If we have learned anything from the COVID-19 pandemic, it is that uncertainty is the only truly certain thing.  For those looking to invest, 2020 has been a stark reminder of the importance of diversification – one of the best ways to protect your overall portfolio.

Historically, economic downturns have translated to increased investment activity in the real estate market. At present, demographic behavior both during and pre-pandemic points to multifamily properties as the go-to real estate investment for people looking to move toward more steadfast opportunities in uncertain times. Multifamily assets have proven resilient during downturns and provide steady income and asset appreciation.

Even before the world was turned on its side by a pandemic, homeownership levels were low compared to previous years.  The high costs of homeownership, the limited inventory of affordable single-family homes, and the millennial generation’s preference for rental housing were the main contributors to the trend, according to this 2020 North American Investment Forecast.

Millennials were already moving to the suburbs looking for more space and affordability as they matured, married, and had children, a migration pattern that accelerated as people moved away from densely populated cities to escape COVID-19.  Since many workers are telecommuting, they can look beyond the urban areas where their offices are located.

The rental delinquency fear proved wrong

Although there were some concerns that delinquent rent payments would increase due to the pandemic, thus far, they have remained steady, according to the National Multifamily Housing Council.

And, while rents in urban areas have plummeted since the start of the pandemic, rent prices in suburban areas have either remained stable or increased, according to research from the Apartment List, which analyzes both data collected by the Census Bureau as well as internal data from apartment listings.

Multifamily offers strong risk-adjusted returns during downturns

There is very little correlation between real estate and stock market volatility. As we saw at the beginning of the pandemic, the stock market can get spooked into a freefall.  Real estate prices, on the other hand, remained steady thus showing their value as a diversification vehicle.

The chart below shows the 20 worst quarters for 60% stock/40% bond portfolio returns between 1978 and 2012, compared to returns of commercial real estate open-end funds from those same quarters.

Source: NCREIF, Barclays Capital, Wilshire, J.P. Morgan Asset Management

In uncertain times such as these, thoughtful investors look to lower risks while still achieving their investment goals, and multifamily real estate investing is one of the surest means of accomplishing this strategy, because it offers steady long-term income with very little volatility.

The advantage multifamily has over single-family rentals is that there is a smaller impact when the occasional collection issue arises. Also, tenants living in carefully screened multifamily apartment complexes are highly motivated to keep paying their rent, making it a much more reliable source of income to investors.

In terms of the best performing markets, 70% of the U.S.’s fastest growing cities in the last four years are in the Sunbelt, where acquisition costs tend to be lower. Businesses and individuals are drawn to these areas due to tax advantages.  U.S. and multinational companies that have seen the supply chain disadvantages to having factories worldwide will look to move manufacturing to locations in the Southeast like Florida and Texas that offer tax incentives.

There is no better time than right now to redeploy some of your stock and bond market assets to multifamily real estate investments.  The continued impact of COVID-19 on our lives and the economy remains unknown, but carefully selected real-estate investments have the ability to add stability and a source of steady income to your portfolio even in uncertain times.

Tampa Multifamily Investment Report

The Tampa Bay area is widely considered one of the most desirable and business-friendly regions in the country. Its established and growing economy contributes to Tampa Bay’s active multifamily rental market. From 2015 to 2019, the Tampa Bay market added 26,062 new units—more than half of the units in a nine county region, according to building permit data collected by real estate researcher CoStar Group.[i]  With strong economic fundamentals, sustained employment growth and population in-migration, Tampa Bay continues to provide excellent opportunities in the multifamily sector.

