How 2020 Changed The Way Multifamily Owners And Developers Plan For 2021

After nine months of coronavirus-fueled unpredictability, the coming year and its promise of a vaccine are looking like the light at the end of the tunnel for many in commercial real estate.

But there is a big difference between seeing the end of the pandemic and reaching it, many working in Southern California multifamily said. 

Though the sector has done fairly well through the pandemic, especially when compared to retail or hotel properties, the uncertainty that defined much of 2020 is exerting a big influence over decisions multifamily owners and developers are making for the coming year. 

For some Southern California multifamily owners, a lot of the uncertainty comes from not knowing whether local eviction moratoriums will be extended or for how long. Though there are surveys, trackers and data sets that offer estimates of how many tenants are paying rent — and usually find above 90% collections — there are no definite numbers.  

A CBRE report published in the first week of December forecast that multifamily vacancy would hit its “cyclical peak” in Q1 2021, and rents would reach their low the following quarter.

“After that, the market should experience a fairly rapid recovery with rents returning to their pre-COVID level by Q1 2022,” the report said.

But multifamily is still a gray area, George Smith Partners Managing Director and principal Bryan Shaffer said. 

“There are eviction moratoriums, but there are also, apparently, people paying rent,” Shaffer said. “On the retail or hotel side, it’s very obvious how the market is doing. There’s less visibility for multifamily. Nobody knows.”

Universe Holdings CEO and founder Henry Manoucheri estimates that over 92% of the tenants at the properties his firm owns in Southern California are paying rent. Still, Manoucheri said, the pandemic has made rent collection in Los Angeles challenging, while his properties in other parts of Southern California — in San Diego or the Inland Empire — have not been.

The difficulties were the boost Manoucheri said he needed to get really serious about expanding his company’s portfolio farther afield. He is now bidding on East Coast assets and exploring Arizona, as well as looking closely at Southern California suburban markets, where he already owns some properties. 

“We’re looking for more open markets without the sort of left-wing restrictions that have plagued the Los Angeles market more than any other place,” Manoucheri said.   

Eviction moratoriums that were rolled out at various points during the pandemic on a national, state and local level have been challenged by individual landlords and landlord associations along the way. 

Developers are also changing tack, Shaffer said. 

Coming into 2020, developers were planning large, upscale projects with big budgets and high-rise towers. Now, GSP is seeing requests for smaller projects, many of them aimed at workforce or affordable tenants.  

“That’s been the biggest change,” Shaffer said. “It’s not so much the number of projects but it is the size. We’re not seeing that many $300M projects anymore. We’re seeing $30M projects.”

Shaffer said that from the lending side, he sees a similar shift — a desire to get capital invested in middle-of-the-road, working-class properties and limited appetite for high-end projects, many of which were mixed-use and included a retail component. 

“There just aren’t lenders out there willing to provide capital for those type of projects today,” Schaffer said.  

The promise of a vaccine was highly anticipated by multifamily owners and developers as something that might help to give clarity to the situation. But although looking forward to the next year is a business necessity, it is clear the effects of 2020 will be long-lasting. 

“There’s hope that we can get back to normal, but the question is, what did we lose between January 2020 and January 2021?” Shaffer said.