High-End Apartment Owners Dodge Economic Slump

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Shopping, eating out and other consumer-spending categories are in free fall. But people in premium apartments are still paying their rent, the country’s largest publicly traded landlords were eager to report this month.

The seven largest real-estate investment trusts that specialize in mostly high-end apartments each collected at least 94% of their total rent payments in April, according to recent earnings statements.

Beyond the high-end segment, many apartment owners are feeling pressure during the coronavirus pandemic. More than 30 million Americans have applied for unemployment benefits, in some cases sparking rent strikes among mostly financially pinched tenants. Analysts expect rents to decline even for better-off tenants, as landlords capitulate on price to keep apartments occupied.

But for now, the many big apartment owners whose tenants have average household incomes exceeding $100,000 a year are doing fine. Their renters are much more likely to be college-educated, with white-collar jobs that have been less affected by the pandemic. According to a recent Federal Reserve survey, 62% of workers with a college degree said they worked from home in March, whereas just 20% of those with only a high-school diploma did.

Some of these property owners are looking to raise rents. Apartment Investment & Management Co., or Aimco, said it has Northern California apartments that house Facebook Inc. and other tech workers whose jobs haven’t been affected by the pandemic.

“Those residents are quite comfortable and not put off by the fact that we are actually increasing rents,” said Aimco executive Keith Kimmel on a recent company earnings call.

Even Mid-America Apartment Communities Inc., a landlord less invested in the coasts and whose tenants earn between $65,000 and $75,000 a year, had rent-collection figures that were on par with or better than its more upscale peers.

About 80% of apartment renters nationally paid some or all of their rent during the first week of May, according to the National Multifamily Housing Council, a trade group. That percentage has continued to rise throughout the month, as more tenants make payments and unemployment benefits reach more renters who are out of work.

Apartment REITs also report success adapting to the world without in-person apartment showings, leasing new units based on virtual, online tours alone.

UDR Inc., a Colorado-based owner, said all its traffic during the pandemic has been virtual, including apartment tours conducted over Zoom. And some landlords say they expect to use more virtual tours in the leasing process even after Covid-19, the disease caused by the new coronavirus, has subsided.

Still, apartment owners have withdrawn their annual guidance and are bracing for the prospect of a prolonged economic downturn. That means renewing more leases without any increases in rent, a hit for owners with business models that have relied on annual rent increases since the previous downturn.

John Pawlowski, an analyst at Green Street Advisors, said people might flee high-rent districts in cities for less-costly apartments in suburban areas or double up with more roommates to afford rent. According to a Green Street analysis, the large apartment REITs offered more rent concessions on new leases in April than they have at any other time in recent years.

Amenities such as gyms, community spaces and rooftop pools are still closed at many buildings, making high rents a tougher ask.

Even some hot markets have shown signs of softening. Asking rents in luxury buildings in San Francisco were down on an annual basis in April for the first time since 2010, according to a report from property-data firm Yardi. Los Angeles and Orlando, Fla., also experienced declines in asking rent for this same class of apartments.

Despite the rosier-than-expected performance numbers by landlords in the first months of the pandemic, apartment REIT stock prices have lost 23% in 2020, compared with the 8% decline for the S&P 500 stock index, including reinvested dividends.

Camden Property Trust is offering renewals with 0% increases, Chief Executive Ric Campo said. That is down from the 4% or 5% increases the Houston-based landlord was charging in recent years, but still not bad during tough economic times.

Mr. Campo said that if a prolonged downturn occurs, it could lead to a steep drop in construction activity, increasing demand for existing apartments once the economy begins to improve.

“What could happen is that rents could decline some, but they won’t fall to the basement,” he said.

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