High-End Multifamily & Returning to Work – May 2020 Multifamily News Roundup

The Biggest May 2020 Multifamily News

We have summarized multifamily news to emerge in May 2020. High-end multifamily has resilience, offices remain closed, and interest in distressed real estate assets has spread.

High-End Multifamily Powers Through  

Multifamily owners remain concerned about unemployment, rent strikes, and tenants’ general difficulty paying rent. However, the Wall Street Journal reports some good news for operators of high-end apartments: their assets have proved somewhat immune to the pandemic’s economic fallout. The Journal notes that, in April, the seven largest REITs focused on the high-end apartment segment collected 94% of full rents from tenants. Some owners even have plans to increase rents.  

Of course, these high-end apartments tend to house tech workers and other white-collar employees. Faced with the prospect of working from home indefinitely, they may choose to leave their current residence. More about that below.   

Tech Companies Delay Office Reentry, with Consequences for Multifamily  

Most employees who do their jobs from home have adjusted to their situation, working from a home office, a kitchen table, or simply in bed. When tenants do return to offices, they will need to adjust again, this time to new layouts and  behaviors. How offices change will become clear as more make their way back. Some predict the end of open-plan offices and some expect the end of co-working spaces like those WeWork provides. Almost all anticipate social distancing in the office and upgrades like hand sanitation stations.

Predictions from some go even further: what if the office as we know it goes extinct? Some large employers, including Capital One, Google, and Twitter, have told employees to expect to stay home until Labor Day, the end of the year, or (optionally) forever, respectively. Employees paying for high-end multifamily in markets such as the Bay Area and New York City now have a choice. They can stay in homes rented or purchased without serious consideration that they might act as residence, office, and school. On the other hand, they can abandon expensive cities and cramped quarters and move somewhere—temporarily or not—with a lower cost of living.   

As the importance of office space as a real estate vertical wanes multifamily must adapt. Investors focused on expensive cities should use their expertise to consider investments in cheaper nearby areas where people may decamp. Companies with value-add strategies might replace their breakfast nooks with office nooks, marketing units to workers who now spend their days in their apartments.   

Everyone Wants Recession-Style Real Estate Deals  

For some, the pandemic has presented the opportunity of a lifetime. Investors who remember huge returns from the financial crisis and its aftermath anticipate the possibility of similar gains now and have lined up to deploy their money. Real estate funds and firms have taken advantage of this fear of missing out, announcing new acquisitions, new capital raises, and more.   

Goldman Sachs, for instance, more than doubled their $1.25 billion goal for their fund Vintage Real Estate Partners II. Vintage II will focus on purchasing secondaries: shares of other, privately held real estate funds and partnerships. Goldman aims to minimize risk by investing only in established operators that may face temporary issues due to COVID-19.   

Goldman has company. Firms of all sizes, including Blackstone, Virtus, Cadre, Starwood, and Kayne Anderson have announced they intend to acquire assets made more appealing due to the pandemic. Blackstone alone has some $150 billion to do so, though it does not confine its acquisitions to real estate. Cadre, meanwhile, has quickly pivoted from its focus on recruiting retail investors to pitch deep-pocketed family offices.   

The enormous amount of capital focused on pandemic-affected assets may distort definitions of “distressed”. With so many analysts from billion-dollar companies on the front lines looking for discounted real estate, supply may become constrained, with smaller teams priced out.

Other Real Estate Stories from May 

  • The Wall Street Journal predicts that homeowners’ newfound passion for DIY improvement projects during stay-at-home orders will wane.  
  • Pending home sales have plunged, with sales in April down 34% from a year earlier. 

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