Using Data to Guide Property Owners Through Delinquency & Economic Uncertainty
As a property manager, you are likely communicating with owners and real estate investors more than usual, and your clients are probably more than a little nervous during this time of economic uncertainty. How should you guide owners through rent delinquency?
To answer this question, we’ve asked Anna Myers, the Vice President and Asset Manager at Grocapitus Investment to talk to us today about how you can work with your property owners and your residents during a crisis like COVID.
While this isn’t a housing crisis, it is a public health crisis, and it’s affecting almost everyone nationwide. Anna is in a unique position to tell us how she’s using data to plan for economic shifts and new housing trends.
Introducing Anna Myers and Grocapitus
Grocapitus is a syndication company based in the San Francisco area. The company has acquired 13 properties across the United States in the last 18 months, which includes 1,800 units. These are mostly multifamily residential units, and they are now getting into self-storage properties.
Anna and the company invests alongside their investors. Her team finds the deals, sources the deals, and lines them up for purchase. Then, the properties are co-purchased through a syndication, and Grocapitus manages the project. This makes Anna the asset manager who works closely with property managers at each building to execute the business plan associated with that deal.
These investment properties are spread throughout the United States, which means they’re working with property managers in different states and cities. Anna isn’t a property manager herself, but as the asset manager of these buildings, she’s been able to experience a lot of different property management styles. It’s given her a unique insight into how the industry works and what’s required to succeed, and it’s why we turned to her for advice on guiding rental property owners and investors through delinquency and economic uncertainty.
Asset Management vs. Property Management
As an asset manager, Anna is concerned with her investors and the residents living inside her units. The property managers she works with are her boots on the ground. They facilitate all engagement and communication with residents, and they make sure local laws and regulations are followed. Those property managers are showing the apartments and executing the business plan that’s in place.
The business plan is what dictates the action of each property manager. Maybe there’s a plan in place for a building constructed in 1985. It may need some renovations and updates and the business plan will reflect those intentions and project the money that’s spent and the returns that are earned. These things can’t happen from Anna’s office in California; she counts on her property managers to execute the plan.
Using Data for Property Management Decisions
Grocapitus is very data-oriented. Their background is in technology and they apply data science to real estate. You can’t manage what you can’t measure, and the company uses specific spreadsheets called Trackers. The property managers working with them fill those Trackers out every week so that asset managers can stay on top of the data.
The Trackers expose trends and inform decisions. It’s an easy and all-inclusive way of looking across the portfolio to recognize trends and see where things are going right and wrong.
Two Trackers in particular are essential to how property managers and asset managers work together:
- Monday Morning Report. This is a specific sheet that’s related to occupancy and rental collections. It tracks economic data and leads that are coming in that influence occupancy. They track notices to vacate and tenants who are moving. They project their exposure four weeks down the line. The report reflects collections and delinquencies, bad debt, and eviction numbers. It’s a Tracker that the team is watching all the time.
- Capex Tracker. The Capex Tracker follows the renovations that are ongoing at their value added properties. There is data that reflects classic turns (basic turnovers that often include cleaning the carpet and touching up the paint) all the way to premium turns (improvements that push the property to the top of the market). This report also tracks every turn in between the classic and the premium. Premium renovations can only be done if rent is going to be pushed up by $250 or more. These reports show whether the budget in the business plan was accurate. They can check the rent bumps against the expenditures and have discussions about where they are spending too much and where they might want to invest more.
Data is numbers and numbers tell the truth.
Guiding Owners Through Rent Delinquency
It’s early in May, and as a property manager during COVID-19, you may not have collected as much rent as you normally do. Anna’s data shows that rent collection depends on property class and communication.
In the early days of the pandemic, Anna asked her property managers for a list of their tenants’ employers. This was done to determine what type of exposure they’d be facing if businesses started to close. They categorized the tenants according to business type, whether it was retail or service or medical. This is an important data point because understanding where your tenants work can tell you what kind of impact the virus will have on them economically.
If you’re in a metro area like Las Vegas or Reno, rent collection is going to be tough. Those are a lot of service industry tenants. So the challenge will be different than in other parts of the country and economy.
Shifts in Rent Collection and How to Handle Delinquencies
Tenants in Class C properties are having a harder time than tenants in Class A properties. Most of the tenants in those Class A units have reserves and they haven’t had much of a slowdown in terms of income. Those tenants in Class C units are more impacted by layoffs and business closures. As a property manager, you have to consider this when you’re collecting rent.
Higher delinquencies will be normal, but things may not be as bad as you expected – at least not right now. The stimulus checks and the unemployment benefits are helping people come through with their rental payments when they can. For those who are struggling, Anna and her property managers have worked out a promise-to-pay program.
Communication between property managers and residents has been critical. A lot of tenants may have been thinking that they don’t have to pay rent because they can’t be evicted. It’s important that managers provide clear and accurate information. For Anna, in order to work out a promise-to-pay agreement, tenants have to document that they have been impacted economically by the coronavirus. If a tenant’s employment situation has not changed, rent is still due.
A lot of communication is important right now, as most property managers know. There’s some misinformation in the media and online, which means it’s up to you to communicate accurately and openly to your residents.
Providing local resources is another way to ensure your tenants remain solvent and able to continue paying rent. Provide a document with all the tools and resources and funding streams that can be accessed in your local, county, state, and federal agencies. Property managers can provide resources for food and utility help. Provide a full list with URLs so you can help your tenants get their needs met.
Messaging and Incentives When Collecting Rent
The National Multifamily Housing Council has put out some great content about how to talk to tenants, and they even provided downloadable templates and other documents. Anna sent some of this information to the property managers she works with, and trusted them to tailor the wording and the message in a way that made sense for each community.
