Tenants and landlords across the country are bracing for Wednesday, when April rents are due just as thousands of people have lost their jobs and most businesses have been shut down as a result of the coronavirus pandemic.
As $81 billion in rent payments are about to come due, renters are warning landlords they won't pay. Property owners are having delicate conversations with their lenders. And regulators are racing to keep the wheels of finance turning in the middle of a global health crisis.
Few in the industry are certain how things will play out. Most agree that laid-off renters and shuttered retailers are suffering, and that the pain is going to spread as long as the economy is locked down.
"The hardest thing right now is that nobody actually knows how bad it's going to get," said Willy Walker, chief executive officer at commercial real estate lender Walker & Dunlop Inc. "That's driving everybody crazy."
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After a long economic boom in which tight housing inventory gave apartment landlords unprecedented power to raise rents, the shoe is on the other foot as the calendar turns toward April. Many local governments have placed temporary bans on evictions, and there's a growing sense that even tenants who can afford to pay will skip rent.
The federal regulator of giant mortgage buyers Fannie Mae and Freddie Mac is aiming to provide relief from eviction for renters in multifamily buildings who are affected by the viral crisis.
The Federal Housing Finance Agency says Fannie and Freddie will offer owners of multifamily properties forbearance relief on their mortgages, on condition they suspend all evictions of renters who are unable to pay because of the fallout from the virus. The two companies together guarantee about half of the U.S. home-loan market.
Last week they temporarily suspended foreclosures and evictions of borrowers in single-family homes whose mortgages they guarantee.
Apartment owners collect more than $22 billion in rent in a typical month, roughly a quarter of the total that landlords take in across major types of commercial property, according to CoStar Group Inc. In an extreme scenario, more than 25% of the households that rent in the U.S. may need help making payments because of the coronavirus, requiring up to $12 billion a month in government support, according to research from Amherst Holdings.
Sydney Wen owns a three-unit rental triplex in Torrance, Calif., and one of his tenants is a babysitter who suddenly lost her job because her clients were sent home to work, removing the need for her services.
"I will support her" by trying to find a negotiated solution, Wen said. "I hope my other two tenants will keep paying rent. But if they stop, I will continue to support them, too. I will not kick them out. I used to be on food stamps, I know their struggle."
Residential landlords aren't the only ones worried. Retail owners have little leverage, since a quarantine is a bad time to find new tenants. Rental debt typically must be paid eventually, but uncertainty about the economic impact of the virus makes it hard to anticipate when people and businesses will be able to make up missed payments.
"If tenants stop paying rent, then at some point landlords can't pay utilities," said Scott Rechler, chief executive officer at RXR Realty, a New York-based owner of offices, apartments and other properties. "The municipalities don't get their property taxes or mortgages aren't paid and the banks get a spike in defaulting loans."
Across credit markets, regulators are racing to prepare for missed rent to turn into late loan payments. The apartment industry alone has more than $1.5 trillion in outstanding debt, said Dave Borsos, vice president of capital markets at the National Multifamily Housing Council.
American renters, meanwhile, are making their own calculations. Kansas Wade, a 28-year-old recruiter for tech companies in Austin, sent an anxious email to her landlord after social-distancing efforts cost her girlfriend her job as a hairdresser. Their property manager dismissed a request to reduce or defer part of the monthly $1,400 payment, leaving Wade to worry she'll have to use her credit card to make rent.
While the stimulus package passed by Congress should eventually put cash in the pockets of consumers and make emergency loans available to small business owners, the economic carnage is still unfolding. Jobless claims are spiking, with economists estimating that 3.3 million Americans filed for unemployment last week.
"I'm less worried about April," said Bruce McNeilage, CEO of Kinloch Partners, which operates single-family rental homes. "I'm more worried about May 1. Once people miss three or four paychecks, that's when things get bad."
Information for this article was contributed by Patrick Clark and Nic Querolo of Bloomberg News, by staff members of The Associated Press, and by James F. Peltz of the Los Angeles Times.
Business on 03/31/2020