity for family offices to invest in some distressed multifamily opportunities, specifically workforce housing.
You see, anytime there’s an issue with multifamily investments, there typically aren’t any signs for around nine months. This is because there is a period of time, while the renter doesn’t make several payments, that no action is taken by the property owner. Then the eviction process starts, which can take several months. All told, the eviction process for multifamily renters starts about nine months before any signs are visible, limiting an investor’s ability to assess how multifamily property is performing during a recession or a pandemic. Defaults on rent payments can be deceiving, especially with eviction moratoriums in effect for most of last year, which brings us to the current state of multifamily housing in America.
A recent Bloomberg article indicated that “U.S. renters could owe $70 billion in back rent” by January. According to Bloomberg, “11.4 million households in the U.S. that might be more than three months behind in their rent, or $6,000 each.” At the time the article was written, the federal eviction moratorium was set to expire on December 31, 2020, but with the federal eviction moratorium extended an additional three months and with little assistance by way of stimulus checks, this number is likely to grow. With an estimated $6,000 or more of back rent, the odds are stacked against renters and it’ll be nearly impossible for them to catch up. After all, if they’re unable to make the current month’s payment, how will they be able to make up the prior three months?
This begs the question: Even if by some miracle all of these people are able to catch up on their rent, if say, the government stepped in and assisted those in these dire situations, would they be able to continue to make future payments? Typically, workforce housing consists of those who work in industries like retail, hospitality and small businesses — industries that have been hit particularly hard by the pandemic. According to one report, as of September 2020, nearly 100,000 businesses have closed due to the pandemic. How the employees of these struggling industries will find new work is still yet to be seen.
With renters’ inability to catch up on their back rent, the gross revenues of these properties will decrease, putting pressure on the actual value of the apartments. This is where the investment opportunities for family offices begin. Now that we’re almost a full year into the pandemic, family offices will be able to make a full and accurate assessment of potential investment opportunities. With family offices having patient capital and having learned from the last recession, they should consider taking advantage of the opportunities multifamily and specifically workforce housing will potentially create.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.