Despite a yearlong national eviction ban and continuing pandemic, it has rarely been a better time to be a big apartment-building landlord.
National asking rents rose 10.3% in August, measured on an annual basis, according to Real Page, a rental-management software company, which analyzed more than 13 million professionally managed apartments. That marked the first double-digit increase in the more than 20 years this data has been collected, and in several hot cities the rent increases were much greater than the national figure.
“The rent growth that we’re seeing in places like Phoenix and Las Vegas and Tampa, it’s obviously unprecedented,” said Jay Parsons, deputy chief economist for Real Page. August rents rose more than 20% year over year in each of these cities. Monthly rents were up more than 20% in smaller markets like Boise, Idaho, and Naples, Fla., too.
Fast-rising rents reflect several factors, analysts say. Younger adults who lived with family last year are now renting their own apartments, in many cases as they prepare to head back to the office. Middle-income workers who have been priced out of the scorching housing market have little choice but to pay higher rents. Limited growth in new apartment supply, meanwhile, can’t keep up with demand.
Apartment occupancy rates, a key metric for helping landlords determine how much they can increase rent, hit a record high of 97.1% in August. Household incomes for new renters at professionally managed properties also reached a new high of more than $70,000 a year, according to Real Page. An end to the federal eviction ban last month is likely to further strengthen landlords’ hands.
Multifamily-property values have increased 13% since before the pandemic, according to real-estate securities advisory Green Street. More money is being invested now in apartment buildings than in any other type of commercial real estate, according to data company Real Capital Analytics.
Few analysts predicted this scenario 18 months ago. When Covid-19 hit, the U.S. unemployment rate rose to nearly 15%. Surveys showed an increasing number of renters falling behind on their payments, and federal and local eviction bans often meant these tenants couldn’t be replaced. Uncertainty about rent collections sent chills through the debt markets, raising concerns about a liquidity crunch in multifamily real estate.
Now, most segments of the multifamily market look strong. Even as more renters migrate back to cities, suburban markets continue to sizzle as record-high home-sale prices keep more people in rental housing. Others are relocating and working from home.
“Multifamily is able to capitalize on both of those trends,” said Karlin Conklin, principal of Investors Management Group, which has buildings in the suburban areas of cities like Raleigh, N.C., and San Antonio.
The rent increases mean that tenants who enjoyed big discounts last year are in for a rude awakening. In Nashville, Tenn., 27-year-old business analyst Zachary Wendland rented a one-bedroom apartment in a luxury rental high-rise for $1,420 a month in October. In June, the building was sold to Camden Property Trust, a publicly traded landlord, in one of the priciest-ever multifamily sales in the city.
Mr. Wendland wasn’t given the option to renew his lease with the new owner, but a similar unit in the building is now on the market for $2,199. “I couldn’t imagine a year ago paying $2,000 to live here,” he said. Now, he is apartment hunting again.
At the Nashville building, only six out of 430 units are available to rent, said Ric Campo, chief executive of the building’s new owner, Camden Property Trust. The mounting demand from high-paid professionals and transplants means rent increases between leases are getting bigger. “It’s not just Nashville. It’s pretty much every market,” Mr. Campo said.
Some individual investors have felt excluded from the rent rally. These landlords own about 41% of all rental properties nationwide, including the majority of single-family rentals, according to U.S. Census Bureau surveys. Unemployment for lower-income workers caused many renters to miss payments, and eviction bans usually meant landlords had limited recourse. These building owners don’t have the scale to absorb unpaid-rent problems as easily as a corporate owner with thousands of apartment units.
A recent survey of about 1,000 small rental owners from the National Rental Home Council, a landlord trade group for single-family rental-home owners, found that one-third had sold or planned to sell a rental home because of the effects of the eviction moratorium on their business, with most selling to owner-occupiers.
Still, if unpaid rent is pushing more rental-home landlords to exit the business, it couldn’t come at a better time. National home-sale prices are up 18% over the past year.
Mortgage lending to multifamily owners has returned to pre-pandemic levels. Many landlords have tapped ultralow interest rates to refinance their mortgages, increasing their cash on hand and lowering their mortgage payments, said Jamie Woodwell, vice president of research and economics at Mortgage Bankers Association, a real-estate-lending industry group. Much of the pandemic lending was driven by the government-backed mortgage programs, he said. But other lenders have since ramped up their multifamily business.
“You don’t have a single private source of capital that isn’t interested in lending on multifamily,” said Willy Walker, chairman and chief executive of commercial real-estate firm Walker & Dunlop Inc.
Where landlords have problems with their loans, the federal government has stepped in to help. The Department of Housing and Urban Development, and the government-backed mortgage giants Fannie Mae and Freddie Mac, crafted forbearance programs for covered building owners who saw drops in their rent collections. The Federal Reserve Bank also stepped in to purchase more than $10.5 billion in multifamily mortgage-backed securities since last spring, which helped encourage more lending.
The $46 billion in emergency rental assistance provided by Congress—and in most cases paid directly to landlords—is also slowly starting to help more building owners with unpaid rent. “That assistance has been extraordinary,” said Ms. Conklin. Her company has earned back 25% of its unpaid rent and expects more in the coming months, she said.
For most real-estate companies, going under because of unpaid rent is “unlikely,” Mr. Walker said. “There are not many operators who have such a high level of nonpayment that it is going to cause them to default on their loan,” he said.
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