Adobe Stock

With COVID-19 protocols relaxing at almost the mid-year mark, multifamily owners and operators are looking at more certainty and a new normal for the second half of 2021.

“Widespread vaccine accessibility offers a lot of bright spots, including having amenity spaces open up, a return to in-person events, and encouraging a sense of community at our properties,” says Max Sharkansky, managing partner at Trion Properties, a Los Angeles–based multifamily real estate investment firm. “While we have all become comfortable with virtual events and Zoom calls, nothing encourages real camaraderie like face-to-face interactions, and everyone misses them. In-person events at our properties are more memorable for our staff and residents, and we look forward to bringing even more fun and interesting opportunities for our residents to gather and participate as we put 2020 behind us.”

Lance Goss, vice president of apartment living at HHHunt, which has a portfolio of over 7,000 apartment homes from Maryland to South Carolina, agrees that it’s been good to see residents and colleagues connect again in person.

“The heaviness of 2020 has taken a toll on everyone,” he says. “It is exciting to see what the new normal will look like. We also will be able to collaborate more in person with our colleagues. In-person conferences will start up again, and we will be able to build new relationships with industry professionals. I think it is a bit of a renaissance for us. We can learn a lot from what we have gone through and really build on that knowledge as we plan for the future.”

Industry leaders are seeing positive indicators as they look toward the remaining six months of the year, with rent growth starting to rise, concessions reduced, and strong traffic levels.

“While rent collections are not quite back to pre-pandemic levels, they have improved,” says Sharkansky. “We anticipate the momentum will continue to build during the second half of the year as the economy increasingly opens up, unemployment decreases, and people make shifts in their living situation related to these changes.”

Sean Burton, CEO of Cityview, a vertically integrated real estate investment management firm focused on the West Coast, is also optimistic about the second half of the year.

“We are seeing strong recovery in our projects, with occupancy at near pre-pandemic rates and positive trade-outs,” he says. “Our pipeline is extremely strong, and we have many exciting opportunities in the value-add and development space. We also are looking to continue to grow our Opportunity Zone portfolio and see a number of opportunities in that area as well.”

Burton says Cityview is looking at a number of value-add projects for acquisition as well as seeing a strong appetite from investors in multifamily value-add and development opportunities.

Sharkansky adds that there are a lot of opportunities to acquire assets right now, but it’s a competitive landscape. Investors who took a wait-and-see approach during the pandemic and opportunity funds that have reallocated capital to multifamily from other asset classes are eager to deploy capital in value-add investments in growth markets. “While there are a lot of opportunities to buy assets of a value-add profile, this asset class is more competitive than ever because of the amount of liquidity chasing deals. Despite predictions of distressed assets coming on the market, these predictions haven’t materialized—the market is on fire.”

Industry Challenges Remain

While most have a positive outlook for the future, it’s not all smooth sailing for multifamily owners and operators.

The CDC recently extended the nationwide eviction moratorium one final time through the end of July, and owners are taking steps to work with their residents.

Goss says HHHunt plans to continue to work with residents who are experiencing issues by having them take advantage of the rental assistance programs in place.

Avanath Capital Management also has taken proactive steps to help its renters throughout the pandemic.

“There are some misnomers about evictions, which center around bad owners and bad landlords,” says John Williams, president and chief investment officer at Avanath Capital Management.

In 2019, he says Avanath had approximately 60 evictions, with about 50 for bad behavior and 10 for financial reasons. In spring 2020, the investment firm instituted a plan to work with residents on payment plans if they had financial issues. Williams says out of 10,000 units, only 90 residents applied.

“Less than 1% ever came to us,” he says. “Right now, we have been successful in making sure if someone has a payment they still owe that they are working with cities and social service networks to get that cleared. We don’t think we’re going to have a tidal wave.”

As new multifamily development continues to be on a positive trajectory, skyrocketing material costs also are weighing on industry stakeholders. The industry has seen good news with falling lumber prices over past weeks.

“Clearly costs are at an all-time high and, more recently, availability is becoming a factor. The current climate has forced us to adjust the way we purchase materials and negotiate contracts,” says Robert Chappelle, vice president of construction and design at HHHunt. “We are having to evaluate design criteria on the front end and then manage the timing of purchases to coincide with anticipated market dips that favor our positions. We are also having to assess those availability impacts to our schedules and evaluate how to best adjust to stay ahead of those impacts when and where possible.”

Burton adds that Cityview has been tracking lumber costs closely and began building in contingency plans for the rising prices several months ago to try to mitigate any line-item budget overages.

“This increase has been largely limited to the increase in raw materials, and associated labor costs have not been increasing at near as rapid a rate,” he says. “There have been other impacts as well. Now, lumber material can only be ordered 90 days out from delivery, it is difficult to source, and there is no certainty that delivery dates will be maintained by the suppliers without incurring a premium. It has become increasingly important to work with trusted contractors who have strong relationships.”

However, despite pricing increases, Burton says he has not seen development cool with Cityview having four active development projects totaling over 1,100 units under construction.

“While rising lumber costs are due in part to supply, there is also high demand for these materials, which is causing delivery delays and driving up pricing.”

Williams adds that hiring is another challenge Avanath is facing. “The only tough spot we’re having is the 30 open positions we’re trying to hire for,” he says, adding that maintenance techs are in high demand and hard to find.

The firm, which focuses on the affordable and workforce housing space, plans to start an internship program for its residents who are in high school. “That’s a job pool that we have not tapped,” he adds. “We’re putting together a program to train people.”