June 1, 2020 |
Updated August 4, 2021
The CARES Act helps one asset manager keep its platforms intact as it waits for things to turn.
This is the seventh in a recurring series of articles looking at how apartment owners, managers and developers have mobilized to protect themselves and their residents from the spread of the novel (meaning new) coronavirus (COVID-19) in the U.S.
IRM is a large real estate asset management firm, operating 250 assets across the country in multifamily, hotels, restaurants, urgent care, offices and malls. While the company has a foothold in many areas of commercial real estate, multifamily is its backbone.
Apartments make up 112 of its communities.
In most typical downturns, commercial real estate operators with diverse portfolios can at least rely on apartments to buffer their revenues. One of the reasons that apartments are a favored asset class is that even in tough times, operators can lower their rents and still find residents. In severe recessions, office and retail spaces can often sit empty.
But the COVID-19 pandemic is forcing real estate executives to reevaluate that playbook. “The [usual] logic is that if I start lowering my rent, I will eventually find people who want to lease these apartments,” says Jeff Holzmann, CEO of IMT. “Right now, it doesn’t work this way. In this environment, when people are mandated by law to stay at home, I can’t even bring the leasing agent to the property to do a tour and show the apartment.”
A bigger problem than not being able to attract new prospects is that some current residents are not paying. Holzmann says IRM has to remove residents regardless of whether it’s an apartment, retail, or office occupant.
A big reason for that is the support that the Coronavirus Aid, Relief, and Economic Security Act (CARES), a $2 trillion economic stimulus, will provide IRM. The Act mandates 90-days forbearance for any borrowers of federally backed multifamily mortgages. For IRM, which has mortgages with Fannie Mae and Freddie Mac, that’s a lifeline that helps it keeps its residents.
“We don’t have to pay what is probably our single biggest ticket item every month,” Holzmann says. “We’re able to pay payroll, taxes, utilities and keep this thing alive.”
There is yet another way the CARES Act helps IRM. It offers incentives to keep employees. “This impacts everything from collecting rent to dispatching the maintenance person to fix an apartment to making sure utility bills are paid,” Holzmann says. “So if I have to start cutting people, the residents are going to be affected. The government essentially giving us tax credits [to retain workers] is huge because they’re making it easier for me to keep my staff.”
That continuity helps IRM and its residents. “You can’t lay off people and expect to just bring them back in four months,” Holzmann says. “They’re not going to put their life on hold because IRM had to downsize. They’re going to find other jobs.”
Like many firms, IRM conceived an internal task force to communicate daily about COVID-19. The group includes representatives from legal, residential, commercial, capital markets and operations. The team, which analyzes all of the financial relief programs that are being put out by government agencies, went into overdrive when the CARES Act was passed.
“When something like this [the CARES Act] happens, and new guidance is put out by the day, the only way for me to deal with that is to put together a task force of people because I don’t have a coronavirus guy on my staff,” Holzmann says.
On the property management side, Holzmann wanted to ensure IRM’s residents were educated about coronavirus. “We started securing things like sanitizers and paper towels so we could have supplies on hand,” Holzmann says. “We also educated the tenants either through a digital portal or just by printing out flyers and putting them on their door and in their mailbox.”