Local landlords say they have collected 85% to 92% of the rent due this month, calling such a decrease “survivable” —for now.
By Jeff Collins
Tustin resident Maria Henry contacted her landlord when her work hours got cut to four hours per day because of the coronavirus outbreak.
Could she pay just two-thirds of her $2,020 rent until her next paycheck arrived?
At management’s request, she filled out the company’s “COVID-19 financial hardship form” and submitted a letter from her employer confirming she “had her regular work hours cut in half effective March 19th.”
She paid her first installment on time but didn’t pay the final $620 until April 10 —late for the first time since she moved to the two-bedroom unit five years ago with her partner, son and a Doberman-Rottweiler mutt named Beau.
“I knew I was going to be able to pay my rent,” said Henry, 44, a certified addiction specialist and mental health counselor. “(But) it wasn’t easy. There’s some juggling that had to go on.”
Late, partial and no payments were the rule for perhaps 10% or more of Southern California’s renters as the effects of the COVID-19 pandemic idled about 2.8 million California workers inthe past month.
Throughout the region, rental property owners accustomed to low vacancy and 98% collection rates are adapting to the changing circumstances as they grapple with expenses that include mortgage payments, utility and trash bills, maintenanceand insurance.
“We’re counting on our tenants to pass on their unemployment checks because the government hasn’t done anything for us,” said Joseph Ebin, president of Los Angeles-based TurnKey Properties, which manages 152 apartments in Santa Monica, Palms, Koreatown and West L.A. “Everything (we pay) has to be paid in full.”
For now, many of the local landlords contacted are breathing a sigh of relief, reporting collections ranging from 85% to 92% for April. While below normal, that’s better than what’s been reported nationwide. Local landlords fear collections will weaken in May and June after tenants exhaust their savings.
Non-payments are up
The National Multifamily Housing Council reported Wednesday that a survey of 11.5 million apartments showed 84% of U.S. tenant households had paid all or part of their April rent by Sunday, April 12. That’s down from a normal collection rate of 90% to 91%.
Seventy-three of 95 Southern California renters responding to an Apartment List online poll earlier this month said they made a full payment by April 5, with just nine reporting they had paid nothing.
And a survey by CBRE agents of about 25,000 units in Orange County and bordering Los Angeles County cities found that 90% paid this month’s rent in full, 6% made a partial payment and 4% paid nothing. The survey included 60 owners, with buildings ranging from 5 units to just over 100 units.
“It’s not terrible. We have 90% of the revenue collected,” said Larry Rubenstein, who owns more than 300 units in 20 apartment buildings in the San Gabriel Valley and West L.A. “Ten percent is still a lot. It’s still painful. But it’s survivable.”
Taking a haircut
With a new coronavirus vaccine more than a year away and the threat of new infections looming through winter,how long can landlords sustain such losses?
Housing economists and landlords interviewed predict most should be able to weather the pandemic’s effects as government assistance kicks in. Highly leveraged owners and those who bought their properties in recent years will be most at risk, they say.
Richard Green, director of USC’s Lusk Center for Real Estate, noted apartment owners are in much better shape than shopping center owners, hotels, and maybe even office landlords.
“The key is whether they are getting forbearance on their loans. If they have a (government-backed) agency loan, they should ... still have plenty of cash flow to cover expenses,” Green said.
Christopher Thornberg, founder of Beacon Economics in Los Angeles, was skeptical of claims by some landlord groups that more government assistance is needed.
“People who own property, because of lending restrictions, got a lot of equity,” the former UCLA economics professor said.
Thornberg conceded some landlords are going to “take a bit of a haircut.”
“But we’re going to be OK,” he said.
Skylar Olsen, Zillow‘s director of economic research, expressed greater concern for renters who will be expected to repay back rent when the emergency is over.Fifty-six percent of tenants already spend a third or more of their monthly income on housing costs and 30% spend more than half.
“They didn’t start with comfortable rent burdens,” Olsen said. “Now I’m paying all the old rent ... on top of a normal rent burden. That’s pretty tough.”
A dire May
Nineteen of Rubenstein’s 300 units paid nothing this month. Twenty-five made partial payments.
A spreadsheet compiled by his staff listed a host of reasons.
“No work for the last three weeks. Will pay when able,” one tenant said.
A singer and actor also reported being out of work. Several said they drive for Uber or Lyft, one is a self-employed truck driver, and others said they were either laid off or furloughed due to the outbreak.
“They can’t work,” said Michael Pollock, who manages 1,500 units in more than 60 properties as operations director for Monem Corp. of Redondo Beach. “A lot of them, especially in the Hollywood area, are freelancing and Uber-ing and bartending and waitressing, and they have been hit hard.”
Monem’s collections vary from building tobuilding, with some of their owners getting almost all of the revenue, while others collected as little as 50%, Pollock said.
Unless those investors get some type of help, their buildings could get foreclosed, he said.
And next month could be worse.
“The May situation seems much more dire,” said Fred Wolf, who manages 900 L.A. County units, 65 of which hadn’t paid their rent by April 10. In addition, some tenants moved out back to their parents’ homes after losing their jobs.
“If this continues, and money gets used up, it could get worse,” said Nicholas Dunlap, senior vice president for Irvine-based Avanath Capital Management and a past president of the Apartment Association of Orange County. “The real fear is the long term.
”Landlords and property management groups said buildings with higher numbers of white-collar workers who can work from home were faring better than workforce housing.
“A lot of people were already living paycheck to paycheck,” said Francisco Dueñas, executive director for the Housing Now coalition, which advocates for renters. “Not having a paycheck means they don’t have any income."
Handing in the keys
Some local landlords who also manage storefronts and other commercial properties said those collections are far worse than they are for apartments.
One tenant at a shopping center Wolf manages only paid 85% of its rent, while two restaurants and a store sought rent deferrals for up to six months.
“Goodwill handed us the keys and said, goodbye,” Wolf said.
Calabasas-based Marcus & Millichap, a commercial real estate services firm, estimated mall landlords with higher concentrations of nonessential tenants collected about 10% to 25% of their rents, while centers with more essential tenants like grocers and pharmacies collected50% to 60% of their rents, the Wall Street Journal reported.
“I prefer to give them more time (to pay their rent),” Wolf said. “I want to make sure that they make it.”
There have been news reports of some management companies pressuring renters to sign payment plans or put their rents first. The Wall Street Journal reported that some landlords are trying to find ways to verify rent delinquencies are due to the pandemic, fearing some who can pay are using the outbreak as an excuse to withhold payments.
But many landlords said they’re trying to work with their apartment tenants to help them out.“We’re all in the same boat, whether we’re renters or owners,” Pollock said.During the past week, Maria Henry got a call from the owner of her complex.
“He offered to make monetary arrangements to assist with the rent for April,” Henry said. “Having already managed that, he stated that he will email the options for May.”
The original article can be found here.