Walker Webcast: Steady Apartment Rent Collections Buoyed by Unemployment Benefits
BETHESDA, MD. — Several industry professionals are predicting that a second stimulus bill will be a $1.75 trillion package approved by Aug. 15.
The comments came on a “Walker Webcast” webinar, entitled “All Eyes on Washington: What Will the Next Stimulus Bill Do for CRE?” that took place on Wednesday, July 29. Commercial real estate finance firm Walker & Dunlop hosts the webinar series.
Willy Walker, chairman and CEO of Bethesda, Md.-based Walker & Dunlop, spoke with Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA); Doug Bibby, president of the National Multifamily Housing Council (NMHC); and Jeff DeBoer, president and CEO of Real Estate Roundtable.
The three guests conversed on a variety of topics, with the possible extension of the eviction moratorium being one of the most discussed issues. Bibby of NMHC equated the moratorium to rent control. The notion sounds good because the consumer is protected, but it can have devastating effects on the owner, particularly in the multifamily space where a lot of landlords are smaller owner-operators.
“They [multifamily owners] could lose everything with an eviction moratorium because they have mortgages, property taxes, insurance and payroll to pay,” said Bibby. Over 40 percent of apartment units in the United States are in buildings with 50 units or fewer, he noted.
“With an eviction moratorium, you lose the ability for owners to manage their properties and maintain a sense of community; that has real, long-term implications,” said Walker.
Bibby emphasized that an eviction notice is simply a warning and that the vast majority of them are resolved. Physical displacement only occurs a small percentage of times. “If someone’s being unlawful and not paying their rent when they can, then we have to have a system where we can act and protect our livelihoods,” he said.
NMHC continues to track the number of apartment households that make a full or partial rent payment each month. Through the 27th of this month, 93.3 percent of households made a payment for July, compared with 95.3 percent for the same time period last year.
Bibby said that extended unemployment benefits and other government support are the main reasons why apartment residents have been able to stay on top of payments. Apartment owners have also been very diligent about working with tenants and making sure they’re aware of available resources. But the extended unemployment benefits, enabling the jobless to earn an extra $600 per week on top of their state payments, end July 31.
“We haven’t had eviction problems in this country even though tens of millions of people lost their jobs and tens of thousands of businesses went out of business. The reason is because of the money that went out in the unemployment insurance benefits,” said Bibby. “The eviction moratorium doesn’t accomplish anything; it doesn’t get to the core of the problem, which is that people don’t have the resources to pay.”
DeBoer echoed this sentiment, saying that if Congress were to end the Paycheck Protection Program (PPP) or expanded unemployment benefits before the economy comes back and jobs come back, then he is highly concerned about the ability of people to meet their rent obligations. So far, about $520 billion was distributed from the PPP to roughly 5 million businesses, according to DeBoer.
To what extent will federal government step in?
Lenders are cautious on property types beyond apartments, according to Broeksmit of MBA. “There is some move to get the Fed to broaden its purchase of asset classes, not only newly issued CMBS but also some vintage CMBS, to give some confidence to the market because clearly we are seeing distress in some places,” he said. “Industrial is a bright spot, but hotel and retail are of course suffering.”
There will remain capital sources, such as private equity, according to Broeksmit. But the question looking ahead is whether there are policy-related moves that can be made in order to inspire confidence in the market and get capital flowing.
Walker challenged this notion and asked Broeksmit if it is the role of the federal government to step in and bail these loans out.
“It’s a fair question and depends on what the ultimate goal is today,” answered Broeksmit. “In a health crisis, do we want as a country and an economy, to have all the jobs that are tied up in these endeavors to disappear overnight? Is this such a unique point in our history that we’re willing to give some aid, particularly at a time when the Fed’s reach is so deep?”
DeBoer said it’s important to differentiate today’s coronavirus pandemic from the financial crisis of 2008.
“The financial crisis was caused in many respects by issues and practices in the financial system. Credits were impaired because of impairments in the financial system,” he said. “Today, these real estate credits are impaired not by financial engineering, overleverage or poor underwriting, but because the basic income has ceased on some of these assets due to a health crisis. The solution requires a different tactic.”
The number one priority for Real Estate Roundtable, which is a nonprofit public policy organization representing the interests of real estate, would be to see more rental assistance given to business tenants. DeBoer also said that businesses should receive some assistance from the government on “new and unusual” expenses related to safety and cleaning protocols.
“We have to think of this period as building a bridge to a time when the economy works again, when businesses are open and when people are employed and can stand on their own two feet again,” said DeBoer. “But we need the bridge to get there, and it needs to be strong enough and long enough.”
— Kristin Hiller