Multifamily Downturn Q&A - May 4th, 2020

For the last few weeks, we have been running a weekly "downturn" roundtable discussion for our clients (a group that includes some of the most experienced pricing and revenue management practitioners in the industry).  Each week we have been summarizing the insights that were shared during our latest discussion.

The content below is presented below in Q&A format, and all responses are anonymous. If you have different insights, opinions, or questions that you would like us to address in the coming weeks, please leave them in the comments or contact us through the site.

We've been getting questions about how companies are handling self-show and virtual tours. Are you doing both or either? If you are doing self-showing, how are you handling any concerns about cleansing between shows? (Summary of responses below)

• Companies are generally offering both, with virtual now ubiquitous and self-show at a growing subset of properties.
• In some properties leasing agents leave the unit unlocked for the day, with wipe-down of door handles and hard surfaces after each self-guided tour.
• There is little or no pushback from existing residents, particularly in garden-style - incidence was greater in high-rise.
• One operator just purchased wall-mounted infrared temperature sensors with alarm. 
• One operator shared that A-class properties are seeing better results with the virtual shows, but B & C have much higher demand for self-shows.
• Tours at many properties were back up to pre-COVID 19 levels using virtual tours; however, new leases are down and flat to the prior year.
• Canceled move-ins seem to be becoming a problem, some reported healthy preleasing but not vacant leasing.

May 1st is only two days away now, so we're curious about rent collection. NMHC is working on an April summary. Multi-housing news already reported 91.5% collection against the prior year of the same month, 95.6%. Does anyone on the call have any more information on this?

• It's a little early for May for us, but the way April is closing feels really good. We're ending up April only about 5% down vs. typical, and I think the fear was that it would be at least double that. We've closed the month pretty well, but not sure about May yet.
• One midwest company reports 93% for April, which is normal.
• Too early for May, but April closed at 2.3% delinquency, which I'm presuming is not a bad number at all.  

If May numbers end up similar to April, will begin to breathe a sigh of relief, or will we then just begin to worry about June 1st?

• Our mostly A-Class portfolio is tracking month-over-month delinquency: the current month is a little higher than last month. That's May vs. April.
• [D2] We've been doing this very unscientific study of leasing activity in about 140,000 units - we showed the chart last week, and the numbers continue to improve based on this week. 
• Leasing is up 30% over previous weeks.
• We had consistent traffic and leasing from the week of April 18th - to the week of the 24th.
• We saw a spike the week ending April 18th.
• In our [large] portfolio, we have seen steady leasing in the last couple of weeks but cancels have jumped 40% week-over-week. 
• Cancels are up considerably in our Houston properties.

Where people are seeing strong occupancy numbers, how much is real occupancy (meaning you've actually had move-is vs. are you seeing the potential)? It seems that some people intend to move but keep kicking the can to move-in, how long do you let them do that, and what point do you maybe force the canceled move-in?

• We increased our hold times from 12 days to 21 days several weeks ago. We saw a steady increase in the percentage of our homes that are being held. Since then, we started to ratchet that back to normal, so we're now back to 15 days based on strong demand. I still see markets of ours where there's a big imbalance when you look at your 30-day exposure, and when you look at your occupancy. I know 30-day exposure at 5% doesn't necessarily imply that you're heading to 95%, but what I'm seeing is like 3%, 30-day exposure, and 93% occupancy, which doesn't pass the smell test. So in those markets, I've advocated for returning to normal. 
• One asset manager conducted a review - with occupancies holding in the 94s. Still, there are individual properties that have exposures or availabilities in the 3-5 percentage range, and yet have negative lease trade-outs in the 8, 9, 10%. Maybe buying that occupancy was the right thing to do a few weeks ago, but at the same time, there is a danger now that we made sweeping changes in the first few weeks. It's extremely important to look not just community by community, but unit type by unit type, and look for opportunities to maybe be a little more aggressive on pricing, or at least less conservative. 

What prelease numbers do people see 6 and 12 weeks out? I hear a lot about current occupancy, but curious if people see a big drop-off in the future?

• Several reported more preleasing than vacant leasing with pushing move-ins. So I think with hold times and monitoring if you're at 8, 9, 10% exposure, and you've got a couple of percent of additional holds, that's probably OK because you have plenty of availability. If you are down a unit type with lower exposure and you have a bunch of those holds, you might want to start pushing for those move-ins. 

[Audience Question:] What are people doing for their new lease pricing, in what we refer to as the stage 2 scenario (ie, when you have traffic)? Is anybody trying to do a heads-in-beds strategy, and try to buy occupancy?

One client we've been working with has a property, a lease-up in Phoenix, where there are a lot of lease-ups.  One of them in particular, is clearing following a heads-in-beds strategy, so we actually helped advise them that they need to fight fire-with-fire. It's certainly not something they wanted to do, but they were just not leasing the lease-up with this other company doing that, so that was a competitive response. In general, they are trying to be a little quicker to move down if they have to, be a little slower to get aggressive (but not zero) on the increases. 

Properties that come to us with low exposure, they want to at least hold if not even look for some rent increase opportunities. I know that the single-family world has been seeing stronger demand than multi-family, so I believe that they've been backing out of some of their very conservative settings, even on renewals. I have heard of some cases where people are starting to go for some small renewal increases, where it's justified. 

Another example: with a different client, one of the things we've noted is some clear places where the original, conservative COVID settings probably are no longer appropriate. It will not be a criticism of the settings they put into place, which made sense 6 or 7 weeks ago, but not anymore based on the traffic and leasing they are getting.

In this case, it makes sense to go back to sort of normal parameter settings or maybe use low-season instead of high-season when we get into May or June, but to have the extremely low COVID settings, it's very case-by-case, but there are clearly some sub-markets where that's not appropriate. Again, monitor it closely, because that may change very quickly.

This post is the fourth summary in a weekly series - please use the comments or contact us to provide feedback or additional questions for our forthcoming roundtable discussions.

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