More Americans are considering investing in apartment REITs amid the coronavirus pandemic. SMBC Nikko Securities America Managing Director and Senior REIT Analyst Richard Anderson joins Yahoo Finance's On The Move to discuss.
JULIE HYMAN: An eviction crisis, we had evictions that were forestalled for much of the coronavirus pandemic-- that that had now expired, so we might start to see them. Our next guest says that multifamily, a.k.a. apartment real estate investment trusts, might be a good bet right now. Seems a little counterintuitive. Let's get him to explain. Richard Anderson is SMBC Nikko Securities America Managing Director. He's the Senior REIT Analyst there. Rich, thank you for joining us.
RICHARD ANDERSON: Thanks for having me.
JULIE HYMAN: Apartments, again, would seem to be a little counterintuitive right now. We're seeing a little bit of migration as well out of urban centers. What is working with apartment REITs right now?
RICHARD ANDERSON: Well, what is working today is this suburban footprint. And so if there's anything that has changed in the immediate timeframe, it has been a propensity for people to leave the cluster of the downtown urban core and moving further away on the view that perhaps I'm not gonna have to commute to work as much anymore, and I'm also afraid.
So this is what's happening in this the spur of the moment, but again, present tense observation. Generally speaking, the apartment business has fared well, at least in the realm of the REITs, who were built for a crisis like this to some degree. There's a lot of work that is put into the credit quality of their tenants.
And so there are a lot of pundits out there that basically spelled out the demise of the apartment business. And I just don't see that happening. And I certainly don't see it long-term. This could be a very interesting place to play in the aftermath of all this.
RICK NEWMAN: Hey, Rich. Rick Newman here. There are some forecasts of a surge in evictions over the next several months as these eviction moratoriums in states and cities expire. At the same time, Washington has not authorized additional unemployment aid and other types of benefits. So what do you expect to happen? And how is this likely to impact the finances of real estate companies?
RICHARD ANDERSON: Right. So a lot of that eviction noise is happening in the state of California. And it's been a headwind for sure. But I think the way I would backdrop all of this is to point out that the REITs, as I mentioned earlier, really put a lot of effort into credit quality of their tenants to a degree that perhaps is at the cream of the crop level relative to the industry overall.
And so going into the crisis, there were several that thought that perhaps there'd be 20%, 25%, 30% of non-payment in terms of residents paying their landlords. And that just hasn't happened. And in part because the REIT portfolios just don't bear an exact resemblance of the population overall. They don't have the big exposure to the service industries. And so you had a fair amount of a success rate in terms of collecting rents.
Now, there are pockets of problems, as you described, when it comes to eviction moratoriums and all that. But as they burn off, perhaps if these people weren't paying, it's a cleansing event. It's not to say that there aren't gonna be some problems and some hurdles to clear. But that statement could be made for a lot of industries in the real estate sectors.
And I would just argue that multi-family, on the other side of this, looks like an opportunity because there will be a medical treatment at some point. And perhaps the fear factor of the moment will subside. And left behind is a high quality portfolio of high quality tenants paying their rents.
- Rich, it's also interesting as Airbnb plans to go public-- I think today they penned a blog post detailing why you should work from anywhere at an Airbnb home. And it always seems like they're encroaching in WeWork's failed space. When you think about the players in the market right now when it comes to shared workspace and that blurring of the line of home and work, how long do you think those trends will continue? Is this sort of, "OK, let's just call 2020 a moot year. And then by 2021, outside of tech companies, people will sort of be obligated to go back into the offices?" I'm curious what you're hearing in the marketplace right now.
RICHARD ANDERSON: Well, a good way to look at that is the office sector. And they are doing their homework to investigate that very issue about work-from-home. And again, emotions of the moment, it's easy to come up with a lot of conclusions. And the general feeling is work-from-home has worked out well, perhaps even in this environment here.
But that's a conversation relative to the going-in expectations. It's not a conversation relative to what we had previous to that. And we're all forgetting that frozen Zooms and screaming children and barking dogs is not normal life. And it shouldn't be viewed that way.
And when we get on the other side of this, I'm gonna argue that, yes, work-from-home has worked. But is it working relative to what we had previous? And I'm going to answer the question, no.
And so now part of your question is me trying to be a psychologist about what businesses are going to do at the other side of this. But again, I personally would like to be back in the office. I think you lose a lot of connectivity with your colleagues. And a lot is being left on the table that we perhaps don't realize.
And so my thought is, yes, work-from-home will be a part of the environment to some degree. But I don't think that it's going to be a black and white type of situation. I think it'll be a very clear shade of gray at the end of the day.
JULIE HYMAN: I wholeheartedly agree on being back in the office. I do want to ask about a couple of your picks in particular here. You like Apartment Investment and Management and UDR. Both of them are down pretty sharply here today. We have not seen a recovery there. What do you think would be a pivot event for these guys that might get investors to tune back in?
RICHARD ANDERSON: Well, therein lies the opportunity. As you described, they're not doing so well so far. But we're trying to look forward here. And these are two companies that are known for their diversification, both from a geographical standpoint, but also from a price point standpoint. So they cover the landscape quite well.
And I think that's a good way, perhaps, to play this going forward. They're both-- particularly UDR, but both are quite good. All the multifamily rates are very good at managing their portfolios. They've deployed a lot of new technology to do a lot of touchless leasing and all that.
So a lot of this might stand the test of time. But those two companies-- and again, really the shared knitting is diversification and the fact that they are down so much. And again, my view that there will be a bounce back and that the death of the apartment businesses is a bit premature, these are two names that I think could be real opportunities for investors going forward.
JULIE HYMAN: All right. We'll keep watching them and check back in with you. Rich Anderson, thank you so much. SMBC Nikko Securities America Managing Director and Senior REIT Analyst. Appreciate it.
RICHARD ANDERSON: That's a mouthful. Thank you.
JULIE HYMAN: Thank you.