How to choose your tenants in the middle of a pandemic crisis?
- Posted by admin
The aftermath of the 2020 health crisis has hit the U.S. labor market hard, particularly certain industries that have been heavily impacted by the containment and social distancing measures. This situation has and will continue to have an impact on the real estate market, which is closely tied to the labor market in a region and the financial health of its residents.
Which industries are the least resilient to the crisis?
Although the COVID-19 pandemic has affected all industries in one way or another, some that were already historically unstable have found themselves in great difficulty.
The accommodation and food services sector saw the most job losses of any sector in the U.S., with more than 3.2 million fewer jobs between February and August, according to a research report by the National Multifamily Housing Council (NMHC). The arts, entertainment and recreation sector was also hit hard, with 869,700 jobs lost.
Unfortunately for apartment landlords, the areas that have been hit hardest by the pandemic, and thus have experienced the most job losses, are also home to the most renters. This, in turn, greatly increases the risk of non-payment of rent by workers in these areas for apartment property owners, according to a recent report by the National Multifamily Housing Council.
What impact on the real estate market?
Such a massive loss of jobs in these sectors is likely to hurt apartments in highly exposed areas, according to the NMHC report. "Apartment residents accounted for 18 percent of all accommodation and food services employees in 2018. This sector has the highest share of the workforce living in apartments." In addition, employment levels in the sector fell 22.7 percent from February to August, the second largest national decline after arts, entertainment and recreation, which fell 35.2 percent."
According to the report, workers in the hotel and restaurant sub-sectors, as well as the leisure, gaming and movie industries, are concentrated in major metropolitan areas such as Las Vegas, Los Angeles, New Orleans, New York and Orlando. These concentrations, in some of the most expensive rental markets in the country, have already and will likely continue to result in numerous delinquencies.
Conclusion:
Apartment residents employed in these subsectors therefore face increased vulnerability according to the report. This means that potential investors and apartment owners in geographic areas with high concentrations of these industries could see their portfolios face increasing risk as the pandemic continues.
At Florida Invest, we have long been aware of the fragility of these industries, and we carefully select our micro-markets and tenants so as not to heavily expose our investors to them. This strategy has resulted in a rental payment rate of over 97% in August, compared to a national average of 80.2% (Source: Sun Sentinel).
This continuing uncertainty about the resilience of the apartment market in this tenant segment will provide new opportunities, increasing the risk premium. An investment window looms in the last quarter of 2020, opening the field for investors ready to take their place in the U.S. real estate market smartly.
Sources: GlobeSt, National Multifamily Housing Council, Sun Sentinel.
0 Comments