Landlords brace for impact of pandemic
With debt to repay and rent rolls at risk, multifamily owners look to government
Landlords are scrubbing down their apartment buildings, but no amount of Clorox is going to help when the rent checks stop.
In a series of interviews, owners of multifamily portfolios said they have responded to the coronavirus outbreak by stepping up cleaning in their properties, staggering their employees’ shifts and having them work remotely. What they cannot control, though, is the loss of income their tenants are suffering as the coronavirus pandemic wreaks havoc with the regional economy.
While most have not yet seen a drop-off in rents, many expect their cash flow to be severely strained early next month. They are hoping for lenience from lenders or relief from the government, such as Gov. Andrew Cuomo provided to financially strapped homeowners Thursday.
That’s not their only concern. Although none of the landlords reported cases of Covid-19 in their buildings, they had yet to hear from city or state officials about what to do when they learn of one. Some said they would notify everyone in the building, while others said it is not their duty to do so.
The bucks stop here
With a decline in rent revenue all but inevitable, landlords face uncomfortable conversations with their lenders. They are also anxiously awaiting help from the government, and some are frustrated that regulators are not forcing banks to place their mortgages in forbearance.
The moment comes only nine months after state lawmakers outraged the real estate community with a tenant-friendly overhaul of rent stabilization.
“This is a time where we put our differences aside, forget about June 2019 in Albany, and work together to make sure the city stays strong and resilient,” said Craig Gambardella, an attorney at Kucker Marino Winiarsky and Bittens. “If that means a community bank provides a landlord who has purchased a building a few years ago with a forbearance, that’s what I hope, as a New Yorker, the banks do.”
New York’s community banks, which are go-to lenders on rent-regulated apartments that house low-income tenants, do not have the reserves that national banks do, and those tenants often lack the savings to weather an abrupt loss of employment.
“It’s only the 19th of the month, so community banks still have a little cushion,” Craig L. Price, a partner at law firm Belkin Burden Goldman, said Thursday.
“Cuomo said ‘we’ll suspend mortgage payments,’ but what do they expect apartment owners to do?”
He added that banks are in conversations with Cuomo to find a solution. “[Banks] can obviously enter into their own forbearance periods, extending the loans out, simply modifying their loans,” said Price. “But I’m sure it will depend on what the governor says to them.”
A spokesperson for Signature Bank said “it is too soon for us to comment” on the impact of coronavirus on their lending practices or whether the bank might give landlords a break.
Requests to New York Community Bank and M&T Bank for comment went unanswered. Dime Bank declined to comment.
One reason for banks’ hesitancy to lend or refinance is the uncertainty about what building portfolios are worth; appraisals have ground to a stop. “God forbid someone in the building gets hit with coronavirus, how does that impact the value?” said Gambardella. “How do appraisals happen if they can’t get in the building?”
Some landlords say they would prefer assistance in the form of a tax abatement, although it is unclear how that will happen with the state budget due by April 1 and revenue plummeting for the state and its localities.
“A real estate tax abatement is probably the simplest way to address [the crisis],” said one multifamily landlord. “Tomorrow the state or city could flip a switch and say, ‘property taxes are deferred and you have to pass it on to tenants.’”
Like other landlords, Daniel Goldstein, principal of E&M Management, which owns thousands of units in New York City and the Hudson Valley, is concerned about what to do when the rent rolls drop — although he said he has not yet broached that subject with his lenders.
“The real key issue is the banks,” Goldstein said. “Cuomo said ‘we’ll suspend mortgage payments,’ but what do they expect apartment owners to do? They’re trying to protect the homeowner. But they’re not protecting renters.”
When tenants get sick
Landlords and attorneys are divided on what to do when, inevitably, one of their tenants tests positive for coronavirus.
Gambardella is telling his landlord clients that they aren’t required to let others in the building know if a tenant has been infected with coronavirus.
“I don’t think that there is an affirmative obligation for landlords to advise their tenants that another resident was sick,” said Gambardella, adding that if a landlord has a good relationship with their tenants, and an announcement would not cause undue alarm, “it wouldn’t be such a bad idea” to post a notice.
Goldstein said there has been no instruction from regulators.
“There’s nothing we can do,” said Goldstein. “We can’t shut down a building — we don’t have the authority to do that — and there’s no guideline that says we should let [tenants] know.”
A spokesperson for Zara Realty, which owns more than 2,000 units in New York, said that, while the situation hasn’t come up yet, it would expect the Department of Health to notify tenants of a positive test.
The principal of another large New York City multifamily firm said it would not notify tenants if there were a case in their building, saying, “It’s something for the Department of Health to deal with, not us.,”
But Stellar Management, which has more than 100 buildings in New York and Miami, would take a different approach.
“Should a confirmed case of Covid-19 in one of our buildings be brought to our attention we are notifying all tenants to make sure they, along with our building staff, take extra precautions,” said a spokesperson.
While landlords wait on guidance from the city, some real estate attorneys suggest they call their insurance carriers to see if they have coverage for loss of rent caused by the outbreak.
“I’ve heard some have it and some don’t,” Gambardella said. “And obviously we will find out soon.”
Scrub, scrub, scrub
“Landlords are mopping, Cloroxing, whatever it takes. It’s important from a liability standpoint and from a social obligation standpoint. I don’t know any landlord who isn’t.”
Landlords are swabbing down their buildings like never before to keep the new coronavirus from getting a foothold.
“Our No. 1 priority is maintaining a healthy living environment for our residents,” said Stellar Management’s spokesperson. Stellar is deep-cleaning buildings multiple times a day, has shut down amenity spaces and is encouraging no-contact deliveries.
Queens-based Zara is stepping up cleaning in common areas and disinfecting “doorknobs, elevator buttons and other high-touch surfaces,” a spokesperson for the firm said.
“We are providing protective equipment, including masks and rubber gloves, for maintenance staff as they work in common areas and as needed to perform repair work in individual units,” said the spokesperson. “We are also distributing hand sanitizer to staff and will be setting up hand-sanitizer stations in lobbies as more supplies become available.”
The responsibility to clean may also be a legal imperative, some real estate attorneys say.
“Landlords are mopping, Cloroxing … whatever it takes,” said Gambardella. “It’s important from the liability standpoint they do that, as well as from a social obligation standpoint. I don’t know any landlord who isn’t.”
Several landlords have reported a temporary decline in day-to-day costs, as commercial tenants stop using utilities and residents skip repair requests.
“We still have to maintain essential services — boilers, hot water, garbage — you don’t want rats coming in,” said Goldstein. “But we’re getting a lot less calls for repairs. And when we do, we ask if it’s essential — and if it’s not an emergency, they say, ‘We’ll wait.’’’
Another principal at a New York City multifamily firm said there has been a “noticeable drop-off in repair requests, because people just want to stay home, or don’t want people in their apartments.”
Landlords with commercial tenants are also seeing a drop in utility costs as businesses clear out. Bars and restaurants were closed to drinkers and diners Monday night and schools have shuttered. Cuomo mandated Thursday that non-essential businesses have no more than 25 percent of employees report to work. And the governor warned of more restrictions if the virus keeps spreading.
Goldstein said half of the employees in his complexes were already furloughed in response to earlier guidance from Cuomo. Other workers are staying home out of fear.
“We don’t know if a worker has coronavirus, we don’t know if the tenant has it,” said Goldstein.
“We definitely don’t want [workers] to give it to a tenant who has kids.”
Write to Georgia Kromrei at email@example.com