M id A tlantic Real Estate Journal — Multifamily Development — May 15 - 28, 2020 — 9A
M ultifamily D evelopment
By Michael Wagoner, Quadrangle Development Corporation COVID-19 and the Washington, DC Apartment Market
declaration o f a pub - l i c hea l th emergency on Ma r ch 1 1 , 2 0 2 0 serves as a useful start- ing point for evaluating W
strong job growth in retail trade, leisure and hospitali- ty, and education and health services. Unfortunately, these sectors are among the hardest hit by the pandemic. Class A apartment buildings that traditionally rent to those employed in profes- sional and business services or financial activities should fare relatively better; howev- er, if weakness in the class B market becomes significant, this may result in attrac- tive rental options for more price-sensitive class A rent- ers and affect the broader market.
Given the severity of this economic disruption and the uncertain timeline for re- covery, landlords that have developed priorities to guide property-level execution of revenue and leasing strate- gies are positioned to weather the downturn. This guidance first looks to determining break-even occupancy and rent levels; it then turns to assessing whether the overall strategy for the asset, and in particular hold time, should be re-examined. Landlords with a longer-term horizon have tended to focus on in- creasing rent levels (or at
least holding them steady) while maintaining accept- able levels of occupancy, while those with the goal or necessity of near-term capi- tal events have often focused on how to stimulate occu- pancy even at the expense of stabilized revenue. Whatever the ultimate goal, any strategy can be most successful if tailored to specific property-level con- ditions and trade-offs. For example, if the challenge is low prospect traffic, lower rents may generate a higher closing ratio but potentially at the expense of revenue
goals. In all events, successful strategies allow on-site staff to negotiate renewals in real time and within parameters that implement asset-level strategy. Empowering the on- site team within this frame- work allows for a consistent approach that builds cred- ibility with existing residents, increases retention ratios and reduces downtime, and results in outcomes that align with ownership’s objectives. Michael Wagoner is as- sistant vice president of Quadrangle Development Corporation in Washington, DC.
ASHINGTON , DC — Ma y o r Muriel Bowser’s
the impact of COVID-19 on the Washington, DC apart- ment market. The stay-at- home order quickly impacted multi-family operations in a variety of ways. Property managers have responded to these challenges by adopt- ing 100% virtual leasing and taking additional measures to ensure resident safety such as closing amenity spaces, restricting visitor access, and increasing clean- ing disinfecting of touchable surfaces and common areas. Many of these initiatives increased operating costs at the very time that revenues were pressured, leading to uncertainty about how best to position to weather these events. Given its economic base, the Washington region typi- cally fares better than the country as a whole during downturns. However, the Washington region’s apart- ment market is not totally immune from the effects of increased unemployment and activity restrictions that have combined to dampen leasing activity. While mand is impacted, the region is also experiencing significant new deliveries in 2020. Further, statutory initiatives from the District government have imposed tenant-friendly policies that temporarily prohibit increasing rents at renewal, imposing late fees, and proceeding with evic- tions. As a result, landlords have had to be creative in developing revenue and leas- ing strategies to minimize adverse impacts on cash flow and asset value. In recent years, absorp- tion in the region has kept pace with increased sup- ply due to strong growth in employment, household formation, and population. A key component of market balance has been positive absorption in the class B market due to particularly
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