“Like everyone, the Covid-19 pandemic caught us by surprise. At the onset we were quite concerned about the drastic shutdown of the global economy imposed by governments around the world scrambling to respond to the outbreak and to minimize the potentially devastating effects of the widespread global pandemic. We had braced for a rapid and drastic deterioration of property income fundamentals, driving operating incomes down and triggering widespread loan defaults and massive distress.
We were very pleasantly surprised by how resilient the real estate sector proved to be in 2020, particularly the multifamily rental segment, which proved to be the second best performing sector after industrial real estate. We had expected the bottom to fall out from under the market when US GDP declined at an annual rate of 33% and 22 million jobs were lost due to the pandemic. As it turns out, on a national basis, net operating income for multifamily rental properties fell by less than 10% on average, a relatively modest decline given the enormity of the economic contraction. That’s a remarkable sign of strength and resilience of the segment, and an indication of why investing in the multifamily rental sector is a relatively safe bet!
Looking forward, we believe that the worst is behind us, and that the economy will continue to recover during 2021 and beyond. And, that along with the economic recovery the rental housing segment will recover as well. We are particularly optimistic about the outlook for “innovation economies” in the Sunbelt, and the prospects for above average rental rate growth in some of the harder hit major urban markets, particularly those in California and New York. We expect that that multifamily property values in such locations will continue to rise for the foreseeable future, fueled by favorable demographics, growing economic base that attracts high-earning knowledge workers, and a shortage of adequate housing in these types of markets.”
- Gadi Kaufmann, Chairman, RCLCO