Berkadia’s 2020 Mid-Year Powerhouse Poll finds that the initial concerns about the COVID-19 pandemic’s impact on multifamily real estate have not been realized, and Berkadia mortgage bankers and investment sales experts agree that while activity may not return to “normal” until 2021, opportunities still exist in the current climate.
The proprietary poll was conducted in early July and collected insights from nearly 150 Berkadia investment sales brokers and mortgage bankers across 60 offices.
Despite early concerns, 55% of Berkadia professionals agree that current market activity is better than expected compared to how they initially thought COVID-19 would impact the industry overall. Thirty-four percent say the current market is in line with their expectations.
The optimism is telling, Ernie Katai, executive vice president and head of production at Berkadia, tells GlobeSt.com. “I’ve done several of these polls and one thing I am always encouraged by is the optimism of the people in the day to day trenches.”
He remembers a couple of years ago when interest rates had risen by a couple of hundred basis points and capital was looking thin. “People were optimistic then too,” Katai says.
While transaction volume is understandably lower than initial projections for the year, 69% of Powerhouse Poll respondents feel confident that capital conditions will return to normal in 2021. Berkadia professionals’ sense of the timeline of recovery aligns with that of investors, as well. The firm’s Apartment Investor Sentiment Survey shows increased confidence in the multifamily market over time. When initially surveyed in April, 47% of investors agreed that recovery from current capital conditions by 2021 was likely—the same survey conducted in June saw that number rise to 55%.
Waiting for More Government Relief
Looking forward, the industry is waiting to see what level of relief will be forthcoming from the federal government. Negotiations are underway now between Congress and the Trump Administration on several issues, including the extension of unemployment benefits—which have helped many renters pay their monthly rent—as well as a further moratorium on evictions.
There is definitely consternation about the possibility of a lack of action in the sector, Katai says. “How the government continues to respond is, no question, an important issue to us.”
This is also a state-by-state story, Katai adds. The situation on the ground can vary significantly depending on the city and state and local legislation.
Because the multifamily industry’s fundamentals are linked to government relief during the pandemic, interest in the upcoming presidential elections are unusually high for the sector, according to Katai.
“The November elections are getting a lot of attention. Our Berkadian debt people said it was the second most important issue for multifamily and our investment sales people said it was the most important.”
Right now Berkadia is weighing three different scenarios and what they could mean for the multifamily industry, Katai says: The presumptive Democratic nominee Joe Biden wins and sweeps Congress; President Donald Trump wins and sweeps Congress; and a winner emerges between these two but Congress remains divided.
“Right now we are digging deep into the implications of these scenarios,” Katai says.
Increased Focus on Affordable Housing
The poll also made clear that the economic impacts of the pandemic have caused investors to give greater consideration to property types that are expected to weather the storm better than others. When asked to rank housing types based on their ability to maintain success through a prolonged economic slowdown, Berkadia experts noted Class B (85%), true affordable (81%) and Class A (69%) housing as most likely to sustain.
Current economic conditions shed more light on the ongoing need for affordable housing throughout the country, and as a result, investor interest in multifamily properties specifically targeting low-income residents continues to rise. Eighty-one percent of Berkadia professionals agree that investors will be more interested in affordable housing properties than before, as a result of COVID-19’s economic impact.
“While the affordable housing market has been impacted by COVID-19, it has performed better than other asset classes and is comparatively well positioned for recovery,” Katai says.
When asked to identify three potential solutions for improving the affordable housing crisis, modifying tax credit policy (76%), local and state government intervention (61%) and regulatory changes for GSEs (43%) were cited most frequently by Berkadia respondents.