PROPERTY MANAGEMENT tinued rental rate increases would eventually provide enough income to put the income state-ment in the black. Rent growth has recently slowed across markets, however. What’s more, most of those multifamily buyers used floating-rate bridge loans to finance the acquisitions and failed to anticipate interest rates spiking over the past year. “Interest rates moved up, property taxes have gone up way more than expected, and insur-ance costs have gone up more than expected — it’s a triple hit,” Mitch-ell explains. For some negative-leverage buyers who have seen decent rent growth, the rising expenses mean that they STEPHEN are stuck in “an equally MITCHELL negative position or one Asset Living that has become more complicated,” he adds. Institutional Property Advisors, during an event hosted by NMHC in April. Developers are ex-pected to deliver about 400,000 units this year, an amount that’s likely to exceed demand, he added. In some markets, such as Phoenix, Denver and Atlanta, the combination of slowing house-hold formation and new supply is weighing on rent growth, states Mitchell. Whether that’s a short-term trend exclusive to specific markets or a more fundamental shift that will spread to other cities remains to be seen. “It’s market to market,” he adds. “We’re be-ginning to see some classic concessions again in some markets — free rent in the one-to-two-month range. ” Bonaventure, an owner and operator of 6,000 units in 32 apartment communities primarily in the Mid-Atlantic and Southeast, continues to see strong property fundamentals and income growth in its markets despite an uptick in new construction, says Dwight Dunton, founder and CEO of the firm. Bonaventure also has built its portfolio with fixed-rate debt, he adds, which is giving it an edge over competitors who tapped floating-rate loans. “The stability of our financing position gives us the flexibility to con -tinue putting capital to work on planned CapEx and marketing events while other property owners may have to de-lay projects as their in-terest payments rise,” Dunton remarks. “The capital markets have had DWIGHT DUNTON limited impact on prop-Bonaventure erty-level needs for us.” Demand Persists Asset Living manages the St. Paul Collection, a 165-unit community in Denver’s Cherry Creek North neighborhood. By comparison, the state of Illinois required a five-day eviction notice for non-payment of rent prior to the pandemic, shares John Kennedy, executive vice president of operations with Evergreen Real Estate Group, a Chicago-based owner and operator of 11,000 primarily affordable housing units in the Midwest and Southeast. Evergreen also is expanding in the Northeast and West. “Thirty days is a long time, especially if you have a number of residents who are taking ad-vantage of the rule,” he asserts. “Our staff works very hard with residents to find an alternative solution because it’s our preference not to evict people. But it has been much more difficult to collect rent.” Plus, Kennedy continues, the end of pandemic-related rental assistance will likely drive rent deliquencies higher. The National Apartment Association (NAA) notes that a CARES Act drafting error allowed the 30-day notice rule to remain in place for too long. Legislation introduced in Congress ear-lier this year and supported by the association would vacate the requirement, according to an NAA spokesperson. The eviction delay places more pressure on affordable housing property managers. In ad-dition to their daily duties of maximizing oc-cupancy, collecting rent and performing main-tenance, for example, they are tasked with tracking and enforcing income restrictions in projects financed with low-income housing tax credits or public aid. “I’ve been doing this for about 30 years, and the industry has become much more complex,” emphasizes Kennedy. “You’ve got different agen-cies looking at your paperwork and conducting audits, so it’s an ongoing challenge to maintain high standards and meet expectations.” www.MultifamilyAffordableHousing.com The operating atmosphere isn’t all gloomy. Record high home prices continue to funnel people into rental apartments, a sector that has been undersupplied by 600,000 units since the financial crisis slowed building, according to the National Multifamily Housing Council (NMHC), a trade group based in Washington, D.C. Renter demand also rebounded in the first quarter of 2023. While 1,900 more units were va -cated than leased, the number still represented a big improvement over the negative absorp-tion of 14,000 units in the fourth quarter of 2022, according to CBRE. The brokerage giant’s pre-diction that absorption would turn positive in the second quarter of this year came to fruition as 70,200 units were leased. That represented the most significant quarterly demand since early 2022, CBRE reports. “Multifamily is well-positioned in the current environment to continue to provide solid returns for investors,” declares Avery Solomon, a senior managing director with Cushman & Wakefield, which manages more than 178,000 units na -tionwide. “With the rise of home prices as well as interest rates nationally, AVERY SOLOMON we see opportunity in all Cushman & multifamily asset classes Wakefield in the major metros.” But a slowing economy and an abundance of development still threaten to undercut occu-pancy. More than 1 million apartment units are under construction in the United States, pointed out Greg Willett, a multifamily specialist with Regulatory Creep Arguably the biggest challenge that the multifamily sector faced during the pandemic was the inability to evict tenants who did not pay rent. The good news is that those eviction moratoriums have all but ended. In some cases, as Equity Residential high -lighted in its first-quarter earnings release, de -linquent tenants are beginning to pay rent or move out quicker than initially expected. That’s true even in California, where some jurisdic-tions had extended eviction bans into the sum-mer. It can still take several months to evict ten-ants, however. Not only does a backlog of cases plague courts — a trend generally most pro-nounced in tenant-friendly jurisdictions like Atlanta and Chicago — but the 30-day eviction notice that Congress established in the $2.2 tril -lion Coronavirus Aid, Relief and Economic Se-curity (CARES) Act during the pandemic also remains in place for properties backed by feder-al housing programs, including Fannie Mae and Freddie Mac mortgages. 20 | Texas Multifamily & Affordable Housing Business | July/August 2023
Texas Multifamily & Affordable Housing Business July/August 2023: Page 20
