Home Property Management Leasing How much longer can landlords last without rent payments?

How much longer can landlords last without rent payments?

The federal eviction moratorium being extended through March is great news for tenants across the United States, but not so much for their landlords, CNN Business’ Anna Bahney writes.

“It’s important to recognize that, after 10 months of severe economic distress, job loss, and decline in rent collections, everyone is hurting,” Bob Pinnegar, president and CEO of the National Apartment Association, an industry group representing property owners told CNN. Pinnegar also noted that the eviction moratorium extension will leave landlords and property managers, “saddled with the financial burden of providing housing to America’s 40 million renters without sufficient resources to do so, and they leave residents to accrue even more debt.”

The Centers for Disease Control and Prevention (CDC) implemented the federal eviction moratorium in September to help stop the spread of the Coronavirus. The moratorium prevents property owners from evicting tenants for not paying their rent. Tenants must show their landlords that they earn less than $100,000 per year, have experienced a significant income loss and have done their best to find rental assistance to pay rent. The order was supposed to expire in December, but was extended through January as part of the second stimulus package. The Biden administration extended the moratorium again until the end of March.

Naturally, everyone—tenants, property owners and policymakers—want the same thing, for tenants to remain in their homes. Moratoriums don’t necessarily accomplish that goal, according to Pinnegar because tenants will eventually have to pay back rent after the eviction moratorium expires again. Meanwhile, landlords are still responsible for paying their monthly expenses. Cities also need their property taxes to pay for schools, road repairs, services and more.

“They just kick the can down the road, jeopardizing housing supply, quality of the housing stock and affordability on the other side of this crisis,” Pinnegar said.

Eviction moratorium is especially tough on small building owners

Every landlord feels the pinch when tenants can’t pay their rent, but perhaps none feel it more than the “mom-and-pop” property owners, who own approximately 22.1 million rental units—more than half of the properties in the U.S., according to Pinnegar. Plus, tenants’ inability to pay rent creates a domino effect—suddenly property owners can’t pay their mortgage, which puts them at risk of foreclosure. Additionally, without rent, property owners might struggle to pay their property taxes, which impacts local services that count on those funds like schools and fire departments.

“If owners cannot pay these, they risk their ability to provide safe housing for residents altogether,” Pinnegar said.

Landlords were owed approximately $30 billion to $70 billion in back rent at the end of December, according to the National Low Income Housing Coalition. The $900 billion stimulus package passed in December provided $25 billion in rent relief for tenants, but it wasn’t enough to cover all that has been lost so far.

What happens to renters when the eviction moratorium expires?

The federal eviction moratorium ending still might not be great news for landlords, at least not right away. It’s not as if once the moratorium expires, tenants will suddenly be able to pay their rent. A lot of tenants are months behind on their rent, which means it could be a while before landlords and property owners are repaid in full—if ever.

“Rent needs to be paid back over a period of time, that’s the nature of it,” attorney and multi-family property Alan Hammer told CNN. “If a tenant can’t pay their rent when one month rent of is $800, $1,200 or $1,500, and that goes for many months? Now you have to pay for a year?”

The rent non-payment issues aren’t just a problem for residential property owners. Commercial real estate owners have had their troubles with collection rent, too. Last month, Connected Real Estate Magazine reported that 91% of retail tenants were current on their rent before the COVID-19 pandemic hit the U.S. The number decreased to 54% in April—just one month later, according real-estate business-intelligence company Datex Property Solutions.

“What’s happening in the market is most definitely going to cause an overall devaluation of real estate across the country,” Matthew Bordwin, principal and managing director at real-estate brokerage Keen-Summit Capital Partners LLC told The Wall Street Journal. “There is so much pain in the marketplace. Every business that I speak to is now looking at their real-estate footprint to see how they can reduce costs. The landlords are getting calls from so many people that they can’t help everyone.”

Additionally, just like in the residential real estate industry, tenants’ inability to pay their rent, impacts CRE owners different. For example, Simon Property Group saw its lease income fall 16% but the company’s income was still $3.27 billion. Smaller mall owners like CBL & Associates Properties and Pennsylvania Real Estate Investment Trust weren’t as fortunate—they were forced to file for bankruptcy when their tenants couldn’t meet their obligations.

“After all, the landlord still has to pay its lender and maintain its overhead,” Datex CEO Mark Sigal said. “Everyone has a check to write.”

Joe Dyton can be reached at joed@fifthgenmedia.com.

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