Apartment owners who have been regularly reporting rent
collections from more than 90% of their tenants seem to be weathering the
pandemic better than landlords of malls and hotels.
But Wall Street isn’t buying it. The FTSE Nareit Equity
Apartments index, which tracks the stock prices of publicly traded apartment
landlords, is down more than 21% year to date.
A big reason: Dramatic cuts in rents in coastal cities like
San Francisco and New York City by landlords like Equity Residential and
AvalonBay Communities Inc. have sent shudders through the market.
In New York, for example, asking rents for apartments owned
by publicly traded landlords have fallen by about 15% since August 2019,
according to Green Street Advisors. That figure doesn’t include the full impact
of concessions, like months of free rent.
Landlords in these hard-hit coastal markets haven’t suffered
large spikes in vacancy, but that’s largely due to the rent cuts. “They’re
effectively buying occupancy,” said Haendel St. Juste, a real-estate investment
trust analyst at Mizuho Securities USA.
To be sure, markets in some regions—like the Sun Belt—don’t
look as bleak. Suburban rents are holding up better than urban rents on
average, according to a recent report from Zillow. And values of rental
buildings, especially those with more affordable rents, remain solid in the
Mid-America Apartment Communities Inc., which owns many Sun
Belt and suburban apartment complexes, reported that its July leasing volume
was on track to surpass the same period in 2019, with suburban activity being
particularly strong. Similarly, Equity Residential reported that the percentage
of suburban tenants renewing leases is higher than at the company’s urban
But the pandemic and the recession are clearly taking
somewhat of a toll on suburban and Sun Belt apartment buildings. A Green Street
analysis found that rents at buildings owned by publicly traded apartment
landlords were still falling in most suburban markets, albeit less sharply than
the rent declines in the corresponding cities.
Asking rents in Bay Area cities fell 9% through the month of
July; they slid 6% in Bay Area suburbs. In Sun Belt suburbs—such as those
around Atlanta, Dallas and Orlando—rent growth was flat or positive.
Pessimistic stock investors are worried that the dramatic
downturn of markets like New York and San Francisco could get worse and spread
to other regions of the U.S. if the recession is prolonged.
“There’s a question about when a trough in rents is coming,”
said John Pawlowski, an analyst at Green Street.
Moreover, investors are keeping a close eye on eviction
moratoriums. A federal moratorium ordered by Congress expired on July 25. But
the Trump administration last week—through the Centers for Disease Control and
Prevention—imposed a new and more extensive executive order, which could reduce
options and cash flow for landlords throughout the country until at least the
end of the year.
In an earnings call last month, Paul Beldin, the chief
financial officer of Apartment Investment & Management Co., noted that rent
collections had been more challenging in areas where local governments had
imposed restrictions on evictions for unpaid rent.
“When somebody tells you, ‘You don’t have to pay your rent,’
people tend not to pay,” Mr. Beldin said.
Write to Will Parker at firstname.lastname@example.org
Corrections & Amplifications
Mid-America Apartment Communities Inc. reported that its
July leasing volume was on track to surpass the same period in 2019. An earlier
version of this article incorrectly stated the company’s name as Mid-American
Apartment Communities Inc. (Corrected on Sept. 8)
here for the original article.