AMLI’s Greg Mutz on Navigating Downturns
- Aug 05, 2020
After the COVID-19 pandemic shut down the U.S. in mid-March, leading to devastating job losses and economic impact, the multifamily industry scrambled to adjust operations and property management for tens of millions of units across the country.
AMLI Residential Co-Founder, CEO & Chairman Greg Mutz presides over a firm that owns and manages more than 20,000 apartments, in nine U.S. markets, and more than 5,400 units in the pipeline. AMLI has fared well during the pandemic, facing little impact on ongoing projects and strong rent collection numbers.
But no company or executive has been untouched by COVID-19. Multi-Housing News recently spoke with Mutz about what makes this downturn different, how his firm has adjusted during the health crisis, and the risks of owning multifamily properties going forward.
(Editor’s Note: This interview was conducted in early June and edited for clarity.)
How have you been throughout this pandemic? Where are you sheltering in place amid the nationwide shutdowns?
I’ve been fine sheltering in place in Sarasota, Florida. If you have to quarantine, this isn’t a bad place to quarantine and work for a while.
What’s the experience been like from a property management perspective? It must have been a huge undertaking to set up new portfolio-wide protocols.
There has been a major pivot on the property management side to a new way of leasing and managing. We have switched exclusively to virtual and self-guided tours. We are emphasizing cleanliness to a degree unimaginable just two months ago. We are spending significant amounts on wipes, face masks, hand sanitizers, booties, gloves and all sorts of signage asking people to socially distance, wear a mask and do all the other common-sense things that reduce the risk and likelihood of spreading COVID-19.
We are now in the process of reopening our amenity spaces with a blizzard of conflicting, vague, and, in some cases, confusing regulations and guidance as to all sorts of requirements and rules. Move-ins and move-outs are more challenging. Trash has become a much larger problem, as so many of our residents are working from home and ordering food, pizza, drinks and all sorts of things, which generates significantly more trash than pre-COVID-19 times.
How has your firm fared in terms of rental payments and new development? Have there been any delays?
We have continued ahead with our development projects. The only market that closed multifamily construction was Seattle—which has now reopened—while Los Angeles, Chicago, Atlanta, Austin, Miami and Dallas deemed residential construction an essential service. As far as rent payment collections go, for April and May we were in the 97 percent range.
With a couple of months of this under your belt, is there anything you would do differently?
Not much. We pivoted about as rapidly as possible once we shut down offices. Looking back at where we were when COVID-19 hit, I am proud of the team for moving as quickly as they did.
You’ve been through downturns before. How does the impact of this one on the multifamily market compare to prior downturns?
This is a totally different downturn. To be fair, every war is different from the last one and the same is true with economic downturns. The black swan event here was as much the government’s reaction to COVID-19 as the coronavirus itself. The U.S. has never experienced such a severe increase in unemployment, decline in GDP, increase in government debt, and decrease in tax revenue at the federal, state and local levels.
In addition to the economic collapse, we have a troublesome political divide between people, between various states and between many states and the federal government. Congress is divided. Blue states and red states are divided. There is a critical presidential election looming, which will almost certainly be divisive and nasty. The recent demonstrations, violence and rioting stemming from the unjustified killing of George Floyd and the shocking failures and despair in the African American community have only amplified the economic damage wrought by COVID-19.
As for COVID-19, the science is constantly changing, as new information and data comes to the surface and the reported facts about all sorts of key things keep shifting. With a moving target, it is difficult to make any sort of long-term plans on reopening and managing properties in the midst of a pandemic.
In all the previous downturns I have experienced, there has never been this level of progressive antipathy toward real estate developers, managers and owners. The political risks of owning multifamily properties have increased significantly over the past few months.
Much has been written already about how different offices may look in a post-COVID-19 world. What about multifamily communities? What do you think will change?
I am not sure. The question is whether some residents will prefer suburban or secondary market locations over dense urban living. Will large cities with art, music, restaurants, vibrancy and activities continue to attract young professionals? The verdict is out on a host of questions dealing with supply and demand, potential increases in real estate taxes to pay for the large local, state and federal deficits being incurred, individual preferences, health and safety concerns, the extent to which progressive political forces disrupt valuations and investment decisions, and the likely substantial increase in the cost of carbon.
Would you feel confident developing a property in this current environment, and if so, where?
Yes, but selectively and only in certain submarkets we believe will attract jobs and household formations going forward.
How much is rent control impacting markets where you have communities, and how is your firm confronting it?
So far not a great deal. The forces supporting rent control have not weakened and are likely to continue to influence investment, financing and development decisions.
How big is your company on sustainability? Do you think certifications such as LEED will become mandatory in the industry going forward?
We have committed a significant amount of time, capital, energy and effort to becoming a greener and more environmentally responsible company. I doubt LEED will become mandatory going forward, but I do believe building and energy codes will continue to tighten and become more demanding in forcing property owners and developers to reduce each property’s carbon footprint and utilize less energy.
Economic forecasts released earlier in the year have had to be erased and completely redrawn. What’s your outlook for the multifamily market over the next two years?
Roughly flat this year, with an uptick next year and a nice bounce in 2022, as supply likely lessens.
When things are back to normal, what are you most looking forward to?
Enjoying my business, my family and my life. I am a lucky guy and I rejoice and give thanks every day that I have been blessed with all the good fortune that I have enjoyed over the years.