June 10, 2020
Market corrections are events that test the patience of investors, and the economic impacts of the current pandemic are no different. While impacts on certain real estate sectors like retail and industrial have been perhaps more obvious due to market activity, those in the multifamily sphere have had to hold their breath. For those at Cityview, an investment management and development firm specializing in multifamily housing, while the impacts of COVID-19 have not been as bad as predicted and the firm is looking for opportunities in the market, some uncertainty remains as the market begins to open up again.
“I think like everyone, we were pretty unsure as to what the market would look like and what the impact of COVID-19 was going to be when this first really hit in March,” stated Jennifer Halvas, vice president of operations and associate general counsel at Cityview. “…I think we expected a far deeper impact…all in all we have not seen the significant impact that I think we were anticipating but were preparing for on the residential side.”
Cityview, founded in 2003, focuses on multifamily and mixed-use projects in high growth markets in the Western United States. To date, the firm has generated more than $4 billion in urban investment across more than 100 projects.
Across Cityview’s portfolio, the influences of COVID-19 have taken time to manifest. In March, when the outbreak began, the firm did not see much of a decrease in the collection, since shelter-in-place orders across many markets did not go into effect until the middle of the month. April and May, however, collections decreased about three to four percent.
And, although leasing activity has largely slowed, Halvas remarked that conversion rates are still stable, because potential tenants who are currently looking for space are those doing so out of necessity, noted Halvas.
“We were seeing less leasing traffic in April, but more interested traffic,” explained Halvas. “I think the people that were out looking for a new place to live were pretty motivated and were looking to move in the short term, so we ended up seeing a higher conversion rate.”
Over the course of May, as restrictions on shelter-in-place eased in some areas, Cityview began to see slightly more traffic. According to Halvas, over the past couple of months, Cityview has seen about 160 net leases solidified across its portfolio. However, certain demographics are faring better than others; tenants in more tech-centric markets like the San Francisco Bay Area have felt less of an impact than those across Southern California, whose jobs often cater more towards content creation and hospitality.
However, the part of Cityview’s portfolio that has been hit the hardest has been retail. While most of the firm’s retail is incorporated its multifamily assets as part of mixed-use developments, Halvas acknowledged that the sector is struggling. While the multifamily sector saw more minor corrections across the industry, retail—which was already struggling in some ways—has been hard hit. Across Cityview’s portfolio, retail collections are down 60 to 75 percent, a fact that has not been surprising to the firm.
“Retail is getting hit significantly harder,” said Halvas. “We have a small retail portfolio that is part of our mixed-use buildings, and [impacts] have been mitigated by the size of the portfolio relative to our overall holdings.”
As Cityview—and others in the multifamily space—continue to evaluate the market, many are only just beginning to strategize on how to move forward. Because deal volume has been down on both property sales and leases, those in the industry have largely been waiting to see how the market plays out in the coming months.
“When this first began, we certainly felt a pause. Everyone—including us—was just trying to evaluate the market,” said Halvas. “I think there has been so far, a bit of wait-and-see from the market. We have seen a lot fewer deals trade, we’ve seen a slow-down in the debt markets…there was a national pause while we were figuring it out.”
Cityview is beginning to see some movement in the market has debt markets and prices have remained stable and are actively looking for opportunities moving ahead to continue to invest. Currently, the firm has a couple of assets in lease-up and another—in the San Francisco Bay Area—working through entitlements.
“There is movement in the market,” said Halvas. “We are actively looking for opportunities, and we expect to be seizing opportunities that are available. We’re a real estate first company, and so we want to make sure that we find sound investments that make sense, where we add value.”
By Meghan Hall
Originally published in The Registry