Archives April 2020

des moines skyline.

Will the Commercial Real Estate Market in Des Moines Fall During Economic Uncertainty?

There’s been a lot of unknowns in the news lately, but one thing we’re sure is coming is a financial slow down. The coronavirus pandemic has caused hardships for not only local business owners, but many individuals who are currently out of a job. This lack of spending will have ripple effects in many industries, including the real estate market in Des Moines.

Many local investors in the multifamily housing market are nervous about whether or not tenants will be able to make rent payments during the upcoming economic downturn. Our market research team surveyed many local property owners to assess the current climate and project the commercial real estate trends we expect to see in the coming months. See how the commercial real estate market in Des Moines stacks up compared to national averages.

Insights From Des Moines Property Owners: The Current Multifamily Housing Market

The Katalyst Team sent a questionnaire the past two months asking questions about what local property owners experienced during the months of April and May. This data reflects how individuals may have been affected after COVID-19 precautions had been put into place, causing job losses and small businesses to shut their doors.

Are Renters Making Full Payments During Troubling Times?

Our first question to gage how the commercial real estate market in Des Moines was holding up, asked if tenants had the ability to make full monthly rent payments or not. Our survey went out in mid April and again in mid May, giving property owners additional time to accumulate payments. The results showed 67% of respondents collected over 80% of rent payments, and only 6%, or two owners, earned less than 50% of April’s rent. Even though many owners in the multifamily housing market hadn’t collected full rental fees at the time, the results were actually much better than expected for such an abrupt turn in economic activity.

how much rent was collected by des moines property owners.

The feedback we received in May was even more positive. Even with the effects of this pandemic making an impact within the Des Moines community, most residents were able to make all or most of their rental payments, and no commercial property owners were collecting less than half of rental fees at that time.

How Does This Compare to The National Average?

According to our survey, over 90% of Iowa tenants paid the majority of their lease payments. In mid-April, almost 85% of renters across the nation had made full or partial payments, down only 5% from the year before, according to the numbers from the National Multifamily Housing Council. This slight drop provides a positive outlook for the multifamily housing market thus far. Similarly, about 88% of renters across the U.S. were able to make full or partial rental payments in May. This could be a sign of a more positive outlook than what was expected, but only time will tell. Our experts are anxious to see what the upcoming months will bring as some renters potentially remain unemployed or are forced to take pay cuts during this uncertain time.

Are Property Owners Offering Any Support During This Hardship?

The second question in The Katalyst Team survey asked property owners in the April survey was if they’re offering additional services to accommodate tenants having a hard time making ends meet. The commercial real estate owners in Des Moines are showing compassion and offering waived late fees, extended leases and/or payment plans.

graph of services offered.

 

Predicting Commercial Real Estate Trends During an Economic Downturn

Our final question probed property owners asking how much they expect to collect in lease payments in the future. While we start to notice the effects of the global recession brought on by the COVID-19 crisis, many Des Moines property owners worry about accumulating their standard rent and the outlook of the multifamily housing market in the future.

graph of may expectations.

While many of the local commercial property owners we surveyed expected less income in May, our new results showed that local residents are still making payments during these tough economic times. We remain hopeful that Iowa residents will remain above the national average throughout this crisis.

If you’re a commercial real estate owner in Iowa, we’d love to know how you have been affected during difficult economic times. Please fill out our survey for May results.

Experts Forecast How Multifamily Housing Market Will React to the Recession

While we’ll be watching the commercial real estate market in Des Moines closely, we’re also taking a look at the bigger picture and how rental property owners will be affected in the long-term with a recession seemingly on the horizon. The biggest commercial real estate trends we can predict during a recession are:

  • Lower selling prices. With a potential of less competition in the multifamily housing market, owners looking to sell will earn less as prices for commercial properties drop.
  • Vacancy concerns. Less cash flow among consumers could result in seeking cheaper living arrangements. This will especially put Class A, or primely located and luxurious properties at risk, while Class C properties, which are older in less desirable neighborhoods, could see more demand.
  • Bad debt. If property owners aren’t collecting rent checks, it could affect their property’s net operating income and they may struggle to make mortgage payments.
  • Demand to invest local. On a positive note, sometimes recessions can boost the local market. Large investors may pull their money out of risky stocks and choose to invest in real estate, which is more reliable.

Some experts predict this recession will not be as long and drawn out as the last recession back in 2008. Rather, we’ll have a brief and brutal hit to the economy, sort of like a V- or U-shaped trend that will rebound back more quickly. If we only suffer a short period of havoc, it can help the commercial real estate industry fend off more vacancies over time.

Additionally, owners in the multifamily housing market of the commercial industry can rest more assured. According to data on commercial real estate trends from the last two recessions, multifamily properties proved to be more reliable during tough times compared to industrial and office commercial properties. Data from the last two recessions collected by CBRE shows the multifamily housing market having the shortest negative growth period and the fastest growth past the prior peak. The CBRE research brief includes helpful charts and more information about the commercial real estate trends during those times.

Looking For Guidance When Your Financial Future is Undetermined?

