Some Multifamily Investors Are Underwriting 4% Rent Decreases

Trion Properties is staying busy during the pandemic. The company is reporting strong rent collections, new leasing activity and has remained an active buyer through the pandemic. This year, it expects to buy six or seven additional properties, adding more than 600 units to its portfolio.

“We are very active, and we are net buyers. We have already closed on one property and we are closing on two more in the next few weeks. In 2020, we expect to buy six to seven properties, maybe more. We are buying with COVID discounts of 4% to 10%,” Max Sharkansky, co-founder of Trion Properties, tells GlobeSt.com.

The discount makes sense, considering Trion is anticipating declining rents for the next year. The firm is underwriting negative rent growth of 4% in the first year and positive rent growth in the years following. “We are assuming negative rent growth year one, and positive rent growth years two, three, four and five on a five-year hold. If you blend year one and two, we are at zero for the first two years, so we are assuming that two years from now, rents will be where they are today,” says Sharkansky. “We think that is a fairly conservative way to underwrite.”

As for the firm’s current portfolio, rent collections and occupancy continues has remained healthy with nominal declines due to the pandemic. “In our portfolio, market rents have stayed pretty strong,” says Sharkansky. “We typically buy in the first-ring suburbs. Those pockets have held up nation-wide. I think that is a reason why we are doing well.”

New leases were a similar story. “New move-ins have held strong,” says Sharkansky. “Our occupancy is 93% to 94% instead of being 95% pre-COVID. In July, we burned all of our concessions. We re-introduces some at a couple of properties that needed a little bit of a boost, but we are almost concession-free portfolio wide.”

August rent collections have followed a similar trend as previous months, despite the expiration of unemployment benefits through the CARES Act. With some new benefit expected to come, Sharkansky is also optimistic about September. “The pause in unemployment benefits for a few weeks did not have a huge effect on our portfolio. Some properties fell behind, but there was not a huge impact portfolio wide,” he says. “Given that unemployment benefits are restarting, I would expect September rent collections to be where it has been in May, June and July. On the operational front, we have had some people with balances leave, which helps, and we can re-lease those units to people that are paying market rent.”