The pandemic has brought about many changes in how buildings are operated, and as the summer blends into fall, many people are wondering what lies ahead. Drawing from nine roundtable discussions, we highlight some of the areas that are of greatest concern.
Apartment ownership is about joining a community, but it’s also one of the biggest investments people make. How is the pandemic going to affect this market, both in the short term and in the future?
Mark LevineI think it's going to come down to how comfortable people feel living in an urban environment after all this shakes out. I'm seeing people who are disenchanted with living here. What’s that going to mean for the co-op/condo market?
Steve FurmanWhat I'm seeing now – given the impact on so many people losing their jobs – are some requests for boards to go against some of their sublet or sales policies. Each board is going to have to look at policies, and they might have to make special considerations for people who have lost their jobs and may not be able to carry their apartments. I think you're going to see the impact of that in the fall and toward the end of the year.
LevineThis is a whole cultural shift. We don't know what's going to happen a year from now in any aspect of this. I can only imagine that if people had to go for six more months of severe limited interactions with other people and not being able to leave their apartments, I could see that no matter how big your apartment is, it still feels constrictive. Whether or not that's going to have an impact – it's too early to say.
FurmanIt will certainly be a buyer's market until the end of the year. For people who have used their apartments as investment properties, whether they choose to come back and use them is going to be up in the air. You're probably going to see a lot of apartments come on the market toward the end of the year.
Andrew Lazarus Right now our transfer department has not been that busy with submissions. There were a few transactions that I'll call pre-COVID that were in the works in early March or slightly before that, which now seem to be moving forward.
Josh Koppel The brokers that I've been dealing with are seeing about a 12% to 15% reduction on the prices of the listed apartments. That's just the beginning. If this continues or gets worse, only time's going to tell, but it doesn't look good.
Lazarus We have seen a lot of activity on apartment refinances, probably because of where the rates are today. So our transfer department has been very busy with refinance submissions. They've also been very busy fielding inquiries about sublets. We're in a lot of situations where shareholders or unit-owners who had rented their apartments in the past, those tenants may have left. So now they're trying to ask questions about the building policies. Can they sublet again? I don't know that there are many actual submissions for actual subtenants, but there's a lot of talk about “How am I going to handle this for an apartment that was traditionally a sublet?”
For co-ops, apartment sales mean additional revenue in the form of flip taxes. If that is drying up, how challenging will building finances become? And couple this with a loss of revenue from commercial spaces.
LevineA flip taxshouldn't be part of your operating budget because it's an unknown. It's subject to too many factors like market conditions, to demand, to everything. So I don't think that we ever really rely on the flip tax. For those buildings that do have one, it's a great tool to put into the reserve account. I could see that if you're going to have a mass exodus from the city, the flip tax will be something that comes into play.
LazarusOne of the big budget areas that's been affected are buildings with commercial space. And in some cases, significant commercial space. It brings to the forefront a discussion on not just what projects a board is going to be able to do, but what does the reserve fund look like and how is your budget going to work? We have been slowly having those conversations because it's going to play out over time. Maybe there's a security deposit that's being used to offset some of the collection issues, or discussions with a commercial tenant to work out a payment plan. A building may have some cash reserves that it can use to offset what's hopefully a short-term deficit and then repay that in some way, in a long-term plan. That could be a little easier for shareholders to absorb.
LevineYou get a lot of community out of all this, in the sense that people really are coming together now. We're all working together as a team instead of management versus the board. We're all just trying to stay healthy. So if that feeling stays intact for the next few months, I think that it will be fine.