Tampa Metro Population & Employment Metrics
Tampa is the 3^rd-largest city in Florida, after Miami and Jacksonville, and the 53rd-largest city in the U.S. The Tampa MSA consists of Tampa, St. Petersburg, and Clearwater. Nearly 400,000 people live in the City of Tampa, and there are more than 3 million residents in the Tampa Bay/Hillsborough County metropolitan area. According to the Tampa Bay Economic Development Council, Tampa is projected to grow 3.3% annually over the next few years, and more than 126,000 new residents are forecast to move to the metropolitan area by 2024.[ii] The Tampa Bay area’s affordable cost of living, low tax environment with zero state income tax, excellent year-round weather and waterfront locations are attracting people and businesses to the region in record numbers.
Tampa’s vibrant economy is supported by a highly talented labor force in sectors that include healthcare, financial services, manufacturing, military, and technology. The city is home to the regional offices of a number of major corporations, including an emerging tech scene that includes Tampa Bay WaVE, Embarc Collective and TEC Garage. The headquarters of a growing number of Fortune 500 companies are based in Tampa, including Raymond James Financial, Tech Data, Jabil Circuit, Publix, Qurate, and Mosaic. Johnson & Johnson’s corporate services headquarters is based in Tampa, and global law firm Baker McKenzie’s new business services centers is located there as well. MacDill Air Force Base employs 22,700 and is the headquarters of CENTCOM and SOCOM.4. (JLL)
Data from the Bureau of Labor Statistics indicates that Tampa MSA employment has experienced a growth of 13.8% over the last five years through February 2020, and the unemployment rate of 6.8% for August 2020 is below both the Florida rate of 7.4% and the nation rate of 8.4%.[iii]

Multifamily Market
The Tampa/St Petersburg, Florida multifamily market is considered #4 in the nation for apartment building investments, according to Multifamily.loans.[iv]  The ranking is due to several favorable factors, including employment growth, rent growth, vacancy rates, and construction of new units. Additionally, CoStar reported that Tampa topped $3.6 billion in sales during 2019, making it the first multifamily market in Florida to top $3 billion. And Mashvisor noted that more than half of the population – 53% – rent instead of own a home.[v]  Furthermore, the annual PwC Emerging Trends in Real Estate: United States and Canada 2020 report ranks the Tampa-St. Petersburg real estate market at position #11 among the 80 surveyed markets. [vi]

Resilience of Tampa Apartment Fundamentals
YardiMatrix reports that Tampa rents rose 0.1% to $1,280 on a trailing three-month basis through April, while the national rate remained flat. Across the metro area, Tampa areas continued to command the highest rates. Hyde Park/Davis Islands was the only submarket where average rents surpassed the $2,000 mark as of April. Despite COVID-19’s impact on the overall economy, YardiMatrix still projects that the Tampa MSA will see multifamily rent growth and expects the average rent to rise 2.6% in 2020.

The Opportunity
Lloyd Jones, LLC has extensive experience an investor, owner, and manager in the Florida multifamily market. We have worked with investors to find the right multifamily property to generate the best possible returns for four decades, through numerous economic cycles. If you are looking to capitalize on multifamily opportunities in the Tampa market, please let us know. To learn more, visit https://www.ljasl.wpengine.com/

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i.  https://www.businessobserverfl.com/article/tampa-bay-apartments-growth-jobs-in-migration-occupancy-rental-rates-brad-capas-cushman-and-wakefield-brian-alford-costar-group-arturo-pena-related-group
ii.  https://tampabayedc.com/wp-content/uploads/2019/07/2019-2024-Hillsborough-County-Population-Growth.pdf
iii.  https://www.bls.gov/eag/eag.fl_tampa_msa.htm#eag_fl_tampa_msa1.f.1
iv.  https://multifamilyfirm.com/tampa-multifamily-real-estate-market/
v.  https://www.mashvisor.com/invest/tampa-real-estate-market-report/
vi.  https://www.pwc.com/us/en/industries/asset-wealth-management/real-estate/emerging-trends-in-real-estate.html

For renters, the economic uncertainty of the pandemic has meant that homeownership plans have been put on hold. According to a recent study from Yardi’s RENTCafé, due to unforeseeable nature of current events, 43% of renters report that they plan to delay homeownership for five years or longer. The survey, which ran at the end of May 2020, asked 7,000 renters about their housing plans before and after the coronavirus hit. Financial worry is cited as the main reason why 21% of the renters surveyed plan to postpone buying a home for at least five years, while nearly one-quarter of renters said they would never be able to purchase a home.

As renters look forward, they are choosing the housing options that gives them the most financial stability until they have the confidence to undertake bigger financial transactions. Homeownership comes with additional—and often unpredictable expenses—including interest, property taxes, insurance and maintenance. Apartment living, with its consistent monthly rent and one-time deposit, is more appealing to renters than home buying right now. And, in more than half (59%) of housing markets nationwide — 442 of 755 U.S. counties — renting a three-bedroom property is now more affordable than buying a median-priced home.

