Marcus & Millichap: Multifamily Fundamentals Regress as Government Assistance Wanes

Pictured is Griffin Apartments at Petworth Metro in Washington, D.C. Marcus & Millichap recently arranged the $19.1 million sale of the 49-unit property.

Multifamily landlords have largely been able to collect rent through the coronavirus pandemic due to government assistance for those who are unemployed, a report from Marcus & Millichap has found. However, the federal funding of $600 per week for unemployed citizens expired at the end of July, leaving uncertainty surrounding rent collections moving into the third quarter.

On Thursday, Sept. 3, the U.S. Commerce Department reported that 881,000 Americans filed for first-time unemployment benefits for the week ending Aug. 29. Continuing claims, for which data is a week behind, totaled 13.3 million for the week ending Aug. 22.

On Tuesday, Sept. 1, the Centers for Disease Control & Prevention (CDC) and the Trump Administration halted evictions through the end of the year. Prior to the eviction moratorium, fundamentals in the second quarter were sliding. The nationwide vacancy rate rose 30 basis points to 4.7 percent in the second quarter. Irvine, California-based Marcus & Millichap expects vacancy to continue upward through the end of the year as COVID-19 keeps the jobless rate at historic highs.

States are offering unemployment assistance, which could prove more valuable with the absence of federal unemployment funding. Each state, though, offers different benefits, making it harder to anticipate which renters will be able to meet their financial obligations. Massachusetts, for example, offers the highest maximum monthly benefit at $4,880 per month, while Arizona has the lowest max monthly benefit at $960.

Each metro area has its own challenges with effective rents sometimes coming in higher than the state’s max monthly benefit. San Francisco and San Jose have the highest discrepancies in the nation, with rents averaging $1,021 and $1,025, respectively, higher than state funding. Boston (plus-$2,520) and Cleveland ($2,232) are on the opposite side of the spectrum.

Flight to homeownership

In a separate report, Marcus & Millichap points out that aside from the financial uncertainty, COVID-19 is playing a role in renters wanting to buy homes. With more employees working from home, the need for an in-home office and more space is more desired than a shorter commute, the brokerage firm reports.

Additionally, 60 percent of Millennials are in their 30s, meaning the age group is largely moving away from urban cores for more outdoor space and school options. As stay-at-home orders eased, more people began looking to move, with the purchasing of existing homes soaring 24.7 percent in July, the highest rate in more than 13 years and 8.7 percent above last July’s level.

In July 2020, available supply dropped to the lowest point since 1982, meaning not everyone wanting to make the leap into homeownership can do so. For this reason, Marcus & Millichap believes Class A, garden-style, suburban rentals with larger square footage and ample outdoor space will benefit in the near future.

— Alex Tostado

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