Every community is different, and as a property manager you know your tenants better than your owners do. You’ll know whether incentives are going to work in getting rent paid on time. You know how they’ll react to an offer of assistance.
Last month, some of the property managers Anna works with gave a $50 gift card to every tenant who paid rent on or before April 1. This was super-effective in certain buildings. In other buildings, it wasn’t necessary to give out gift cards to everyone and instead, people who paid on time had their names put into a drawing for the gift cards.
You have to know your audience.
In one building, 100 percent of the rent was collected without any incentives. Zero delinquency is difficult to achieve even when there isn’t an economic downturn. It reflects the relationship that the property manager has with her tenants. She has been working at the building and with those residents for 20 years.
Whether you’re using incentives or not, communication is the key to getting rent paid. Especially now.
There should be a continuous discussion these days to get a handle on collections. Know where your tenants are financially. Find out if anyone is sick. You need to know what kinds of problems your residents are having.
Sharing Data with Rental Property Owners and Investors
Anna and her company have the benefit of having their property managers’ complete attention. She has each property manager on-site at the buildings, allowing her unfettered access. Those managers are completely focused on the community.
If you’re a property manager working with 50 or 250 owners, you have a lot of phone calls to field and communications to manage.
When it comes to guiding your owners through the possibility of rent delinquency, you have some valuable information to share. If you’re gathering data like Anna does, you can bring those numbers to your owners. This doesn’t have to be an individual note, but it can be a mass email to all your owners that shows rent collection trends and other important information. This will validate the trust they’ve put into you to manage their assets through this crisis.
As the asset manager and co-owner, Anna has to communicate with her investors as well as her property managers. They want to know how the property is running, how many units have turned, what the occupancy rates look like, and how the special projects are turning out.
She provides a monthly investor update and with the COVID-19 pandemic, there has been a lot of extra communication, including additional videos and information on risks in each market. The normal market update has been expanded. There’s also a quarterly webinar where investors can ask questions. It requires a lot of preparation, but it’s extremely important in keeping everyone informed.
When there’s a crisis like this one, communicating more frequently with investors than you normally do is critical. If things are potentially getting worse, you don’t want to pull back and avoid communicating the bad news. You want to provide more information instead of less. Transparency leads to trust.
People are calmer when there is regular communication. That’s the truth for investors, property managers, and tenants.
Facing Economic Uncertainty: What Property Managers Should be Doing
Rents generally aren’t being raised right now. The job for Anna and her team now is not so much to create wealth for investors but instead to focus on capital preservation. That’s your job as a property manager, too.
When you’re communicating with and guiding owners through a crisis, keep in mind that no one knows what’s around the corner. Many investors are cutting expenses and delaying distributions. Investors want to hold onto capital so the mortgages can keep getting paid. The forbearance program is really sticky. No one wants to take advantage of that if they don’t have to because it’s not a friendly situation for consumers and borrowers.
It’s a hard position to be in if you own investment property. Tenants aren’t paying rent, but you do want to pay your mortgage. Your job as a property manager has changed during this crisis, just like Anna’s job as an asset manager has changed.
Hopefully, you have applied for the Payroll Protection Program (PPP), and followed the recommendations made in our managing cash-flow during COVID-19 episode. It’s a process, but it’s worth it to access those PPP funds. You’ll have eight weeks of payroll covered, and that will be helpful if there’s less rent coming in for May and June. Anna’s team needs the property management staffing to stay in place. These aren’t her employees, they are employees of the management company that she uses. So, the PPP has been instrumental in keeping her properties managed.
Mitigating the Worst-Case-Scenario Risk
It’s easier to mitigate risk when you’re tracking data and staying on trend. That’s how property managers can best avoid the risk. During a crisis like this, you should look at the data from the last time you faced a worst case scenario. In 2008, for example, the recession brought a vacancy high of 8.1 percent to multifamily properties. That’s not good news, but it’s also not devastating. There’s no need to expect a 50 percent vacancy in every building.
You can plan for your risk based on data. Rent growth will probably decrease. You can expect rents to go down 5.5 to 6.5 percent, based on the data that’s available. It’s not good news, but it’s something you can plan for. You know that rent growth will be negative, but it won’t be negative by 25 percent. Look at the data to prepare for the worst.
Think about other ways to succeed when you’re planning on a loss. For example, can you increase your occupancy? This is where Anna has found some stabilizing success during the crisis. Leads are still coming in, and she’s running advertisements to get new units renting.
With the help of virtual assistants, hundreds of ads are being placed on different platforms right now. They’re using SEO techniques to keep those ads on the top of every page, and their virtual team is booking virtual appointments and showings to bring more leases into each building. This is contributing to a better bottom line for investors, even when rents are stalled and dropping.
It’s hard to know what to expect. Anna says that she’s seen projections the GDP could contract another 30 percent. That’s a huge number. There may be a protracted recession through the end of 2021.
The Silver Lining When Communicating with Owners About Rent Delinquency
The silver lining is that investing in real estate is once again proving to be much safer and more risk-averse than other types of investments. The stock market is not a great place to be right now. Owning hotels also isn’t lucrative. You may have lost some money, but you’re not going to lose your asset.
People will always need a place to live. That’s not going to change, no matter what the crisis.
The next few months will be scary, but as an investor and a property manager, remember that this is happening nationwide. All other industries aside, property management and real estate will always be here. A lot of business owners have been turned upside down. If our biggest problem is less rent growth, that’s going to be okay.
We’re here to talk more about the things Anna has discussed, so contact us at Fourandhalf if you have any questions about guiding owners through rent delinquency and economic uncertainty, or if you want to talk through any problems you’re having during the COVID-19 crisis.
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