While no one is cheering the current economic disruption, disciplined investors are prepared for the shift. Affordable housing investor KIMC says that liquidity, low-leveraged assets and a sound strategy is a good recipe for weathering a downturn—even this one.

In any down market, and particularly this one, liquidity will rule. Like the REITs, KIMC maintains low leverage across its portfolio with less than 40% LTV on its assets. "In our affordable housing strategy, we are relatively low leverage." Jonathan Needell, president and chief investment officer of KIMC, tells GlobeSt.com. "We are in a pretty good situation and have a lot of liquidity, and we have been making steps to gain even more liquidity by refinancing [existing loans] through Freddie and Fannie. We have a line of credit with them as well, which is available to us at a nice cost of capital. We have financial resources available to take care of any dislocation that could occur."

Liquidity not only positions the firm to weather a storm, but allows it to continue transacting. Since the onset of the pandemic, KIMC has placed two new deals under contract and has sold two assets. Already, the firm is seeing a pricing change. "We have heard from brokers that deals under contract are seeing 7% to 15% changes in pricing. We have seen this to be true in deals we are selling and buying," says Needell. "We will continue to stick to our guns and pay what we think is right—that is part of being disciplined. The market is changing, and it always takes a while for the private market to accept what that change is. The stock market reacts daily, but it usually takes 18 months for the private market to respond to a recession."

There are still challenges to transacting even for well capitalized buyers. Syndicators have exited completely, and Needell doesn't expect it to return anytime soon. "From an acquisition perspective, we have seen syndicators go away," says Needell. "That capital has run for the hills and is not interested in coming back in, at least for some time." For disciplined investors with liquidity, however, this won't inhibit transactions because they have access to capital to continue to transact.

While KIMC is well prepared to weather a storm, this event is unique and rife with uncertainty. As a result, there are few opportunities to transact. "This is a completely different type of event. We really haven't anything of this magnitude; you really can't look at other pandemics as direct analogies," says Needell. "It is natural for the market to be slow in responding, and I think a lot of owners are in shock that they won't get the price that they once wanted. Owners also have cash flow, so they aren't in the same position of panic as investors in the stock market, unless they are overleveraged. We are seeing some sellers transact, but volume is down."

As a result, KIMC is underwriting for a prolonged disruption. "We are going to underwrite for the downside," as this downturn is going to have a longer impact than people realize, says Needell. "I expect this to be a two to three-peak season, and in that scenario, this will affect things for quite some time. At least until we get a vaccine."

Instant Insights /

Affordable Housing Investor KIMC is Underwriting for a Prolonged Disruption

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