Moratoriums mean continued uncertainty for investors
For investors looking to buy apartments, moratoriums on evictions from the Centers for Disease Control and Prevention (CDC) and local governments are creating uncertainty.
Essentially, investors will have to update their rental listings more than usual in some acquisitions. “For investors, it is just uncertain how you can bet on rent or consolidate the numbers until this is [eviction moratoriums] shake it up, ”says Andrew Rosenberg, partner at Cassin & Cassin LLP. “Investors will proceed, but they will proceed with more caution, which means they have better reserves or they are paying a lower rate.”
While the moratoriums hurt income, Rosenberg believes most properties will be fine in the long run. Thus, investors with longer time horizons will still benefit from apartment ownership.
“Once that deadline has expired, they can operate the buildings as they always have, using whatever rights they have to get rid of people who refuse to pay,” Rosenberg said. “So I think this will make the buildings more marketable. In the medium to long term, it takes a bit of time for people to get back in their place and get back in the groove. But once they do, especially the professional owners who have a lot of buildings and have systems in place, I think they can get back on track there.
While some investors expected distress in commercial real estate earlier in the pandemic, Rosenberg doesn’t see many problems with apartments, even those that have been hit hard by moratoriums on evictions.
“Banks don’t want to own property,” he says. “At the end of the day, foreclosure is not a good result for a bank. So they will do what they can within reason. Maybe it’s more reservations. This may be an increased guarantee of some of the arrears. This could be to defer rents or to extend the term of the loan a bit. There are things they can do to make it happen.
But the desire to avoid owning apartments is not the only driving force behind banks. “Banks, especially banks that are relational banks, will work with borrowers to the extent possible and keep performing loans one way or another,” Rosenberg said.
While banks may want to work with lenders, they also have people to whom they are accountable.
“The important thing for lenders is to show regulators that their loans are performing,” says Rosenberg. “We have seen a number of lenders being quite accommodating, whether it is allowing people to apply collateral [deposits] or allow people to grant rent concessions. It is generally prohibited under the loan document. So now I think you’ve seen a lot of people working together to try to keep everyone alive, so to speak. “