The COVID-19 pandemic has impacted many of our day-to-day activities in ways that were unimaginable just a few months ago. While healthcare, education, transportation, and tourism were some of the employment sectors at the forefront of COVID-19’s impact, the real estate industry has not gone untouched. Notable shifts have occurred in rent and mortgage delinquencies, eviction moratoriums have been implemented on state and federal levels, short-term mortgage forbearance has been made available, and foreclosures have temporarily been put on hold and some projects in the development pipeline have been delayed. The impact has touched both residential and commercial development.
According to preliminary research conducted by Bowen National Research (a national real estate research firm), the initial impact from COVID-19 Stay-at-Home orders issued around much of the country for multifamily rental properties and senior care facilities (assisted living and nursing homes), and the general reluctance of prospective renters to move during that past two months, have revealed a sharp decline in rental property traffic, particularly among senior care facilities. Rent delinquencies have been reported to be on the rise, while resident turnover among multifamily rentals appears to have slowed and rents appear to have stabilized. At the same time, property management companies have responded with improved communications with tenants, directing residents to financial assistance resources, making arrangements to accept reduced rent payments, and offering virtual property tours to prospective tenants. While these trends address existing rental housing, a point of interest for the real estate development and investment community is trying to gauge how the pandemic will impact the future of rental residential development.
As part of standard real estate development endeavors, a great level of due diligence is required to assess the market and financial feasibility of a project, evaluate environmental concerns, estimate property values and ultimately assess the potential risks of each project. However, many aspects of traditional due diligence, as it relates to market research, has been limited or altered due to government-issued shelter-in-place orders, travel restrictions, and social distancing requirements. Specific market research which has been most impacted by the COVID-19 pandemic include in-person evaluations of a site for development/rehabilitation, in-person surveys of existing housing stock, and in-person interviews with area real estate professionals and/or property managers. In response, the real estate and market research industries have had to make adjustments to its research approaches and expectations.
Many state Housing Finance Agencies (HFAs), lenders, syndicators, and other end users of market feasibility studies have modified their typical protocol/requirements as related to how market feasibility studies are prepared during the pandemic. In fact, some HFAs have postponed deadlines for upcoming Tax Credit applications, prohibited on-site research, and/or provided alternatives to typical research approaches. The private sector (e.g. syndicators, investors, etc.) has also responded by extending closing dates and temporarily eliminated on-site visits and in-market research, while requesting supplemental data and analysis on such items as rent delinquencies, resident turnover, and prospective resident traffic changes since the start of the pandemic.
Additionally, the National Council of Housing Market Analysts (NCHMA) published a memorandum entitled COVID-19’s Impact on Field Work for Market Studies which outlines key factors/recommendations for market analysts to consider during the ongoing COVID-19 pandemic. The memorandum recommends end users of market studies to consider delaying the issuance of a full market feasibility report until a market analyst is safely able to conduct a thorough in-person/on-site analysis of the subject site and/or market. However, in cases where analysts must proceed with conducting research to complete a market study, NCHMA’s memorandum provides some general guidance on alternative research approaches to consider. This memorandum, as well as links to several relevant resources, can be found at: https://www.housingonline.com/wp-content/uploads/2020/04/COVID-19%E2%80%99s-Impact-on-Field-Work-for-Market-Studies.pdf
Bowen National Research believes there are many viable alternatives to traditional on-site market research. These include the approach of conducting “virtual” and/or windshield analyses of a proposed site, market, and comparable/competitive properties in an effort to limit field work as much as possible. A virtual analysis includes the evaluation of a proposed site or market utilizing various online tools and additional information (i.e. maps, photos, etc.) provided by persons in the subject market or familiar with the subject site. In comparison, a windshield analysis involves the evaluation of the same components but by a market analyst from their vehicle whenever possible. These efforts reduce the risk to the market analysts and the general public, while enabling the analyst to conduct the research that is needed.
In addition to the preceding site work, data collection can also be conducted via a telephone survey of existing housing product and by utilizing various online sources, recent published data/studies for a given market, and/or additional reliable third-party data. These alternative data collection methods are implemented to further limit face-to-face interaction and field work, but also because many property managers, city officials, and other area stakeholders with whom an analyst would typically conduct in-person interviews with are currently working from home and/or have limited office and visitation hours. In any case, all notable alternative data collection methods should be disclosed within each market study in an effort for full disclosure of any potential limitations of the report.
Finally, industry stakeholders will want to consider the collection and analysis of certain metrics to help provide additional insight on the impact of the pandemic on the local housing market and economy. Questions related to the recent rent or occupancy changes, new rent concessions, the change in the rate of rent delinquencies, recent trends in tenant turnover and changes in prospective tenant traffic at individual properties should be addressed. Additionally, some thought should be given to historical economic patterns of past significant downturns (e.g. Great Recession of 2007-2009) within the subject market, comparing total employment and unemployment rates, changes in employment by job sector and changes in wages by occupation during this time with recent employment changes. Such data and analysis may assist in forecasting the future of the local housing market.
It is possible that thorough due diligence can be conducted to properly assess the market feasibility of residential development while mutually complying with the recommended social distancing and health guidelines of both federal and state entities, as they relate to a pandemic like COVID-19. The research alternatives provided in this document, as well as in the NCHMA recommended practices memorandum, should serve as guidelines to properly complete real estate research and market feasibility studies during these unprecedented times.
For more information about Bowen National Research, please visit our website at www.bowennational.com or call us at 614-833-9300.