The Katalyst Team is always on top of the latest commercial real estate trends and is willing to share advice with our clients. If you’re wondering what outcome to expect for the commercial real estate market in Des Moines and beyond, contact our team to talk to data and research professionals today.

apartment rentals during covid-19.

5 Things Apartment Owners Can Do During COVID-19 & What to Expect Afterwards

The COVID-19 pandemic can easily make us feel uncertain about what’s to come. If you’re investing in multifamily properties, you’re probably wondering about the outlook for your investments and the future of the multifamily rental market.

If you’re nervous about your payments and investments, chances are your tenants are nervous too. Think of ways to serve your tenants, and focus on the difference between amenities and services. The best way to get through this pandemic is to make decisions based on empathy and caution. We have some ideas for what you can do for your rental properties and tenants during the outbreak, and we’ll discuss what to expect once the coronavirus crisis is over.

1. Make Sure All Staff Members are Taking Precautions

The most important precaution relates to you and your employees. While self-isolation guidelines are in place, it’s important to limit your contact with other people. If your office staff is able to work from home, this is the safest option right now and will still provide your tenants with a resource to handle their needs. If possible, limit in-unit maintenance projects to emergency requests only. Maintenance staff should wash their hands frequently and wear protective gloves and masks when entering units.

While social interaction is limited, look for projects that maintenance staff could do alone. This might be a good time to focus on outdoor tasks like landscaping or building exterior projects.

2. Acknowledge Residents’ Fears

Coronavirus has been spreading quickly, and it’s impacting many areas of life and work. Some people are falling ill, and other people are taking on more care and responsibilities at home. Some people, like restaurant workers and event planning staff, are currently unemployed. Other people, like healthcare and essential service workers, are putting their lives at risk to take care of others. Each individual tenant has a different experience, and apartment management needs to be considerate of residents’ situations. A little bit of sensitivity and empathy can go a long way.

3. Be Flexible With Rent Payments

This virus and ensuing social distancing measures have caused many people to become suddenly unemployed. Individuals facing layoffs or pay cuts may struggle to make rent payments on time. In order to support these tenants, consider allowing extensions or rent reduction during the next few months. Your flexibility shows you care, and your residents will appreciate it.

This type of flexibility highlights the difference between amenities and services. Flexible payment options are a service your tenants won’t soon forget. When it comes time to renew their lease, they may choose to stay because they know management is compassionate, empathetic and willing to adjust processes to maximize quality of life.

Waiving payments or accepting late rent checks may impact your ability to pay bills, too. Some lenders are making allowances during this time for property owners who need extensions on mortgage payments. Common understanding is helpful as we all continue to adjust to a new normal.

saving during corona.

4. Refinance Your Mortgage to Lower Rates

Average interest rates are very low right now, and many homeowners and multifamily property owners will find it beneficial to refinance. The virus will impact the spring leasing market, and occupancy rates may be unpredictable. Taking advantage of low interest rates will enable you to save money and build up a cushion for the uncertain months ahead.

5. Be Prepared for Ups and Downs

With the current state of the stock market, there’s a very good chance COVID-19 will cause an economic recession. However, we’re also seeing evidence of markets bouncing back after the coronavirus threat passes. This appears to be happening in China, where social isolation guidelines are lifting and industries are returning to normal operations. A recession sounds scary, but it may bring unique opportunities. It helps to be prepared and to strategize a plan for the future.

Are Rental Properties A Good Investment During Coronavirus?

While we’re in the midst of the COVID-19 outbreak, it’s hard to say for sure what the future of the apartment industry will be. While predictions of market outcomes will become clearer in the coming weeks or months, we have some insights about what might happen to multifamily rentals after coronavirus.

Many higher-priced properties have experienced price drops during the coronavirus outbreak. Across the commercial real estate industry, prices are very low. Investors are being understandably cautious at this time. If you’re willing to take on risk, you could find several multifamily properties available for very competitive prices.

how will coronavirus impact commercial real estate industry.

Multifamily industry changes will be different depending on the type of rental. Class B properties are likely to thrive, while class A and class C apartments will suffer more. Some people living in luxury class A apartments will choose to move to slightly smaller, less expensive units in order to save money during a recession. Renters in class C apartments are the most vulnerable population during and after the coronavirus outbreak. Many class C tenants may struggle to make rent payments due to unemployment and other concerns.

Another big projected outcome of the coronavirus is that we expect to see individuals renting longer. Many Millennials are already foregoing homeownership in favor of renting, and the uncertain economy may cause even more individuals to wait before investing in real estate. In the past few weeks, we have seen many buyers back out of home purchases before closing, and we expect to see this hesitancy and caution continue in the coming months.

As apartment living seems like a more prudent choice for many would-be homeowners, investing in multifamily properties may be a good option for anyone interested in commercial real estate.

Investing in Multifamily Properties During Uncertainty

Are rental properties a good investment right now? With an imminent recession, many buyers are being cautious about investments. However, lower property prices may make investing in multifamily properties a lucrative option for buyers willing to take a risk for potential profit. Reach out to us if you want recommendations about specific properties, and check out our current listings if you’re ready to jump in on your next real estate investment.