“We’re seeing higher renewal rates across our portfolio as tenants remained in their apartments during the lockdown,” said Chris Finlay, founder and chairman of Lloyd Jones, LLC. “Those properties that were well-positioned before the pandemic will continue to perform well, with above-average income growth and property price appreciation.”

Across demographics, while younger generations like millennials are more likely to want to own a home—even if it’s five years or more down the road—half of baby boomers said they wouldn’t purchase a home again. The less costly, more convenient apartment lifestyle may play a role. With renter households over 60 increasing considerably in the past decade, boomers seem to be getting more and more comfortable with renting.

“Tenants who move to buy a home is one of the main reason for vacancies,” said Finlay. “Considering the current market conditions, renting appears to remain the lifestyle of choice for many, including a growing market of seniors. There continues to be a tremendous demand for affordable, highly amenitized rental communities for seniors to age in place, and we believe is this an excellent investment opportunity that offers lower risks and excellent returns.”

Chris Finlay, Founder, Chairman of Lloyd Jones, LLC, and Tod Petty, Executive Vice President of Lloyd Jones Senior Living, recently presented a webinar to members of FLAIA, an open access platform of alternative investments for institutions, wealth advisors, family offices, RIAs, and accredited investors.

Finlay, who has led the firm through four decades of economic cycles, and Petty, a 30-year veteran of the senior housing industry, offered their insights on the anticipated demographic changes in senior housing post COVID-19, and what opportunities lie ahead for investors.

In an overview of the current senior housing demographics, Finlay said, “We’re at the beginning of a ‘senior tsunami’,” as 10,000 people turn 65 every day in the U.S., and the 75+ population will double in the next two decades.” Yet despite the changing demographic landscape, “We have a massive shortage of appropriate housing for seniors to successfully age in place.”

Post COVID-19, seniors will feel the financial impact in myriad ways, according to Tod Petty. “Most of our older population will have reduced liquidity, and nearly half of consumers over 55 don’t have a retirement plan.” As a result, the high-rent, highly amenitized housing communities that dominate the senior housing landscape will continue to be out of reach for all but seniors in the top 10 percent income bracket.

With the demographic shift, and the growing demand for senior housing that includes health and wellness services, Lloyd Jones LLC sees the greatest opportunity for its investors in the middle- market senior housing sector. “Up until now, the middle market had a high barrier of entry due to the high construction costs of new builds,” said Petty. “But, the acquisition of distressed assets in highly desirable locations now presents new opportunities.”

In particular, the acquisition of distressed hotels and assets disposed of by national REIT organizations are the most attractive opportunities. According to the American Hotel & Lodging Association (AHLA), 8,000 hotels could close by September, and these acquisitions are trading at 75% plus below replacement cost. “By repurposing distressed hotels into middle-market senior living communities, the rents will be $500-$1,000 less than comparable new builds in the same market,” said Finlay. “These acquisitions offer lower risk, excellent returns and affordability.”

There is also a large inventory of distressed senior housing assets—typically assisted living or memory care facilities older than 20 years—that investors can acquire below replacement value. “REITs’ disposal of portfolio assets is attractive in a post-COVID world,” said Petty. “We’re able to develop a ‘new’ housing venue with lower than market rent, that will provide access to the 40 percent of seniors who aren’t able to pay the current rate offered by the resort-style models.”

“Lloyd Jones is poised to come out of the post COVID-19 economy very strong, with opportunities to grow even stronger,” said Finlay. “Our Aviva-branded portfolio will create new communities for active adults needing affordable, highly amenitized, life transitioning options to successfully age in place. For investors, Aviva active adult communities will have space for health and wellness programs and other amenities difficult to replicate in the current offerings in the senior housing space.”

by Chris Finlay, Chairman and CEO, Lloyd Jones LLC and Lloyd Jones Senior Living

The hotel industry, which was already somewhat overbuilt, has been one of the hardest hit by the COVID-19 pandemic. Even with phased reopening, occupancies and revenues are still at unprecedented lows.
The financial distress may be too great for hotels to overcome, and hotel owners are reviewing their portfolios to determine which hotels will require too much capital to carry them through the duration of the downturn. The potential wave of distressed hotels coming to market presents opportunities for conversion of select hotel properties into senior housing.

At Lloyd Jones, we believe that the acquisition of distressed hotels in the limited-service and full-service asset class hold the best opportunities for conversion into 55+ and independent living senior housing.

