Affordable apartments could suffer 50% hit to bottom line: Fitch

Higher operating expenses, lower rent collections, and more evictions forecast

TRD NATIONAL /
Oct.October 15, 2020 07:00 AM
(Getty)

(Getty)

A ratings agency predicts as much as a 50 percent hit to landlords’ bottom line at unsubsidized affordable apartments, which may lead to evictions when federal moratoriums expire.

Fitch Ratings predicts “full, on-time rental payments” for affordable properties subsidized by the government, which includes federal rental voucher programs such as Section 8. But properties that don’t receive subsidies could see a total discount to their debt service coverage ratio of as much as 40 to 50 percent, due to a 30 percent drop in rent payments as well as a pandemic-driven jump in operating costs.

Both subsidized and unsubsidized affordable multifamily properties are likely to see a 10 to 20 percent increase in operating expenses, Fitch predicts.

For the time being, few borrowers with multifamily mortgages tracked by Fitch are behind on payments, despite high unemployment levels and widespread economic distress. Only 0.56 percent of borrowers whose loans are in CMBS transactions were delinquent in September, compared with 0.41 percent prior to the pandemic.

Overall, multifamily has not suffered as much as other sectors, such as hospitality and retail, which have scrambled to lure travelers and shoppers back while government orders limit their ability to do so.

But a true assessment of the current state of the multifamily market has been hindered by programs that allow property owners to defer payments on a short-term basis. Until the end of the year, multifamily properties with federally-backed mortgages can apply to defer their debt payments for three or six months. Banks which lend to multifamily property owners have offered deferral plans, too, but many of those agreements will start to expire at the end of this month. After those agreements expire, Fitch expects a slight uptick in delinquencies.

Still, some data points offer clues for how the damage to the multifamily sector will unfold in the coming months.

Job losses in the hospitality and retail sectors, whose employees largely can’t work from home, have led to a disproportionate impact on low-income renters. A survey conducted by the U.S. Census Bureau found that, by the end of September, a third of renters who were behind on their rent payments made less than $25,000 per year. Fitch predicts higher instances of missed rent payments — and evictions, after federal limits on evictions expire at the end of the year — in areas where unemployment has remained high.

Rent collections in market-rate apartments have also decreased, although less dramatically than at affordable properties. In September, rent payments at professionally managed units dwindled to 76 percent, the lowest level since the National Multifamily Housing Council started tracking those rents in March.

Rent-regulated apartments in New York City have consistently lagged about 10 percentage points behind the rent collection figures NMHC has released, Jay Martin, executive president of the Community Housing Improvement Project, told a virtual audience at the New York Multifamily Summit last Friday.





    Related Articles

    arrow_forward_ios
    Clockwise from top left: 162 West 13th Street, 325 Avenue Y in Brooklyn, 1281 Viele Avenue in the Bronx (Credit: Google Maps)

    Here’s what the $10M-$30M NYC investment sales market looked like last week

    Here’s what the $10M-$30M NYC investment sales market looked like last week
    Real Capital Analytics data showed that New York’s multifamily market had a very slow July. (Credit: iStock)

    New NYC rent law “beginning to shut down investment”

    New NYC rent law “beginning to shut down investment”
    Numbers were down across the board (Credit: iStock)

    New York’s multifamily market had its slowest first half of the year since 2011

    New York’s multifamily market had its slowest first half of the year since 2011
    Columbia Property Trust CEO Nelson Mills and 245-249 West 17th Street (Photos via Columbia Property Trust; StreetEasy)

    Columbia Property Trust collects 98% of its rent in Q3

    Columbia Property Trust collects 98% of its rent in Q3
    The Factory building at 30-30 47th Avenue with Square Mile Capital’s Craig Solomon and Invesco CEO Marty Flanagan (Photos via The Factory; Square Mile; Invesco)

    Here’s what tenants are paying at the Factory in Long Island City

    Here’s what tenants are paying at the Factory in Long Island City
    Bob Sulentic (Getty, iStock)

    CBRE income falls nearly 10%

    CBRE income falls nearly 10%
    From left: Paramount CEO Albert Behler, 1301 6th Avenue, 712 5th Avenue, 31 West 52nd Street (Getty; Google Maps)

    Paramount Group back at work, but tenants waiting until 2021

    Paramount Group back at work, but tenants waiting until 2021
    Tony Malkin (Getty, iStock)

    Empire State Realty Trust reports second consecutive quarterly loss

    Empire State Realty Trust reports second consecutive quarterly loss
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...