An Early Warning System for Multifamily Rent Collection

Today is the most challenging time for multifamily asset managers since the 2008 financial crisis. Charged with optimizing the performance of a property or portfolio, asset managers and owners face unprecedented uncertainty with COVID-19. The rapid increase in unemployment, intermittent layoff and furlough announcements at large corporations, and expiring government stimulus programs make it challenging to predict occupancy, collect rent, set rents, and attract tenants.

In such an unstable environment, where should an asset manager focus their attention? For assets whose performance has already deteriorated, will it get worse? For assets performing well, is there trouble around the corner?  Is there a fact-based way to know this?

“Our initial findings for October [rent payment activity] show that despite ongoing efforts by apartment community owners and operators to help residents facing financial distress through creative and nuanced payment plans, rent relief and other approaches,” notes NMHC President Doug Bibby, “renters and the broader multifamily industry are confronting growing challenges.” 

Tapping Data to Forecast Non-Payment of Rent

One potential way for owners and asset managers to better identify which properties are more likely to become affected by rent collection issues is by leveraging alternative sources of data that fill in “blind spots” and provide leading indicators traditional sources miss.

Right now, says Pinnacle director of performance management John Hull, operators should be immersing themselves in real-time data about their own communities and comps. “I think people are starting to realize that data is king, and data is key to survival,” he said in a recent interview with Globe Street. “We’re getting more savvy asset managers and ownership groups that rely on data, and operators have to be able to explain the trendlines they’re seeing.”

The collective financial health of tenants that live in a building is arguably the most important piece of data for a multifamily property. The trends associated with those behaviors can serve as leading indicators of a property headed toward trouble. Until recently, however, there hasn’t been an easy way for real estate professionals to obtain and synthesize this type of data at the property level. 

Better Anticipating the Immediate Future

GeoPhy’s new Tenant Credit Profile (TCP) provides owners and asset managers instant access to exactly those insights they need to stay ahead of tenant payment activity. Launched last week, TCP is the first aggregated consumer credit solution designed specifically for the multifamily industry. It provides:

• Average consumer credit scores, both current and trended, for all building tenants
• Percentage of building tenants with a financial distress indicator (i.e. payment holiday, deferment, or forbearance)
• Average credit delinquency rates
• Average credit utilization

Tracking changes to these values help owners and investors determine which of their properties require the most attention. For instance, TCP shows a wide dispersion in changes to tenants’ credit scores from March to August 2020. (See Chart 3 below.) 

In other words, there are large differences between assets. (Remember: a 30-point credit score drop represents a doubling of the risk of default.) Trendlines of payment holidays, credit utilization, delinquencies, and other behaviors can provide leading indicators of a property before it gets in trouble.

TCP’s early warning capability allows owners and asset managers to:

• Quickly segment which healthy properties are at risk, and which troubled properties are about to stabilize, worsen, or improve
• Identify which properties can benefit from increased tenant engagement
• Aid in the evaluation of current leasing campaigns
• Optimize rent & occupancy strategy based on consumer capacity to pay
• Faciclite early disposition discussions

The COVID pandemic is likely to have residual effects for years to come. With the help of TCP, owners and asset managers can avoid big surprises and better prepare for the future.

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Read all of our five-part series about GeoPhy’s Tenant Credit Profile:

• Introducing GeoPhy’s Tenant Credit Profile
  How aggregated credit data will transform multifamily risk management

• An Early Warning System for Multifamily Rent Collection
  Tenant Credit Profile provides asset managers the ability to act before events act on them

• Not All Multifamily Assets are Created Equal
  Leveraging Tenant Credit Profile to distinguish between seemingly similar multifamily assets

• Improving Sales Comp Selection
  Tenant Credit Profile adds a crucial layer to finding the “perfect” comp

• Tracking Multifamily Tenant Financial Health
  GeoPhy’s Tenant Credit Profile reveals varying conditions between regions and building types