Since the onset of the pandemic in March, real estate investment company KIMC has pivoted to weather the economic dislocation and uncertainty to come by repositioning the debt on its portfolio. The firm was able to make the strategic move largely because rent collections have surpassed expectations. For multifamily, the bulk of KIMC’s assets, rent collections have averaged 95% nationwide and even higher in select markets.
“We got $100 million in financing done at an average rate of 2.94% with 9 years of interest only and 10 years of maturity,” Jonathan Needell, president and chief investment officer at KIMC, tells GlobeSt.com. “We basically cleared the deck on most of our maturities for the year until July of next year. We were able to do that because collections have been good and better than expected. We were playing it by ear month-to-month—and we are still playing it by ear depending on what kind of physical stimulus comes at the end of July—but our collections have been 95% across our portfolio and generally higher than the NMHC. We have been happily surprised by collections.”
The strong rent collections have been a surprise for a lot of real estate owners, particularly because some data outlets are showing declines of 30% in rent payments. Needell says the acrimony around rent payments and the inability to make those payments is coming from more expensive coastal markets. “There is no doubt that within the portfolio, our California and Washington properties—we don’t have any in New York—are lower collections,” he says. “They drag it down dramatically. There is a fundamental reason for that, besides politics. The unemployment benefit is much more meaningful in Oklahoma, for example, than in California. The $600 was meaningful to my tenants in Oklahoma, and while it was helpful in California, it wasn’t as helpful.”
In addition to restructuring some debt and delaying maturities, KIMC has also been able to secure acquisition financing on new purchases during the recession. “Our ability to finance things has been excellent, and we were able to get a couple of things done on the purchase side. We saw pricing come down a little bit, but not a ton,” adds Needell.
In KIMC’s commercial portfolio, rents have also been strong, around 90% on average. However, the company has an exposure to office and grocery-anchored retail, which has helped to fuel rent collections the last four months. “Our commercial collections have been decent,” says Needell. “We are in grocery-anchored shopping centers, convenience-oriented retail and office, and we have been well into the 90% in collections for office and retail in our portfolio. We have been pleasantly surprised.”
While some experts say that the strong performance is a sign that the market has yet to respond to this crisis, Needell instead says that the depth of the recession could be more varied than we have seen in the past. “Compared to other recessions, the divergence in industries that have been hit is greater,” he explains. “Hospitality, bricks-and-mortar retail and restaurants got hit so hard, but tech, for example, has done pretty well. It is almost like even though we are seeing a sharper decline in GDP than a typical recession, the underlying distress was greater in some sectors and less in others. That is really interesting because it causes a divergent response.”
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