A recent analysis by two Moody & # 39; s experts shows what could be the first sign of pandemic stress on the multi-family sector. While the sector continues to do better than retail and lodging, the rise in crime for this group is cause for concern.
This is the view of the multi-family landscape in the note entitled, "CMBS Newsflash: New Cracks in the Multi-Family and a CDC Eviction Moratorium" by David Salz and Thomas P. LaSalvia. The analysis looks at the trend of increasing the volume of specialty services within the sector as overall crime rates have stabilized and are even showing signs of declining, and why.
The Real Estate Solutions report for Moody & # 39; s Analytics REIS focuses on Commercial Mortgage-Backed Securities (CMBS), a type of mortgage-backed security backed by commercial and multi-family mortgages, rather than residential properties, which tend to be more complex and volatile.
Salz leads the CMBS desk of Moody & # 39; s Analytics within the Structured Content Solutions group, while LaSalvia is Senior Economist in the Research and Economics department at Moody & # 39; s Analytics REIS.
"When we reviewed remittances in August, we found some conflicting data, in addition to a multi-family sector showing its early signs of pandemic stress, ”the two researchers wrote. "While the overall crime rate is fairly stable and even showing signs of declining, the volume of special maintenance remains stubbornly high and is increasing by the centimeter."
Their conclusion: The multi-family numbers should give cause for concern for what the authors have so far called "the darling of the commercial real estate industry".
"In certain data truncations, we even see industry-specific conflicts over where stress is hiding and likely to occur in the near future," write Salz and LaSalvia.
The REIS report compared monthly data, focusing on a population that included loans whose comments the servicer included "COVID-19" on crime grounds, but not tended to "cancel" reliefs ".
Through July and August, credit and balance numbers within this population were relatively stable across industries based on the data, but the payment status of borrowers with concerns about “COVID-19” escalated.
In July, the report found that a large proportion of the “affected” borrowers were in the apartment, office and industrial sectors. However, the percentage of loans paid on time for apartment buildings (both agency and non-agency) declined in August, just a month later.
"Is this the beginning of the growing stress for a sector many consider CRE's darling?" Ask about salt and LaSalvia. “Overall, we expect apartment buildings to continue to do better than retail and housing, but the rise in crime for this group needs to be watched. In addition, the signs of stress are consistent with a variety of other problems in the multi-family industry. "
Among those "other issues" likely to be contributing to this trend is the expiration of the Coronavirus Aid, Relief and Economic Security Act (CARES) – a $ 2.2 trillion economic incentive bill that the Congress passed earlier this year and signed into law by President Donald Trump on March 27, 2020 in response to the economic fallout from the COVID-19 pandemic) recently blocked aid packages in Congress over the next stimulus test – if any; and last but not least, another half a million people who become “permanently” unemployed.
Unsurprisingly, these factors were accompanied by a further drop in on-time rent payments for renters in August, while data collected by Moody & # 39; s Analytics REIS through July and August showed that the multi-family sector was in demand and seeing effective rent decreases.
"In addition, the Centers for Disease Control's recent moratoria on evictions could create problems for landlords and low-margin borrowers," said Salz and LaSalvia. You referred to the CDC director Dr. Robert Redfield signed a September 2 moratorium that evicts tenants could be harmful Public health control measures to slow the spread of COVID-19.
“There have been some movements in CMBS relief from Congress, but nothing is concrete or imminent. As a result, the pressure could shift to specific service providers who are already burdened with a large number of inquiries from the lodging and retail sectors, ”added the authors.
Month after month, the Moody & # 39; s report showed only one improvement in the lodging sector.
