More May Rents May Be Late, Poll Says

The actual numbers won’t be in for a few more days. But a significant majority of apartment professionals listening in to the latest RCLCO weekly webinar on Friday think perhaps as few as 80 percent of all residents will make their May rent payments on time.

In April, according to the National Multi-Housing Council, 91.5 percent of lessees made a full or partial rent payment by the 26th. But only 15 percent of the people on the RCLCO webinar think that many renters will do so again this month.

According to the poll of 750 listeners, 57 percent think the percentage will be in the 80-90 percent range. And the rest—28 percent—think the figure will be even lower. Some believe less than 70 percent of renters will be on time.

New Renters

If the percentage holds at around 90 percent, it means collections “are doing pretty well,” especially when compared to other asset types, said Charles Hewlitt, a RCLCO managing partner in its Bethesda, Md., headquarters office

One bright spot for the multifamily market is new lease signings, which Hewlitt pointed out “are pretty much on par” with where they were a year ago, down 1.6 percent, and Hewlitt said his associates are “hearing that activity is picking up.”

April’s slight decline, he also pointed out, is “much better” than in late March, which recorded a steep 50 percent drop in new leases.

But Class A properties didn’t far nearly as well as Class B and C projects in April. New leases were down 7.9 percent in A properties as of the week ending April 26, whereas they were up 1.2 percent and 8.1 percent for B and C, respectively.

Rents on those new contracts seem to be holding their own, too. Hewlitt said rents called for in new leases were down 4.5 percent, year-over-year. New rents were down in all three classes—5.4 percent, 3.6 and 1.1, respectively. But Class C collections trailed both A and B.

A Look at the Downturn

The current economic downturn—which has yet to be named a recession, at least not officially—is being driven by a health crisis, not poor fundamental. But Hewlitt said RCLCO’s projection is that it won’t look like the ‘01 recession caused by the dot.com bubble.

“This is not like anything we’ve ever seen before, and it’s likely to be different from previous cycles,” he said. “But our outlook is will be more like ‘08 with a deep and short decline followed by fairly robust growth and recovery.”

On that point, only 22 percent of the webinar listeners said they agreed. Instead, 32 percent were of the belief the downturn will be less dramatic than either ‘01 or ‘08, but 33 percent went the opposite way, saying it would be more dramatic.

How the Single-Family Market Compares

Hewlitt also mentioned the single-family rental market, particularly the SF built-to-rent sector. And others have done the same.

SFRs have always been a major portion of the rental housing stock, about 35 percent, according to the Census Bureau’s American Community Survey. But the “vast majority” of those units, Robert Dietz, chief economist at the National Association of Home Builders, points out, are owned and operated by individuals, so-called “Mom-and-Pop” households who tend to buy a house or two to run as rentals or switch their own personal residences to rentals as their houses age.

About 5 million single-family houses have been added to the rental inventory since the Great Recession hit housing in 2008, mostly through “tenure switching” from owner-occupied to rental, says Dietz. Consequently, “the primary source of SFRs is not new construction but the existing housing stock.”

So while SFRs in general represent competition for apartment builders—indeed, between 2005 and 2015, according to NAHB’s figures, for-rent single family houses accounted for 56 percent of the gains in the overall rental housing stock—projects built from scratch are not. In fact, between 1992 and 2012, single-family rentals constituted just 2.7 percent of all housing starts.

Now, though it’s up to just under 5 percent. Not a big share in the greater scheme of things, to be sure, but still almost double what it used to be. And the pandemic may be giving that sector some new impetus.

Single-family rentals give people “more room to self-isolate,” said Todd LaRue, managing partner in RCLCO’s Austin, Tex., office. With a single-family rental, households can “double or triple up,” he pointed out.

Tim Sullivan of Meyers Research, a Dallas-based advisory firm that works mainly in the new home sector, agreed. Built-to-rent single-family houses “will continue to be viable” as renters look for places with space where people can hunker down without living beneath, above or right next door to others.

As such, they will help builders weather the virus-induced recession in that they can rent unsold inventory. On that score, the John Burns Real Estate Consulting firm is telling its builder clients to consider diversifying their portfolios with single-family rentals, particularly at the entry-level, suggesting that unsold inventories could be turned into rentals.

Prior to COVID-19, builders had a good-size backlog of signed contracts with buyers ready to move forward. But since mid-March, more and more people have been cancelling their deals. And when that’s the case, houses slated for construction often become rentals.

“Determine where those entry-level inventories are, which markets and submarkets, and watch them closely,” the Irvine, Calif.-based Burns firm advises.

Another RCLCO managing partner, Gregg Logan, agrees, saying in a previous webinar that picking up excessive inventory is “an opportunity (for investors) to step into the breach.”

“Single-family rentals were already a hot topic,” adds Brad Hunter, the managing partner in RCLCO’s Orlando office. But now with COVID-19 terrorizing the land, they are an even hotter one.

“People can distance themselves a lot better, and there’s a good chance they will continue to worry about that” when the pandemic is over, said Hunter, who previously was chief economist at MetroStudy, an information firm specializing in residential construction. And after employers realize they can trust people to work at home, “why not work at home all the time?” he asked.

“The single-family built-for-rent market may be a surprising winner in this crisis,” Hunter said.

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Syndicated columnist Lew Sichelman has been covering the housing and mortgage sectors for 51 years. His work appears in major newspapers throughout the country. He also has been the real estate editor of two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.