Profimex Market Review Update – February 23, 2021
Apartment Owners See Expenses Rise, Revenues Fall as Pandemic Wear on Budgets
Despite faring better than other real estate sectors throughout the Pandemic, the financial cost of providing tenants with more cleaning, maintenance and technology services cut into net operating incomes for many multifamily real-estate owners during the fourth quarter of 2020 as profit margins continued to tighten. Major multi-family REITS reported year-over-year property expense hikes between 2% and 8.4% in the fourth quarter of 2020. Expenses increased across the board; however, COVID-related expenses – including additional cleaning, maintenance, protective equipment, and new technology and services – account for a considerable portion of the increase. Investment in new technology was necessary for many properties to conduct virtual walk-throughs for prospective lessees and set up virtual doorman systems to accommodate the increased volume of deliveries. On the revenue side, renter turnover, declining rents, and increased concessions continued to hamper the ability to generate revenue and make up for the increased operating expenses.
Hotel Bankruptcies on the Rise as Lenders Lose Patience with Recovery
The Pandemic has been especially harmful to the hospitality sector as hotel performance, by every metric, continues to suffer. The average occupancy rate for all U.S hotels during the first week of February was 41%, down more than 30% from the same period the previous year. Revenue per available room, a key hotel metric used to help determine profitability, was down 51% from the previous year. Until this point, the unprecedented negative performance did not cause a wave of bankruptcies, as lenders provided enough forbearance to help hotel owners stay afloat through 2020. However, this is beginning to change, as Lenders begin to lose both patience and the confidence of a sharp hospitality rebound that the sector desperately needs. A string of hotel bankruptcies were filed in the first two months of 2021 – already surpassing the number filed in 2020 – and experts expect this number to increase dramatically with little hope for a hotel recovery prior to the summer travel season. By all accounts, the hotel industry is expected to recover, the question is about timing. Accordingly, many funds and investment firms see this as an opportunity and are raising capital to invest in distressed hotels and fill the current gap between the lenders and the hotel owners.