Show notes
We’re one week into the month of April. Landlords across the globe have been bracing themselves for a fall in rent collections in April.
After talking with a number of investors over the past several days, some preliminary numbers are coming in.
I spoke with a landlord in Texas who owns about 3,000 units. Their portfolio contains a mix of both B-class and C-class properties.
Overall, collections are running between 75%-78% of potential after the first week of April. The numbers are definitely down compared with a month ago. In a normal month, collections would be well into the 80’s and in many cases approaching 90% after the end of the first week of each month.
There is a small difference in collection between B-class and C-class. The numbers are slightly better in the B-class properties.
Management has spoken with every family. They’re seeing a large number of new leases being signed, even in this environment. Some markets like Houston and San Antonio have a high annual turnover rate. The landlords I spoke with are seeing higher than expected tenant retention. That means, tenants that had previously given 60 days notice to vacate have changed their mind and signed a new lease.
The National Multifamily Housing Council (NMHC) found a 12-percentage point decrease in the share of apartment households that paid rent through April 5, in the first review of the effect of the COVID-19 outbreak on rent payments. The Tracker found 69 percent of households had paid their rent by April 5; this compares to 81 percent that had paid by March 5, 2020, and 82 percent that had paid by the same time last year.
The NMHC data takes data from several property management sources including realpage, Yardi, Entrata, Resman and MRI.
There is a belief, propagated by many in the tenant advocacy groups that tenants are no longer required to pay their rent. They point to the moratorium on evictions that have been publicized. The fact is, there are several levels of government involved which results in a patchwork of regulations.
There can be rules imposed at the federal level, the state or provincial level, or at the local level. In some cases, there may be more than one regulation providing conflicting rules. Understanding which rule takes precedence will require that you get local legal advice in your home market.
For example in the US, the federal disaster relief CARES Act, included a 120-day moratorium on evictions, late fees and other penalties, starting on March 27, the date the legislation was signed.
This moratorium applies to all properties with a federally insured mortgage (Fannie Mae, Freddie Mac, FHA, HUD, VA) and properties participating in a covered housing program, such as the Section 8 voucher program, rural housing voucher program, the Low-Income Housing Tax Credit. Covered property owners also may evict or charge late fees to any resident. This moratorium applies to ANY resident who fails to pay their rent, not just those whose incomes have been disrupted by COVID-19. Unfortunately, the way it is written, that currently means the moratorium also applies to residents who simply choose not to pay their rent
On the commercial side, we’re seeing a very real problem with collections. It depends highly on whether the business has been forced to close its doors. We have some businesses that are unable to perform their business online. Their revenue has gone to zero. Our commercial rent collections are currently running at 50% of leased space. We expect that number might drop even lower in the coming months.
Overall, the impact to residential rents seems to be less than many had feared. It’s also reasonable to expect that the rent collections will be lower in May than in April.
As you think about that, keep your lines of communication open with your tenants.
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