A limited-service hotel, which often includes amenities such as a pool and fitness center but lacks a full restaurant, is ideal for conversion to a 55+ age-restricted multifamily community. Full-service hotels, which often have those amenities plus a lounge, meeting space, and sit-down restaurant along with a commercial kitchen, are best suited for conversion into amenity-rich, independent-living communities.
We believe there is an opportunity to acquire distressed hotels at very attractive prices and repurpose them into senior housing. For investors in the senior housing sector, there are myriad benefits to adaptive reuse of hotels compared to building from the ground up.

Economies of cost

Rising land costs and scarcity of available land make it more difficult to find an ideally located site. With adaptive reuse, you have more flexibility to put the right community in the right place. In our experience, even with the cost to renovate the hotels, adaptive reuse is still less than 80 percent of the cost to build from the ground up.

Speed to market

To build a 55+ or independent-living community from the ground up can take approximately 18 months. Not to mention, with new construction comes higher risk, due to the longer permitting, approval, and building process. Lloyd Jones’ team of experienced senior living professionals plans to turn around adaptive reuse hotels for conversion within about nine months.

Competitive advantage

Because the cost to develop and repurpose an existing property is far less than constructing a new asset, rents can remain much more competitive. The traditional newly constructed senior-living community commands very high rents. In most cases, target demographics are limited to the top five percent of households in terms of income that live within a five-mile radius of the community. Hotel conversions become a more affordable option that broadens the demographic to, say, the top 25 percent of households.

From our perspective, adaptive reuse enables us to deliver a great quality environment for 55+ and independent living communities at a much better rent to the consumer, while also offering tremendous appeal to the investor: lower risk, lower cost, excellent return at a very competitive price. Overall, we believe the return will be as good or better than brand-new construction.

For more insights and the investment outlook on adaptive reuse in senior housing, contact Chris Finlay, Chairman and CEO, Lloyd Jones LLC and Lloyd Jones Senior Living.

MIAMI, FL – Lloyd Jones, a multifamily investment firm based in Miami, has purchased the luxury Pembroke Pines property, Ventura Pointe.

The 206-unit apartment community, built in 2018, has a state-of-the-art gym, clubhouse, pool, pet park, and outdoor recreation area. Furthermore, it is adjacent to the 301-bed Memorial Hospital Pembroke and has excellent access to nearby retail and entertainment.

Christopher Finlay, CEO/Chairman of Lloyd Jones, says he is thrilled to expand the firm’s footprint in South Florida, a region that has seen explosive job and population growth in the past few years.

“I am excited to grow our South Florida portfolio. We have seen tremendous growth in the area, and we are happy to be able to offer a new, Class A property to support the growing population,” says Finlay.
Lloyd Jones is a real estate investment and development firm with 40 years in the industry under the continuous direction of Chairman/CEO, Christopher Finlay. Based in Miami, the firm has divisions in multifamily investment, development, management, and senior living. Its investment partners include institutions, private investors, and its own principals.

Link: https://www.multifamilybiz.com/news/9005/multifamily_investment_firm_acquires_ventura_point…

By executing a value-add strategy, many investors have been able to increase returns on their multifamily investments. Value-add investments generally target assets that have existing cash flow, but also offer the upside potential of increasing that cash flow through repositioning and implementing improvements to the property. As a result, the property can command higher rents, attract quality tenants, increase tenant satisfaction/retention as well as increase operating efficiencies.

According to the Yardi Matrix report, U.S. multifamily rents grew 3.2% year-over-year from May 2018 to May 2019. Multifamily operators typically increase rents, but in addition they can achieve an even higher rent premium in assets that have room for improvements.

In multifamily real estate, there are many ways an operator can reposition the property and create value. These includes adding value in the form of interior renovations, exterior improvements to the property, and amenities to achieve higher marketability and resident comfort. Strategic improvements can turn an under-performing asset into a high-performing asset. Such enhancements include interior unit renovations with upgraded appliances, cabinets, flooring, lighting and plumbing fixtures, depending upon the market and level of upgrades warranted. Upgraded community amenities often include an expanded fitness center, outdoor entertainment areas , and clubhouse modernization. Once the operator has successfully executed the value-add program, the property should yield a rent premium in addition to the standard rent growth in the market. Successful value-add opportunities offer cash flow throughout the hold period and capital appreciation at sale.

