Archives for February 2021

Tracker Shows More Multifamily Rent Payments Are Being Made

February 10, 2021 by CARNM

Still, the rent payment numbers are much lower than they were before the pandemic.

The most recent National Multifamily Housing Council Rent Payment Tracker showed an increase in the number of apartment households that made a full or partial rent payment since January.
The NMHC found that 79.2% of respondents in its survey of 11.6 million units made a full or partial rent payment by Feb. 6. In comparison, 76.6% made a full or partial rent payment by Jan. 6, 2021.
Still, the rent payment numbers are much lower than they were before the pandemic. The 79.2% of respondents who made full or partial payment by Feb. 6 is 1.9 percentage point, or 216,479 households decrease from the share who paid rent through Feb. 6, 2020. NMHC says these data encompass a wide variety of market-rate rental properties across the US, which can vary by size, type and average rental price.
The recent $600 stimulus provided a much-needed financial boost to renters, according to the Census Household Pulse Survey Update, which covers Jan. 6 to 18.
Forty-four percent of renter respondents used those stimulus payments to meet their regular financial obligations in the last seven days at the time of the survey. The Census began the survey last Spring to gauge the pandemic’s effects on households’ ability to meet their food and housing obligations.
“Those stimulus payments were really helping renters,” says Claire Gray, a research associate at National Multifamily Housing Council, in a recent video. “You can also see that they’ve relied less on those less stable sources to meet their obligations, like credit cards, borrowing from friends and family and selling assets. The stimulus payments have been very helpful.”
Looking at all households, about half of respondents used their stimulus payment to pay off debt. Roughly 22% have spent their stimulus payments and 26% have mostly saved it, according to Gray.
Doug Bibby, NMHC President, says there is a need for more support, which could be coming in the form of President Biden’s $1.9 trillion package.
“Estimates of 2020 lost rent alone range from $27 billion to nearly $60 billion, despite the impact of previous federal COVID relief efforts,” Bibby said in a prepared statement. “In the coming days and weeks, we urge members of Congress to pass legislation that directly meets renters’ basic financial hardships, protects the nation’s rental housing industry and efficiently provides funds to those who need it most.”
Source: “Tracker Shows More Multifamily Rent Payments Are Being Made“

Another Indicator the Recovery Will Be Fragmented

February 9, 2021 by CARNM

NAIOP’s latest survey shows increased investment for resilient asset classes, like industrial, but challenges in other asset categories.

If the latest impact survey from NAIOP is an indication, the recovery will be a bifurcated one. The organization conducts routine surveys to assess market activity during the pandemic, and the most recent shows investors continue to be weary about the market conditions. Investment activity has improved for resilient asset classes, but others continue to struggle amid the ongoing pandemic.
The survey asks investors to assess recent investment activity. Industrial was the clear winner, with participants responding that there has been stronger deal activity and new development than in both September and August, the previous two surveys. Activity in office and multifamily, however, has slowed. Investors responded seeing fewer existing asset transactions and new construction deals than in September for both asset classes, and more respondents said they saw no new deal activity in the two asset classes. In retail, fewer respondents reported no new deal activity, and there was an increase in deal flow for both existing assets and new construction and redevelopment deals.
With rent collection, there was reason to be more optimistic. Most respondents reported that at least 90% of tenants had paid rent in full and on time. While office, industrial and retail all had improving rent collections compared to the previous survey in September, multifamily collections have faltered from that time. Fewer respondents reported full rent collections above 90%, and more respondents reported that fewer than 50% of tenants had paid rent in full and on time.
While there was some drop for multifamily in terms of on-time collections, survey respondents in all asset categories said that fewer tenants asked for relief or rent assistance. Retail and office showed the most notable improvements in this category.
Looking ahead, the survey also asked how long the coronavirus pandemic is likely to impact business operations. Most participants forecasted challenges for the next 6 to 12 months, an increase from the September survey for this category. Nearly 20% of respondents also forecasted operational challenges for the next 18 months, also an increase from September. This shows continued uncertainty about the pandemic and its ongoing impact on the market.
Mixed investor sentiment has become characteristic of the current market. The Allen Matkins/ UCLA Anderson Forecast biannual commercial real estate survey showed that investors are optimistic on multifamily and industrial product, but pessimistic on the future of retail and office.
However, as the NAIOP survey reflects, retail sentiment is improving. In a recent interview, Gary Glick of Cox, Castle and Nicholson says that the announcement of two vaccines helped to fuel consumer spending at the end of the year, and gave investors a renewed confidence in the eventual recovery of retail.
Source: “Another Indicator the Recovery Will Be Fragmented“

IRS Extends Opportunity Zone Deadlines Again

February 9, 2021 by CARNM

CGS3’s Phil Jelsma gives insight on the recent IRS guidelines that extend the timeline to invest capital gains in an opportunity zone fund.

