Housing Starts Climb, Hotels Struggle: August Multifamily News Roundup
The Biggest August 2020 Real Estate News
We have summarized the three biggest multifamily and real estate stories to emerge in August, and one from September. The CDC announced a new eviction moratorium, unexpected demand made housing starts climb, and despite the extension of the vacation season, hotels continue to struggle.
Eviction Ban Extended
Since March, analysts and economists have expected a wave of evictions. No wave has occurred. Unexpectedly, evictions even fell in some jurisdictions, due in part to government protections for renters, various financial support programs, and miscellaneous reasons such as backlogs and courts closing down. Some had predicted an uptick to begin in late August, a month after the expiration of the federal eviction ban. Though a slight uptick occurred, a new moratorium was introduced on September 1st. To avoid eviction, tenants must demonstrate loss of income and meet other criteria. Broadly, housing activists have responded positively to the action, while property owners have balked at the lack of relief for small landlords.
Housing Starts Rise Unexpectedly
Numbers released in August revealed an unexpected climb in housing starts. The increase of 22.6% month over month was the largest jump since 2016. The surprise is attributable to low interest rates and companies delaying returns to their offices, which has led families and workers to seek more space, especially in the suburbs. This heightened demand and the shortage of some materials, such as lumber, has also led to higher home costs.
Office Workers Choose to Stay Home
Despite low transmission and case numbers in New York City, workers have continued to stay away from offices. As of mid-August, only around 8% of workers have returned to their desks and cubicles, with many preferring to work elsewhere. The real estate industry presents a notable exception. Companies like office owner Silverstein Properties have returned on a staggered schedule to prove to tenants that new safety measures can prevent infections.
Office owners must compete with more than fear of contracting the virus. Vacationers have pushed trips and long-term bookings past Labor Day, typically the end of the summer rental and travel season. Visiting the Hamptons, Lake Tahoe, and elsewhere will come with subsequent quarantine staycations, further delaying returns to the office. Though a window may open in October for some to begin commuting again, winter could bring another wave of cases, discouraging returns and fresh leases for months to come.
Despite Longer Vacation Season, Hotels Struggle
Extended vacations have not prevented pain in the hospitality sector. On August 28th, MGM Resorts announced plans to fire some 18,000 employees across the country, citing decreased traffic at its hotels and casinos. Mortgages, payroll, and other costs have strained many operators, forcing them to address these costs with money typically reserved for upkeep.
But of course, some operators have modified their offerings to better weather the uncertainty. Hotels brands, including Ritz-Carlton, Kimpton, and Raddison have begun renting rooms for use as offices. These relatively inexpensive, day-long rentals have provided some income and require less maintenance work than overnight guests. Other hotels have retained their role as hospitality providers, with discounts for longer stays and new services such as tutors for school-aged children.
This transformation into pandemic oasis does not present a possibility for every hotel. Most will need the return of casual and business travel to turn a profit. However, unlike the conversion of offices into housing, the transformation of hotels into offices or apartments presents relatively few challenges. The process has already begun at the Bryant Park Hotel in New York. It may occur elsewhere in the event of a resurgence. For multifamily operators willing to convert these buildings, this decrease in hospitality traffic presents an opportunity, especially in cities.
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