MB 208: Is the Sky Falling? – With an Expert Panel of Multifamily Operators
Beyond the risks it poses to our health, the Coronavirus is causing chaos in our economic system as well. Businesses have closed their doors and many Americans have lost their jobs or had their hours cut. And the stock market is on its way down. But what does it all mean for us as multifamily investors? Is the sky falling? Or are there things we can do to protect ourselves and serve our tenants in this challenging time? On this episode of Apartment Building Investing, I’m sitting down with an expert panel of multifamily operators that includes Drew Kniffin, Brian Burke, John Cohen, Reed Goossens, Andrew Cushman and Ellie Perlman to discuss what we are doing to protect our investments and our investors through the Coronavirus pandemic. We share our strategies for income preservation and expense reduction, explaining how we are supporting tenants through the crisis and what programs we are leveraging to keep our employees on payroll. We go on to address how COVID-19 is likely to impact passive investors and offer insight on what they can do to take advantage of the shift to a buyer’s market. Finally, we explore the short-, medium- and long-term implications of the economic fallout from the Coronavirus and describe the incredible wealth-building opportunity available to savvy real estate investors in the months to come. Listen in to understand what defines a good deal in the current environment and learn how to use this time to prepare for the next up cycle! Key Takeaways What Andrew is doing as an owner to protect his investments Put together resources for tenants Negotiate with service providers to cut costs Apply for Paycheck Protection Program Flexible with tenants, reward early payment No increase in rent on lease renewals How John’s team is navigating the Coronavirus crisis Reach out to tenants with message ‘here for you’ Focus on tenant retention, mitigating expenses Ellie’s insight on tenants who can’t pay vs. tenants who won’t CARES Act prohibits evection whether lost job or not Depends on prior relationship with tenants, location The additional things Ellie’s team is doing to navigate COVID-19 Offer furnished model units to traveling nurses Security deposits to pay rent, replace with insurance The additional things Brian’s team is doing to navigate COVID-19 Refer tenants to Project Porchlight financial counseling Postpone rent or amortize over next several months $50 grocery gift card if reach out to explain situation Brian’s insight into the Paycheck Protection Program SBA loan to cover 2.5X payroll if keep employees May not apply to third-party property manager Reed’s perspective on the Coronavirus crisis Keep hysteria manageable, get good info to tenants Share maintenance tech across portfolio How Drew and Brian think about the risk for passive investors Money safe if deal well-capitalized + plenty of reserves Most sponsors halt distributions next quarterly cycle Little/no rent growth and reduced occupancy for awhile John’s insight on how the crisis will change lender behavior Vet sponsors harder moving forward Require 12-plus months of reserves The overnight shift from a seller’s market to a buyer’s market Must assess risk of unknown (focus on #s, not emotion) Buyers ask for discount based on current financials What passive investors should do in the short-term More opportunity to invest in quality deals Conduct proper due diligence on operator Our predictions around what to expect in the short term All feel pain as transaction velocity grinds to halt Be proactive, lenders willing to work with us Our predictions around what to expect in the medium term Take time for income and job growth to recover Wealth building opportunity if not too anxious Our predictions around what to expect in the long term Look back and laugh in years to come Grow and get stronger from weathering storm How to stress test acquisitions in this new environment Over-raise for operations and capital expenditures Reduces IRR but money on hand for rainy day events Why it’s hard to underwrite deals right now No good info on change in economic vacancy rates Year-on-year rental growth will take massive hit How student housing may be affected by the Coronavirus crisis Protected if parent guarantee in leases, semester vs. year Consider reaching out to hospitals to provide extra beds How the stock market crash will affect our ability to raise capital Some investors not as liquid due to stock market losses Those with capital to deploy may prefer real estate What the average investor should be doing right now Get educated and line up investors Start underwriting deals, develop parameters Choose markets likely to come back quickly Don’t get too excited but be ready for up cycle The moratorium on evictions due to COVID-19 Local governments not processing evictions at this time Forbearance requires not evict anyone over term of loan The potential growth of secondary and tertiary markets Less dense = safer than tight, urban environments Also depends on economic makeup of area What defines a good deal in this environment 60- to 90-day due diligence No hard money down, financing contingency Mitigate risk with conservative underwriting Retrade with integrity if value goes south The 5 steps for making a successful shift to entrepreneurship Singular focus Measurable action plan Proper time management Understanding of finances Accountability Connect with the Expert Panel Drew Kniffin Brian Burke John Cohen Reed Goossens Andrew Cushman Ellie Perlman Resources Deal Maker Live Deal Maker Mastermind Michael’s Products a Programs Michael’s Mentoring Program Nighthawk Equity The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications by Brian Burke CARES Act Paycheck Protection Program Project Porchlight Josh Thomas Podcast Show Notes Review the Podcast on iTunes Michael’s Website Michael on Facebook Michael on Instagram Michael on YouTube Apartment Investor Network Facebook Group
