It has become quite clear that the effects of the Coronavirus Pandemic are going to be long-lasting as we turn the page for 2021 in less than a month. With legislature, vaccination timelines, and safety protocols bleeding into the new year many high-end projects are starting to lose steam due to uncertainty.
Many believed that all we needed was a vaccine and things would go back to normal. Although the FDA recently approved the Pfizer Vaccine, it will be months before the general public receives it. The multifamily world concertedly agrees that it certainly adds a glimmer of hope, but we still are far from reaching the light at the end of the tunnel.
“Though the sector [multifamily] has done fairly well through the pandemic, especially when compared to retail or hotel properties, the uncertainty that defined much of 2020 is exerting a big influence over decisions multifamily owners and developers are making for the coming year.”
Multifamily owners in California have been battling against legislature and extensions—such is the case with AB-3088 (It was set to expire Jan. 31, 2021, but is now being looked at for extension).
Eviction moratoriums have plagued the ease of operation for multifamily owners. Simply put, the ease of one population becomes the hardship of another because as laws designed to prevent homelessness are passed, landlords aren’t given much assistance to compensate for losses.
“There are eviction moratoriums, but there are also, apparently, people paying rent,” Shaffer said. “On the retail or hotel side, it’s very obvious how the market is doing. There’s less visibility for multifamily. Nobody knows.”
Universe Holdings CEO and founder Henry Manoucheri told Bisnow.com that his multifamily properties in Los Angeles experience a challenging rent collection, but his properties in San Diego are not suffering as much. Manoucheri feels that the hurdles he is leaping only influence his decision to look to more open markets.
“We’re looking for more open markets without the sort of left-wing restrictions that have plagued the Los Angeles market more than any other place,” Manoucheri said.
COVID has struck a nerve with developers and investors who aren’t looking to build $300M high-rise projects anymore. The big budgets are starting to dwindle and concentrate more on mid-level developments such as workforce and affordable housing. With all the attention that has been given to curving the spread, work-from-home culture, and preventing greater homelessness, it’s truly no wonder why these smaller projects are turning heads as 2021 approaches.
“That’s been the biggest change. It’s not so much the number of projects but it is the size. We’re not seeing that many $300M projects anymore. We’re seeing $30M projects.”
“From the lending side, he [Shaffer] sees a similar shift — a desire to get capital invested in middle-of-the-road, working-class properties and limited appetite for high-end projects, many of which were mixed-use and included a retail component.”
The opportunity zones program comes to mind as something that can greatly benefit from this newfound thirst for working-class development. As the Biden administration plans to reform opportunity zone requirements investors would be savvy to get on the ball now.
In short, investors and owners will need to be more strategic about their investments by taking into consideration how new legislature is and will effect them, and how lucrative affordable housing developments can become in 2021—especially in California.