Financial Freedom with Real Estate Investing MB 208: Is the Sky Falling? – With an Expert Panel of Multifamily Operators
Beyond the risks it poses to our health, the Coronavirus is causing chaos in our economic system as well. Businesses have closed their doors and many Americans have lost their jobs or had their hours cut. And the stock market is on its way down. But what does it all mean for us as multifamily investors? Is the sky falling? Or are there things we can do to protect ourselves and serve our tenants in this challenging time?
On this episode of Apartment Building Investing, I’m sitting down with an expert panel of multifamily operators that includes Drew Kniffin, Brian Burke, John Cohen, Reed Goossens, Andrew Cushman and Ellie Perlman to discuss what we are doing to protect our investments and our investors through the Coronavirus pandemic. We share our strategies for income preservation and expense reduction, explaining how we are supporting tenants through the crisis and what programs we are leveraging to keep our employees on payroll.
We go on to address how COVID-19 is likely to impact passive investors and offer insight on what they can do to take advantage of the shift to a buyer’s market. Finally, we explore the short-, medium- and long-term implications of the economic fallout from the Coronavirus and describe the incredible wealth-building opportunity available to savvy real estate investors in the months to come. Listen in to understand what defines a good deal in the current environment and learn how to use this time to prepare for the next up cycle!
Key Takeaways
What Andrew is doing as an owner to protect his investments
- Put together resources for tenants
- Negotiate with service providers to cut costs
- Apply for Paycheck Protection Program
- Flexible with tenants, reward early payment
- No increase in rent on lease renewals
How John’s team is navigating the Coronavirus crisis
- Reach out to tenants with message ‘here for you’
- Focus on tenant retention, mitigating expenses
Ellie’s insight on tenants who can’t pay vs. tenants who won’t
- CARES Act prohibits evection whether lost job or not
- Depends on prior relationship with tenants, location
The additional things Ellie’s team is doing to navigate COVID-19
- Offer furnished model units to traveling nurses
- Security deposits to pay rent, replace with insurance
The additional things Brian’s team is doing to navigate COVID-19
- Refer tenants to Project Porchlight financial counseling
- Postpone rent or amortize over next several months
- $50 grocery gift card if reach out to explain situation
Brian’s insight into the Paycheck Protection Program
- SBA loan to cover 2.5X payroll if keep employees
- May not apply to third-party property manager
Reed’s perspective on the Coronavirus crisis
- Keep hysteria manageable, get good info to tenants
- Share maintenance tech across portfolio
How Drew and Brian think about the risk for passive investors
- Money safe if deal well-capitalized + plenty of reserves
- Most sponsors halt distributions next quarterly cycle
- Little/no rent growth and reduced occupancy for awhile
John’s insight on how the crisis will change lender behavior
- Vet sponsors harder moving forward
- Require 12-plus months of reserves
The overnight shift from a seller’s market to a buyer’s market
- Must assess risk of unknown (focus on #s, not emotion)
- Buyers ask for discount based on current financials
What passive investors should do in the short-term
- More opportunity to invest in quality deals
- Conduct proper due diligence on operator
Our predictions around what to expect in the short term
- All feel pain as transaction velocity grinds to halt
- Be proactive, lenders willing to work with us
Our predictions around what to expect in the medium term
- Take time for income and job growth to recover
- Wealth building opportunity if not too anxious
Our predictions around what to expect in the long term
- Look back and laugh in years to come
- Grow and get stronger from weathering storm
How to stress test acquisitions in this new environment
- Over-raise for operations and capital expenditures
- Reduces IRR but money on hand for rainy day events
Why it’s hard to underwrite deals right now
- No good info on change in economic vacancy rates
- Year-on-year rental growth will take massive hit
How student housing may be affected by the Coronavirus crisis
- Protected if parent guarantee in leases, semester vs. year
- Consider reaching out to hospitals to provide extra beds
How the stock market crash will affect our ability to raise capital
- Some investors not as liquid due to stock market losses
- Those with capital to deploy may prefer real estate
What the average investor should be doing right now
- Get educated and line up investors
- Start underwriting deals, develop parameters
- Choose markets likely to come back quickly
- Don’t get too excited but be ready for up cycle
The moratorium on evictions due to COVID-19
- Local governments not processing evictions at this time
- Forbearance requires not evict anyone over term of loan
The potential growth of secondary and tertiary markets
- Less dense = safer than tight, urban environments
- Also depends on economic makeup of area
What defines a good deal in this environment
- 60- to 90-day due diligence
- No hard money down, financing contingency
- Mitigate risk with conservative underwriting
- Retrade with integrity if value goes south
The 5 steps for making a successful shift to entrepreneurship
- Singular focus
- Measurable action plan
- Proper time management
- Understanding of finances
- Accountability
Connect with the Expert Panel Resources