Investor sentiment in the apartment market continues to recover as the U.S. limps back from the coronavirus crisis, but rent concessions are poised to increase, according to a new investor survey by Institutional Property Advisors (IPA) that closed on July 17th.
The survey of multifamily owners, operators and developers representing more than 1 million units across the U.S. finds that acquisition and disposition activity is picking up again as the market thaws, while long-term investor confidence in the market remains high. The share of investors that reported putting all acquisition activity on hold dropped from 39.6 percent in March—when the first survey in the series was taken—to 22.9 percent in May and 17.1 percent in July.
Likewise, 46.4 percent of investors said their firm was delaying dispositions in July, down almost 7 percentage points from May. As restrictions are eased across the country, more investors are permitted by their companies to travel for basic diligence activities—rising steadily from less than 15 percent in March to more than 64 percent in July.
“We are seeing an uptick in investor activity over the past 60 days,” Jeffery Daniels, senior vice president & national director for IPA’s multifamily and student housing platform, told Multi-Housing News. Daniels noted that the company’s BOV (broker opinion of value) activity has increased 400 percent from March and April and is slightly off from its levels in the first half of 2019, adding that this does not necessarily mean all of those deals will come to the market.
The outlook for valuation remains positive, according to IPA, with 83 percent of respondents anticipating either no change or a slight decrease in asset values over the next six months. More than three-quarters of owners expect rents to either hold steady or slightly decrease over the same period of time.
Rent rolls at risk
Investor confidence in the sector’s outlook dipped in IPA’s May survey but has since staged a comeback. More than 94 percent of respondents believe that COVID-19 will not dent investor demand for multifamily housing in the long term, up from 85.4 percent in May. In a possible sign that the industry’s sense of crisis is waning, more than 87 percent said their firm would purchase a property with a confirmed case of the coronavirus, up from around 67 percent in March.
“When the initial survey went out, we were in the thick of the health scare, and the largest concern was, what’s going to happen today?” Daniels pointed out that federal stimulus measures, including the $600 supplemental unemployment benefit introduced by the CARES Act, buoyed collection activity, which remains solid. “But there still has been rent decline embedded in the rent rolls, and it’s starting to come to fruition today,” he added.
Nearly 74 percent of investors expect a slight or significant increase in rent concessions at their firm over the next six months, according to IPA’s latest survey. The finding dovetails with a recent survey by the National Multifamily Housing Council (NMHC), which flagged concerns among industry leaders about a potential wave of lease expirations during the summer leasing season.
Across the country, 91.3 percent of renters made full or partial rent payments by July 20, according to the NMHC. That figure, which covers 11.1 million professionally managed, market-rate rental units, does not reflect payment data for smaller landlords and affordable and subsidized housing properties.
“While we have seen increased collection losses modeled in the short term, yield expectations haven’t changed as a result of the long-term positive outlook for multifamily investments,” Daniels said.