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Arkansas has 394,000 households occupied by renters and a statewide median household income of $45,726. A household must have $29,665 in annual income for the $742 monthly fair market rent for a two-bedroom unit to be no more than 30% of income, and that relatively small income spread makes Arkansas renters susceptible to the impacts of COVID-19.
That susceptibility is exacerbated by the hundreds of thousands of unemployment claims filed since March, as well as the fact that 45.8% already spend more than 30% of their income on rent.
Still, the Arkansas multifamily sector enjoys sound fundamentals such as diversification of risk among multiple units and an ability to keep up cash flow in a recession. People still need a place to live. While that foundation has cracks — a shortage of 48,146 units for low-income households, for example — it has repeatedly produced above-average returns.
To gather data, Colliers International Arkansas reached out to 25 apartment owners and managers in Arkansas who collectively own or manage more than 10,000 units, including housing for poorer people as well as Class A luxury complexes. We asked three simple questions:
• What is your percentage of delinquent renters for the month of April?
• Have move-outs increased, decreased or remained constant?
• Are you offering payment plans, rent deferrals or waiving late fees?
The main concern among landlords, obviously, is whether tenants will pay. When they don’t, landlords can’t pay vendors or their mortgages. When vendors and lenders areb’t paid, they cannot fulfill their obligations. One event can lead to a tumultuous series of events.
The landlords and managers surveyed reported that the average rate of delinquency rose 231% in April, from 4.34% to 10.05%. If that significant metric repeats in coming months, it will have adverse effects, particularly on mismanaged assets and portfolios. However, thanks to federal relief such as mortgage payment deferral options allowed by Fannie Mae and Freddie Mac, assets have a chance to weather the storm.
And since housing is an essential need, catching up on rent will presumably be a priority for tenants who receive tax refunds and federal stimulus aid.
What’s Next?
At the end of 2019, 1,700 apartment units were under construction in the Little Rock market. Unfortunately, some are in the all-important “lease-up” stage during this pandemic. Industry observers share a concern that new supply will be forced to offer deep discounts. For those still under construction, delays are likely. The National Multifamily Housing Council surveyed 135 multifamily construction firms and found that 55% were experiencing delays, and most of the delays were due to local government limits on numbers of workers on the job.
As stores saw toilet paper “rolling” off the shelves at the start of this pandemic, several landlords noticed a similar phenomenon in the form of above-average leasing activity. One attributed it to tenants looking to beat an anticipated “shelter-in-place” order and another to its operational prowess.
The latter was committed to keeping leasing offices open as long as it was safe for employees. Once human interaction posed a risk, they shifted to virtual tours and had employees handle phone inquiries. That thoughtful approach helped them secure tenants who were looking elsewhere and not receiving timely responses. So, the adoption of virtual tours and ensuring clear channels of communication between prospective tenants and managers could be a key to signing new leases.
The coming months will be tedious for landlords as they look to tenants to meet their obligations. Every landlord we surveyed said they are offering some sort of consideration to tenants, such as payment plans, rent deferral or waived late fees. That unanimous mindset demonstrates a common goal of weathering this storm and retaining valuable tenants.
As devastating as the 2008 Great Recession was, it brought millions of people to apartments. As the stock market and other asset classes are hurt by COVID-19, many will look for alternative investments and multifamily will continue to be a logical choice.
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