Trends within the small multifamily sub-sector match the broader industry, with measures of health ranging from ‘in recovery’ to ‘fully recovered.’ Driven by ample liquidity and continued downward pressure on cap rates, valuations of small multifamily assets are gaining momentum. The balance between refinancings and acquisitions is settling back into its pre-pandemic norms, reflecting a stable interest rate environment and the return of active buyers.
However, challenges remain. Some operators may still see some COVID-related distress. Smaller mom-and-pop landlords who are subject to the CDC’s eviction moratorium are asymmetrically impacted by the Federal policy. Since these landlords typically have fewer units, a non-performing unit diminishes a greater share of potential income than if the same non-performing unit were to reside in a larger multifamily property.
In a June letter addressed to the Biden Administration signed by 12 of the nation’s leading rental housing advocacy and trade groups (including National Multifamily Housing Council, Mortgage Bankers Association and others), industry leaders commended the Federal Government’s role in staving off a rental housing crisis. However, they urged the Administration to suspend the CDC’s eviction moratorium. The letter states, “the continuation of a nationwide, one-size-fits-all” approach at this point will only place “insurmountable levels of debt on renter households and prevent recovery in the housing sector.” Despite these calls, CDC Director Dr. Rochelle Walensky extended the eviction moratorium by another month. However, it came with the announcement that it
was intended to be the final extension, setting up an expiration of the moratorium on July 31.
All else equal, the small multifamily recovery is well underway. The second half of 2021 has a firming outlook for the small asset sector. Macroeconomic tailwinds and the sunset of the CDC’s eviction moratorium will take the reins from the reliable underlying demand and the agencies’ (Fannie Mae and Freddie Mac) support that kept small multifamily going during the pandemic-related recession.