A few weeks ago the IRS once again extended the deadline to invest capital gains in a qualified opportunity zone. The extension is significant. Investors typically have 180 days to invest capital gains in a qualified fund, but if an investor’s 180-period ended after April 1, 2020, the deadline has been extended to March 31, 2021.
The new guidelines came with a handful of other extensions as well. Opportunity zone legal expert Phil Jelsma, a partner at CGS3, outlines the following extensions:
90% Asset Test: Failure to meet the required 90% asset test on of after April 2020 to June 2021 is deemed due to a reasonable cause.
Reinvestment: If a qualified opportunity zone fund sells a property or business, it typically has 12 months to reinvest those proceeds. Now, if the reinvestment period includes June 30, 2020, the fund has not more than an additional 12 months after that date to reinvest proceeds.
The Substantial Improvement Test: Generally, a qualified fund business has up to 30 months to double its tax basis to satisfy the substantial improvement test. Now, the substantial improvement period is tolled from April 1, 2020 to March 31, 2021. In addition, the working capital safe harbor, which protects funds held by the business to spend on substantial improvement is extended to June 30, 2021 and the business will receive not more than an additional 24 months for a total of not more than 55 months (31 + 24) to expend its working capital.
“Most industries have been impacted in some way by the COVID-19 pandemic, with many opportunity zone investments also adversely impacted and delayed by changes in the financing market,” Jelsma tells Globest.com. “Extending the deadlines will help drive additional investor interest in opportunity zones, as the pandemic continues.”
These deadlines mean that investors have more time to reinvest capital gains taxes from 2020. “Generally, if an investor received capital gains through a 2019 Schedule K-1 from a pass-through entity like a partnership, LLC, s corporation or trust those capital gains would have had to been invested in a QOF by December 31, 2020,” says Jelsma. “That period is now extended to March 31, 2021. In addition, if a taxpayer disposed of stock or property after November 1, 2019, generally those gains can also be deferred by investing in a QOF by March 31, 2021.”
With the pandemic and the economic dislocation ongoing, Jelsma says that it is likely the IRS will issue additional changes or extensions. “I think the IRS recognized that many projects, particularly involving the hospitality, entertainment and restaurant industry, have been delayed by COVID-19. With this in mind, yes I would expect further changes to the IRS’ deadlines in coming weeks,” he says.
In addition to the pandemic, the new administration could also bring or encourage additional changes to the opportunity zone guidelines, although Jelsma says that it is still uncertain what those changes might look like. ‘It still remains to be seen what the Biden Administration plans on doing with Opportunity Zones,” he says. “His campaign released a proposal in August of 2020 with three goals. First, incentivizing QOFs to partner with nonprofit or community-oriented organizations; second, directing the IRS to review the program to ensure tax benefits whether are clear economic, social and environmental benefits to the community; and third, introducing transparency requiring recipients of OZ tax benefits to provide detailed reporting and disclosure. Even though federal scrutiny of the program may be increased under the new administration—especially to further benefit economically disadvantaged Americans—for the most part, the program is very popular and will in all likelihood remain intact.”
Source: “IRS Extends Opportunity Zone Deadlines Again“

January’s Paltry Job Growth Mean a Muted Short-Term for CRE

February 9, 2021 by CARNM

While grocers and food vendors hired personnel, other retailers cut seasonal jobs.

Last week’s disappointing job report highlighted several trends important to the CRE community.
From a general perspective, the resurgence of COVID-19 continued to hang over the economy in January. Only 49,000 jobs were created in the month after a loss of 227,000 positions in December.
Still, there is reason for optimism. In a report analyzing the jobs figures, Marcus & Millichap says the continuing vaccinations and fewer infections in early February could point to brighter days ahead.
In the short-term, though, the picture is more muted for CRE, based on January’s hiring trends.
Outside of a significant surge in hiring by educational institutions, professional and business services drove January’s job growth. However, many of those jobs were for temporary roles, which means firms probably want to maintain flexibility during the pandemic, according to M&M.
The pursuit of temporary solutions doesn’t just apply to hiring. “While most companies see a physical office as a permanent and necessary part of their culture and operations, the exact timing and nature of when and how employees return in mass remains unclear,” according to M&M.
While office vacancies have risen as this uncertainty swirls, Class A space prices have risen moderately, showing there is still long-term demand for the asset type.
Ongoing issues in hotels, restaurants and retail hindered January’s job growth numbers. In hotels, revenue per room remains half of what it was 12 months prior. While leisure and hospitality lost jobs in January, the numbers weren’t as bad as December. With restrictions lessening around dining in California and New York, restaurants and bars in those states may get a boost soon, which could give overall numbers a jolt.
With an end in holiday spending, retail trade jobs were cut in January. Electronics stores and general merchandisers eliminated seasonal hires. Essential retailers, like grocers and food vendors, have performed relatively well and hired personnel in January.
M&& notes that January’s tepid job numbers show the importance of additional stimulus in the form of the Biden administration’s $1.9 trillion proposal. It estimates that if the stimulus is modified by mid-March when the current support systems expire, it could go a long way in carrying the economy until widespread reopenings release pent-up demand.
While the second stimulus gave the US economy essential support, in a recent video John Chang, SVP and director of research services from Marcus & Millichap, said a third stimulus is even more critical.
“If a third round of stimulus is passed, that’s good for real estate,” Chang said. “If a third round of stimulus is stalled, then we can expect the economy to soften and real estate with it.”
For a full recovery, job losses will need to be addressed. M&M notes that the number of people out of work for 27 weeks or longer remained mostly unchanged in January at 4 million, up 250 percent year over year. “Reducing this figure will be a critical part of the recovery going forward,” it said.
Source: “January’s Paltry Job Growth Mean a Muted Short-Term for CRE“