How the Loss of Additional $600 Weekly Unemployment Checks Affected the Real Estate MarketAnchin Real Estate UpdateNovember 4, 2020
The real estate industry has seen its fair share of challenges as the ongoing COVID-19 pandemic continues to greatly disrupt business operations, bringing an unprecedented level of uncertainty to tenants and landlords. Due to the current high unemployment rate, there is a rising level of tenants unable to pay their rent. This has caused major concerns for landlords as they struggle with limited cash flow and are unable to evict de-faulting tenants due to the Tenant Safe Harbor Act, which forbids landlords to evict tenants for missing rent payments throughout the COVID-19 crisis.
A temporary solution came about with the passage of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, signed into law on March 27, 2020. The Federal Pandemic Unemployment Compensation program (FPUC), provided an additional $600 per week to those who were eligible. In certain cases, people claiming unemployment were making more money unemployed than employed. This supplemental income assisted many tenants towards paying their rent. According to the National Multifamily Housing council (NMHC), a survey of 11.1 million market-rate apartments indicated 96.6% of tenants paid rent at month end July 2020. Some landlords have stated that rent collections were similar to what they were a year earlier.
Unfortunately, the additional $600 benefit expired on July 31, 2020. While tenants had collected enough for their August rents, without the additional benefits in August, landlords were bracing for a downturn when it came to September rent.
As expected, the rent dropped in September and even more so in October. On August 8th, an executive order was issued to provide an additional $300 weekly benefit for those who were eligible for up to six weeks. While these additional funds could have been used to pay some rent, tenants who were unemployed needed to hold these extra funds to get them through the ongoing COVID-19 pandemic. Without any additional stimulus package and unemployment benefits rent collections are going to continue to decline.
Owners with highly leveraged properties are at high risk. Unless they have gone back to the lenders to negotiate various options including forbearance, they still need to make debt payments. With interest rates below 3%, owners have the opportunity to reduce or ease the burden of their debt obligations. However, lenders might be more hesitant to lend the same amount as the existing debt due to the decrease in rent revenues. The real estate community can only hope that with the next round of stimulus relief, the landlords will be entitled to the benefits they necessary to support this critical industry.