As tenants struggle to make monthly payments due to the economic impact of the coronavirus pandemic, apartment owners are starting to feel the pressure.
Owners of multi-family apartment buildings are behind on loan repayments. Building revenue for some has been insufficient to cover bank loan payments due to the federal eviction moratorium and “rentless tenants,” The Wall Street Journal reported.The Biden Administration offers continue the current moratoriums on evictions and foreclosures, which are due to end in March, until September.
During the pandemic, the percentage of total apartment debt that banks placed in their riskiest categories rose from 4.6% to 16.9%, according to business information firm Trepp.
Developers of new apartment buildings are even more vulnerable as they must fill units as many tenants choose to move out of town to buy houses in the suburbs or look for apartments in places where the cost of living is lower. Sales of apartment buildings in the United States fell 28% last year, the worst result in six years, according to data from Real Capital Analytics.
Since few lenders are available to help these struggling developers, some have turned to investors offering builders short-term, high-cost loans to sustain their operations until the pandemic subsides.
Still, some real estate experts believe apartment owners are better positioned to survive this recession than the last, largely due to their relatively low debt levels. Additionally, experts say banks may be less willing to foreclose delinquent apartment owners than commercial property owners due to the belief that apartments are good long-term investments, while brick-and-mortar stores are obsolete.
Real Estate Investment Trusts (REITs) with exposure to the US residential apartment rental market have been among the worst sectors of the stock market over the past year. AIMCO, which was removed from the S&P 500 index last year to make room for Tesla, has seen its shares plummet in 2020, while rivals Equity Residential and Avalon Bay have fallen 20% or more over the course of the year. of the last year. This contrasts with homebuilders like Toll Brothers and KB Homes, which hit record highs last year.
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