City after city enacting eviction moratorium. How does a large multifamily owner deal with this and how is it going to effect your business? For me this is a major concern if not the biggest short term risk. A nationwide moratorium would be catestrauphic for the industry although its doubtful that would happen at this point. Most likely will be state to state.
If your buying large multifamily, how do you underwrite year 1 or 2 at this point?
If your in contract to buy multifamily, what changes? Are you as buyer retrading or are your buyers retrading? I'm in at the tail end of a stalled sale and middle of a purchase. Everything up in the air right now.
For those of you that purchased late 2019 at market peak prices and low cap rate, any concerns yet?
They found a cheaper and quicker way of taking our properties by forcing many onto forclosure . Just read on TheRealDeal....NYC Statewide Evictiom Moratorium until further notice. Effective 3/16/20 Monday after 5pm. They went from 1 week time period to indefinate within 2 days. Hope the public is not hoarding For Sale signs.
Investor · New York City, NY · Member since 2016 · 155 posts · 105 votes
6y
@Serge S. I can't speak for what to do when you currently need to evict a tenant in a market with an eviction moratorium. But I will say that when reviewing applications for new tenants, it's important to consider their sources of income and ability to pay rent during a recession.
As far as renegotiating purchase contracts...I think it depends on the deal. I'm currently under contract to buy a large apartment complex. But the economic drivers around this property will most likely not be affected much by the recession. So for me, it doesn't make sense to retrade.
With that said, I'm sure there are a lot of other deals out there where buyers will back out or try to renegotiate. It really depends on the market and specifics of the deal.
Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
6y
@Mark Allen Kenny The reason an eviction moratorium is such a big deal is that it would have an effect throughout your P&L. Bad debt would be the obvious but think through the issues if in 30 days you have 20 tenants in a multifamily paying late with no fees or ability to evict. What about if your raising rents and now don't have the turnover you need or demand? If your shopping for a 100+ unit in one of these markets, what does your year 1 look like now?
Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
6y
@Serge S. I’m on the same page as @Mark Allen Kenny with regards to making sure that the tenants aren’t going to be negatively impacted by a recession or other economic hardship out of their control. I am also about to close on a medium sized property and am just enjoying the unexpected lower interest rates.
City after city enacting eviction moratorium. How does a large multifamily owner deal with this and how is it going to effect your business? For me this is a major concern if not the biggest short term risk. A nationwide moratorium would be catestrauphic for the industry although its doubtful that would happen at this point. Most likely will be state to state.
If your buying large multifamily, how do you underwrite year 1 or 2 at this point?
If your in contract to buy multifamily, what changes? Are you as buyer retrading or are your buyers retrading? I'm in at the tail end of a stalled sale and middle of a purchase. Everything up in the air right now.
For those of you that purchased late 2019 at market peak prices and low cap rate, any concerns yet?
These are unuiqe times. Lenders are preparing contingency plans for owners falling behind due to current economic impacts of the situation. They will work it out with the borrower and the borrowers will need to work things out with tenants. Both residential and commercial.
As far as retreading goes if you have a sever situation occur you can certainly ask for a concession. Depending on the delta, seller motivation and competition for the asset you may or may not be successful. I would keep moving forward and include an out if the income drastically changes during the due diligence period. Also make sure to add couple months to you time line for dd and closing and no hard earnest money until this thing passes as lenders will are getting behind.
They found a cheaper and quicker way of taking our properties by forcing many onto forclosure . Just read on TheRealDeal....NYC Statewide Evictiom Moratorium until further notice. Effective 3/16/20 Monday after 5pm. They went from 1 week time period to indefinate within 2 days. Hope the public is not hoarding For Sale signs.
Rental Property Investor · Phoenix, AZ · Member since 2019 · 14 posts · 17 votes
6y
Just my opinion, but if states enact this and close somewhat one sector of business, they have to have a way to compensate or close all sector of business (not allowing lenders collect for example). Seems completely unreasonable to stop one portion when there is a chain of businesses in the circle that will be impacted. If one is taken out, they all must as they are impacted. Nevertheless, it doesn't matter what I think, the law of the land will prevail and we must adapt to survive to the new way of live (even if for a short time). If it happens now, even if for a little, it opens the same door in the future.
The article states that this is for city-owned properties, not all properties. So I don't think there is a need to panic. This protection isn't for all Arizonans or even all of Phoenix. Most Arizona rental properties are privately owned.
If the state were to expand the coverage to all tenants, I don't think they would do it without extending similar protections to landlords too given the extreme circumstances surrounding this.
Real Estate Attorney and Investor · Scottsdale, AZ · Member since 2011 · 23 posts · 15 votes
6y
@Serge S.
You can deal with past due rents as part of the prorations at closing, even if they are more significant than normal, but if you are financing the purchase of your apartments, you need to talk to the lender to see if the underwriting can account for the new possibility of lower collections in the short term. Most larger multifamily loans have strict debt service coverage ratio (DSCR) requirements/covenants based on your actual cash flows. If the lender can't work with you, then you need to consider retrading with your seller to account for the lower short term cash flow.
The buyer on your other deal is probably thinking through these same steps so you need to get ahead of this and address collections right away.