Multifamily News Roundup – Rent Strikes, Unemployment, and COVID-19
The Biggest Q1 2020 Multifamily News
Our Year-End Review for 2019 included guesses about 2020 and what it would hold for the multifamily industry. None of the predictions included a global pandemic or the resultant economic turmoil. We have summarized some of the multifamily news to emerge during the COVID-19 pandemic, including calls for rent strikes, increasing unemployment, and relief provided by the CARES Act.
Unemployment Rises and Calls for Rent Strikes Begin
As March unfolded and the threat of COVID-19 grew, events occurred at a breakneck speed. Most states quickly issued stay-at-home orders. Many businesses, unable to operate without customers, shuttered or began layoffs, and unemployment claims reached record highs. As these numbers climbed, some feared that as many as 40% of apartment tenants in some places could miss their April rent payment.
Beyond non-payment, landlords have another concern: calls around the country for rent strikes. Unlike previous instances, these rent strikes go beyond contentions with individual owners. Striking tenants hope their protests to receive increased protections and relief from local governments in the form of canceled, decreased, or subsidized rents. Many cities, like New York City, derive a large portion of their budget from taxing landlords, so a rent strike seems specially designed to force city councils and other authorities to act before budget shortfalls begin.
The last significant wave of rent strikes occurred in the U.S. before WWII. This wave led to some of the rent control programs that still exist around the country. If organizers have success similar to the earlier efforts, the implications could include more than temporary relief. Rent strikes will cause multifamily owners pain in 2020. The question is whether the hopes of future stability mitigate the pain that rent strikes is sure to inflict on landlords in 2020. This pain may also extend to city budgets, which rely on multifamily taxation for a considerable portion of their incomes.
States and Municipalities Issue New Guidance
Owners should not worry about widespread rent strikes in the short term. Organizing tenants takes time, and they are unlikely to have an impact until later this year. In the meantime, while local and state governments have delivered plenty of new regulations, these should not be cause for worry, though they do require attention to maintain compliance. The confusion surrounding some of these regulations is evident in localities such as New York City, which is one example of a location where eviction filings continued even Governor Cuomo suspended evictions throughout the state.
Relief for Multifamily Owners from the CARES Act
As bad news poured in through March, relief did appear. The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) passed and provides forbearance options for multifamily owners. Borrowers applying for forbearance must be current on their payments, have federally-backed loans, and prove their hardship is pandemic-related. The mortgage servicer is then required to provide a 30-day forbearance once they have documented financial hardship. Servicers must also grant opportunities to extend forbearance twice if these troubles continue.
During the period of forbearance multifamily owners may not evict tenants and improvements beyond basic maintenance are prohibited. As time goes on, local governments may supplement the CARES Act, and the government may issue more aid.
There are many tools available for those evaluating their forbearance options. redIQ has developed a simple but powerful calculator that we have made free for all clients. We are also offering a free trial to those who not currently using our software, which provides access to this free tool. To learn more, click here.
Other headlines from Q1 2020
- Bloomberg attributes New York City’s decline in multifamily building transactions in 2019 to the new rent control laws.
- Some individual real estate investors have received unwelcome news: they cannot withdraw their investments during the downturn.
- Tom Barrack, CEO of Colony Capital, has grim predictions for commercial real estate and has called for a bailout.
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