During these first few months of the COVID-19 crisis, the two things that multifamily operators are most concerned about are rent collections and leasing volumes. So far the results have been more than a little bit interesting (and to many people counter-intuitive).

On the leasing side, we saw a massive drop in demand in the first three weeks. Overall, leasing was down more than 50%, and some urban coastal markets were down 80-90%. Since then, however, leasing has recovered such that most secondary and tertiary markets are now at or above prior year volume while the urban coastal markets are generally within 20-25% of prior year volumes.

Meanwhile, rent collections were a topic of great angst, first for April 1; then, when April numbers came in generally off only 4-6 points from prior year, there was a great concern that May 1 could be a disaster. Based on data from NMHC, May appears to be coming in slightly better than April.

Candidly, we’ve been surprised by leasing resilience though obviously very glad to see it. However, we were not surprised by rent collections. Very early on, we realized that most hourly workers were going to receive more in unemployment benefits than they were earning working, thanks to the $600 per week federal boost. We were concerned that timing (i.e., cash flow) could be an issue since state unemployment offices were inundated with filings and likely to be delayed in approving claims and issuing checks. If states got behind in March and early April but have been catching up since then, that may explain why May is a bit better than April.

We certainly don’t mean to be cavalier about the record 36 million unemployment claims in the past eight weeks; however, the signs are that the current federal support should carry us through at least the next couple of months.

Why we should beware of September 1

This brings me to the point of this blog. If our hypothesis is correct, then June and July rent collections will be fine, perhaps even better than May. The scary date to us is now September 1. We know the focus right now is on the short-term, particularly the various forms of re-opening and figuring out how to expand resident and prospect services safely. It’s hard to think beyond a couple of weeks ahead, but we need to plan for both the likely and worst-case scenarios coming at the end of the summer. Three things stand out to us:

1. The additional federal unemployment support is scheduled to run out at the end of July. So, rent payments through August 1 are likely to be okay. Beyond that is anyone’s guess, especially given that it’s an election year. Both parties should be highly motivated to agree on some form of extension, so the likely scenario is additional federal support (though perhaps at some reduced level as the government will not want to continue to incent unemployed workers to resist going back to work). However, the worst-case scenario of a sudden cliff in unemployment support is still possible and would likely result in a substantial decline in rent payments starting September 1.

2. Right now, seasonality is a tailwind for demand, and that changes at the end of the summer. We’ve seen this movie before. The Great Recession officially started December 2007, but seasonality tailwinds made the summer of 2008 seem much better than it really was. It wasn’t until the fourth quarter of 2008 that we fully felt the impact. We could see that pattern repeat this year, especially considering recent leasing, which has benefited from some pent up demand from the lockdowns in March and April.

3. I’m not an epidemiologist, so this is just our layperson’s feelings from reading and listening to the news. Dr. Fauci and many other scientists have warned that the virus could be worse this fall/winter than it is right now. Whether due to seasonalities in virulence or just the coming confluence of this virus with “normal” seasonal flu, we could see some massive issues in the 4th quarter. A resurgent virus could arrive at a time when seasonality is already a headwind, and electoral politics render federal support even more uncertain.