August 25, 2020 |
Updated September 23, 2020
Lockdowns make due diligence harder, while job losses make it more difficult to do valuations. Still, some companies are getting deals done.
Play the long game.
When you expect to own apartment communities for up to 10 years, conservatively underwrite the near term, while understanding how things will change and stabilize over the long haul.
“Amenitize” for the new normal.
It is essential that residents have a convenient work-from-home setup that includes Wi-Fi, a coworking space and access to onsite activities and amenities such as fitness classes.
Focus on strong suburban markets.
The current economic environment has pushed large employers and their employees into secondary markets, mainly in the Southeast, where there are diverse employment options and a relatively high median income. This movement has created a large number of quality jobs where working from home is a viable option.
Stick with what you know.
During the coronavirus pandemic, pursuing apartment communities in markets your company is comfortable in is more likely lead to success. Already owning communities there should allow you access to a great deal of ready-to-use microeconomic data.
Engage in intensive property management.
Having a concentrated property management strategy in place from day one should help you weather the storm in the short term.
Take advantage of the low-interest-rate environment.
The current market conditions have led to historically low interest rates, making leveraging acquisitions less expensive than ever.
Stay nimble with a value-add strategy.
Not underwriting extensive capital expenditures during the first year should put your company ahead of schedule if things change.
Embrace the new virtual reality.
From due diligence to advertising and leasing, the commercial real estate industry’s shift to a more virtual experience has accelerated. Many of these trends are likely here to stay.
Work in “good faith.”
When studying a potential acquisition, audit the seller’s collections policies and identify opportunities to improve on them immediately after acquisition. Working in good faith with individuals who have been affected by COVID-19 should be a priority, and executing payment plans to preserve residents’ tenancy is key.
Get creative with sellers.
To hedge against the unique effects of the pandemic, more and more buyers and sellers are agreeing to some sort of escrow holdback to cover potential future impacts on collections and occupancy.
Chris Hirth, Vice President, Asset Management, Capital Square