The mission of John Burns Real Estate Consulting is “to help executives make informed housing industry investment decisions.” And despite the uncertainty in the global economy today, a recovery will be in our future. In this newsletter, we choose to focus on the positive, and each week we will offer The Light, or a potential strategy / competitive advantage in the housing industry arising from the turmoil caused by the COVID-19 pandemic.
First, the market landscape of apartments. Below are the conditions from which we anticipate opportunities will arise.
Rentals are likely to be hard hit. Given the current outlook, many renters are likely to experience an income reduction. Leases that expire may not get renewed, and some tenants will not be able to pay their rents. Shelter in place orders are spreading throughout the country. We are expecting massive layoffs in retail, hotel, tourism, trade, and many other industries. While current apartment communities may stay occupied, newly constructed apartments may need to discount, potentially heavily, to lease up.
Finding the Light
Adjust to social distancing. Leasing staff sitting in offices will not be a viable model for the foreseeable future. The apartment industry could mirror home builders who have successfully embraced online appointments and virtual tours. Another good example is the single-family rental industry, which is already using apps like Rently that allow prospective renters to view models (on their own) at any time of the day (or night) by receiving a unique code on their phones to enter a model.
Establish a sense of community. With increased social distancing, renters will be lacking (and most likely seeking) a true sense of community. Property managers can provide simple conveniences like a good flow of information, coffee, and strong Internet connections for those working from home (or binge-watching streaming services). We are hearing innovative ideas from our clients that include window decorating contests (with toilet paper as the prize), community bingo, and exercise classes from tenant balconies. These extra efforts can go a long way in renter satisfaction and renewal rates in the future, which will be vital when we emerge from the current uncertainty.
Consider diversifying your portfolio with single-family rentals. Entry-level for-sale builders in some markets have expanded backlogs of homes under contract right now. In the last week, JBREC surveyed more than 50 builders across the country. The builders told us that home buyers are, by and large, not walking away from their contracts, and entry-level buyers are enticed by some great interest rates and affordable home buying opportunities. But what happens if the COVID-19 pandemic continues and some of those buyers walk away, either out of fear or out of financial necessity? There could be inventories of entry-level homes available for purchase to operate as rentals. Determine where those entry-level inventories are, which markets and submarkets, and watch them closely.
Look for our next edition of The Light as we discuss the evolution of community design and home building post crisis.
Contact Lesley Deutch or Ken Perlman to talk about how we can help you find your strategic advantage in this unprecedented time of uncertainty.
We will continue our weekly webinars for our research subscribers, who are going to help our firm through to the proverbial light at the end of the tunnel. Their willingness to share insights with us during these times is making us all smarter.