Lloyd Jones’ top three recommendations can be grouped into: interior renovations, curb appeal, and upgraded amenities
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1. Interior renovations: Upgrading the units themselves typically involves new cabinetry or appliances and perhaps better flooring. This adds value while aiding in keeping turnover low because these changes directly enhance the quality of life of each resident. At the same time, these energy efficient, maintenance-reducing improvements often decrease the operating expenses of the property.

2. Curb appeal: Not only could improving the landscape of the building please the tenants, but it is likely to catch the attention of potential new residents as well.

3. Upgraded amenities: This can result from enhancing existing amenities such as pools or gyms, or creating new amenities like a dog park or Amazon package locker system. Such changes will offer residents benefits that are typically difficult to access in other types of housing.

Renters often oppose rent hikes. They have many choices in multifamily housing so it is crucial for operators to implement strategies that provide unique or in-demand amenities for which residents are willing to pay premium rents. Without resident satisfaction, there are no fruitful yields for the investment.

Since the Fed announced its rate cut on July 31st, talks of recession have consumed the markets. With the pending Fed meeting on September 17th, it is largely expected that a consecutive rate cut will follow. A continuation of rate cuts would indicate that the Fed believes the US economy is contracting, and thus we are more likely to be closer to the looming recession.

According to Economist John Mauldin, “Lower asset prices aren’t the result of a recession. They cause the recession. That’s because access to credit drives consumer spending and business investment. Take it away and they decline. Recession follows. The last credit crisis came from subprime mortgages. Those are getting problematic again. But I think today’s bigger risk is the sheer amount of corporate debt, especially high-yield bonds.”

Economists such as Mauldin are pointing to the high levels of corporate debt as the cause of the next recession, or in other words, the “bubble”. Bubbles occur when the market prices an asset above it’s true value. For investors seeking yield but wanting to avoid the risk of investing in corporate debt, real estate investments are a suitable option.

Real estate investments, particularly multifamily, are often recession-proof investments.  Multifamily real estate is recession-proof because during down markets renters have largely proven to maintain their rents. Such housing doesn’t carry the risk of other classes such as single family. The charts below show the percentage change in the prior year for rental and for sale houses from 2008 to 2018. As illustrated below, during the recession of 2008, rental vacancies dropped less than 1% in the following year while housing vacancies decreased by 10%.

The Fed’s next meeting may indicate how quickly the looming recession could occur, but sophisticated investors will position themselves to be prepared in advance.

Less than two weeks ago, the U.S. Federal Reserve announced its first rate cut since 2008. This decision surprised few given the uncertainty in the economy and global trade tensions. What did perhaps surprise many was the effect that the Fed’s decision had on the bond markets. Since the Fed’s announcement on July 31, the 10-year treasury yield has dropped from 2.02 to 1.73. But what does this mean for investors’ portfolios?

According to Economist John Mauldin, “the longer an inverted yield curve persists and the deeper it gets, the higher the probability of recession within the next 9–15 months.” Mauldin predicts a flight of capital toward high-yield junk bonds. Such assets may be able to provide yield, but at what cost?

The safest yield-producing investment during such tumultuous times is multifamily real estate. We have been specializing in multifamily real estate for 40 years because during down markets, it is the most resilient asset class (see Figure 1 below from CBRE Research).

We are already witnessing some of the most high profile investment firms, such as Iconiq Capital, buying up apartment buildings throughout major US cities (Source: WSJ). The timing of these investments demonstrates where the smart money is headed to prepare for our next economic cycle, and that is multifamily real estate.

It’s no secret that real estate has been, is, and will continue to be a popular choice of investment. As individuals take a more holistic approach to their portfolio planning, real estate investments are receiving a bigger piece of the pie to add diversification and cash flow.

That said, it still came as a surprise to many (but not us), when a nationwide Bankrate survey revealed this month that real estate is Americans’ favorite long-term investment. With rate cuts and swinging volatility, too much uncertainty lies in traditional markets. Real estate investments may offer stability, cash flow, and the gratification of owning a tangible asset that when properly managed over the long term, can bring about capital appreciation.

As investors shape their portfolio with a long-term approach, real estate investment becomes the necessary choice to offer value that is becoming more difficult to find elsewhere.