How to Track Successful Investment Opportunities Amid COVID-19
- Sep 03, 2020
Six months into the pandemic, players in the multifamily industry—one of the most resilient real estate sectors during the current health crisis—remain cautiously optimistic about the rest of the year. While the economy is expected to improve during the third quarter, the last quarter of the year is anticipated to slide back, pushing many investors to carefully ponder the best opportunities and the path to pursue them.
Patrick Carroll, founder & CEO of CARROLL—a real estate company that focuses on multifamily properties, including acquisitions, property and asset management services, and fund management—has some indicators that help him determine if a property can make a successful investment. In the interview below, he talks about these key factors and shares his expectations for the last four months of the year.
How would you describe multifamily investor sentiment in the U.S. now?
Carroll: Cautiously optimistic. Obviously, there are still a lot of questions and uncertainty around the pandemic and how quickly the economy will recover, but multifamily has weathered the storm very well to date. Most investors expect performance to remain strong, especially if additional stimulus measures are put in place to support renter households. Investors are also increasing their allocations to multifamily and industrial, which has created a healthy amount of demand and driven an increase in transaction activity.
What are the key indicators that a particular property can make a successful investment?
Carroll: In today’s market, it is critical to have a best-in-class operator who can drive strong results during turbulent times. It is also critical to focus on submarket dynamics and the durability of the resident base as an asset. Fully understanding who lives in an area or at a property, and making sure they are employed in a resilient sector of the economy and have the income to support the rent they are paying, is critical.
Do you expect this formula to change in these uncertain times?
Carroll: Likely, investors will mainly rely on and transact with people who they trust and have a strong track record of performance. They will be reticent to take many risks with newer sponsors.
What types of properties would be risky investments in upcoming quarters?
Carroll: Buying a property with a heavy concentration of residents who work in retail or hospitality is a risk. Additionally, properties with top-of-market rents could experience a downturn as people consider “trading down” in light of the economic uncertainty.
How should multifamily owners communicate with their residents during these difficult times?
Carroll: It is important to take a humanistic approach and communicate frequently with residents. Let them know that we are here to support them in any way they need and are willing to work with them to find a solution that works for everyone.
How has the health crisis altered residents’ expectations from their living spaces?
Carroll: Early trends indicate an increased desire for larger units and more outdoor space.
Tell us about one of your investments that’s representative of the current economic environment.
Carroll: It’s tough to pick one investment to be representative of the current environment. We have been fortunate in that our portfolio has remained relatively strong during these unprecedented times. On average, our collections have remained above 95 percent, with strong occupancy and steady rents, which has outpaced most in the industry. Just as our residents look to us to ensure we are doing what we can to keep them safe, our partners look to our investment principles and outstanding team to ensure we keep their investments relatively safe.
What are your business goals for the rest of 2020 and into 2021?
Carroll: For 2020, we have a robust list of dispositions that are in process and we hope to successfully close those sales and buy or recap three to four deals before year-end. For 2021, we hope to return to a more active transactional environment, and buy and sell 12 to 15 deals across the Sun Belt market that has seen continued population growth in business-friendly environments.
Any predictions for how investment activity in urban vs. suburban markets will unfold going forward?
Carroll: We expect suburbs to outperform and draw additional investor interest. We have always been active in suburban markets and plan to continue to focus the majority of our investments in that space.