While some apartment investors are standing on the sidelines, others are moving forward on new acquisition deals. Trion Properties opened escrow on investment acquisitions last week, a clear sign that they are not hitting the pause button. However, the firm is being cautious and is largely waiting to see what April rent collections turn up.
“We are not hitting the pause button. We are looking at deals, and we even opened escrow on an acquisition last week,” Max Sharkansky, principal at Trion Properties, tells GlobeSt.com. “A lot of transactions are going to depend on what happens in April with collection loss. If it is what we expect, which is 20% to 30%, then we can recover from that. We can transact in that type of environment. If it is worse than that, I don’t know how we will transact in that type of environment. I don’t know how anyone buys if the seller is only collecting half of their rents.”
In underwriting new deals, rent collections carry more weight than occupancy for Trion. “During downturns, physical occupancy goes out the window,” says Sharkansky. “When the rent roll says 95% occupied, that means nothing. It is all about collections.” Trio is predicting a downturn, too. According to Sharkansky, the uncertainty is centered on the recovery rather than the question of a recession. “There is going to be a technical recession. There is no question about it,” he says. “The question is: what happens in quarter four and five, six and beyond.”
For Sharkansky, that recovery will likely be quick, once the virus is handled and social distancing comes to an end. “We had an amazing economy going into this. We think this will be somewhat of a V-formation-type recovery,” he says. “There are going to be some issues coming out of it where some businesses aren’t able to make it through, and you are going to have social distancing for longer than people expect. That will ultimately hurt businesses.”
The biggest challenge will be combatting the cultural habits formed during this recession. “There are going to be long-term behavioral habits that will need to re-adjust the way they were in the past,” says Sharkansky. “Ultimately they will, and I don’t see any reason why we can’t get back to sub-4% unemployment in the next 12 to 18 months.”