On March 11, the Wildhorn team sat at our favorite local Mexican food restaurant, celebrating the closing of our most recent Value-add is a strategy where an investor or property owner seeks to increase the value of a property by making significant improvements or changes to it. The goal is to enhance the property's appeal, functionality, and income-generating potential, which can lead to higher rental income, increased property valuation, and improved overall performance. View Definition apartment that we purchased in Austin. Over a few enchiladas and margaritas we reflected on the deal, while turning our focus to wondering when and where our next deal might be.
As we all returned home that evening, it seemed as if the world was changing before our eyes and the impact of the Coronavirus was really starting to be felt. I sat on the couch talking with my wife, and the news started rolling in: Rudy Gobert became the first NBA player to test positive. Seemingly 10 minutes later the NBA cancelled all their games. Then, it was announced that Tom Hanks had tested positive for COIVID-19. Within the next few days, a national emergency had been declared, March Madness was cancelled and cities and states across the country started ordering people to stay at home.
Since we returned home from our celebratory dinner, we’ve had our asset management hats on full time, tending to our current portfolio and working to understand the impacts COVID-19 may have on the overall economy, our markets, our business and our assets. Primarily, we’ve been focused on making sure our residents and onsite teams are safe, healthy and taken care, and working to prepare for the coming weeks of financial uncertainty for everyone involved. In this article, we’re going to recount the last several weeks, and how we’ve responded as Asset Managers–in a bit of a Dear Diary, day by day review.
March 11th. Celebratory dinner, followed by the first slew of announcements whereby you realized things were getting worse, and everyone was going to be impacted. .
March 13th. President Trump declares a national emergency, and the CDC recommends no gatherings larger than 50 people should take place.
March 14th. We have our first meeting with our property management team at Roscoe Properties, discussing how we want to address this with our residents. Ultimately, we sent all our residents this letter to try and ensure them we are staying on top of things, and that we’ll do our best to communicate with everyone. The reality is we didn’t have much information at the time, and things were about to get much more severe. However, communication with residents is key, and we felt it important to let them know we were here for them.
March 16th. Speaking of communications, we sent our first COVID-19 communications to our investors. This letter was simply to let our investors know that we were staying on top of the fast developing news and potential impacts to our properties. Without much detail about what we were dealing with, we did our best to convey measures we were putting in place given the environment we were just beginning to learn about. It felt like a storm was brewing, and we wanted our investors to know they can count on us to represent their interests.
March 19th. At this point, it is evident that we have a worldwide pandemic on our hands. Italy and Iran are the two largest hotspots outside of China. Travel restrictions are being implemented across the world as countries start to shut their borders. The stock market slide is unquestioned as we endure a bear market.
Internally, we start to plan for the fact that our assets may be hit as residents lose their jobs. We start to write out a plan for how we can best prepare, and what needs to be done across each asset. Again, we work with Roscoe to discuss and implement policies for how to address this onsite. Will we accept partial payments? Late payments? How many people might be affected?
We also start to engage all our other partners, from lenders to insurance carriers. We email every one of our lenders with a simple message–we don’t yet know how we might be affected, but we’re working diligently to understand things and will be in touch with them; 3 lenders offer to jump on a call with us the following day–all very appreciative of the proactive communications.
March 23rd. The CARES act is formally passed by Congress and becomes the largest stimulus bill ever passed by Congress. We furiously review what we can to understand the impacts and options for our residents as well as our small businesses set up around each asset.
March 24th. Following many other cities and states across the country, Austin and San Antonio both issue Shelter in Place orders, effectively turning both cities off. With these orders, it’s now 100% clear we’re going to have many residents negatively impacted via job loss and reduced hours. We respond with yet another round of meetings with our property managers to definitively make plans for how to deal with residents.
To add to the uncertainty, Travis and Bexar counties both issue edicts they will not be hearing any evictions through at least April. In addition. Fannie Mae and Freddie Mac release terms of their forbearance programs–offering mortgage holders some assistance–but with the caveat that landlords must agree to halt all evictions. How might this impact residents’ decisions to pay or not pay rent?
March 25th. A day full of meetings with Roscoe to finalize our approach onsite. We agree we need to be as flexible and caring as possible. We send another letter to all residents–detailing the changes we are making on site to be in compliance with the shelter in place order, and encouraging anyone that needs to make alternate rental arrangements to please reach out. Our teams will be working onsite, but the leasing centers are closed to create social distancing; all our amenities are closed. Above all, we decide we need to help as many people as we can, and be as compassionate as possible.
At each apartment community, we create a spreadsheet of everyone that reaches out to document their potential issues and start to work on flexible payment plans. With these sheets, we will be able to identify who needs our help the most, and continue communicating with them as the month(s) goes on.
March 26th. With so much having happened in the previous ten days, we send a follow up communication to all of our investors–outlining our updated procedures onsite and our plans for rent collections, and highlighting our thoughts on the pandemic and how we respond financially. As always, we view it imperative to keep our investors informed, and will follow up with our normal communications in April highlighting the performance of each asset.
March 27th – April 1st. We spend our time talking with as many people as we can in the industry. Operators, lenders, brokers, investors, consultants, accountants, friends. Our goal is to learn what other groups are doing, how we can and should alter our approach and ensure we are responding with a best in class solution.
We also wait. Wait for rent to come due on the first and for people to start paying. Then we will have data about how best to respond.
April 1st. Rent is due. We have set a meeting for Friday April 3rd and Tuesday April 7th with our property managers to see how collections are going and to review each case where a resident has an issue. We’ve set corresponding meetings with our lenders to let them know where things stand. We’re not worried about missing a mortgage payment–we have cash reserves at each asset for exactly these reasons. But we want to continue to be good communicators and corporate citizens.
April 2nd and Beyond. None of us know how this story ends. Shelter in place orders are in place for most of the country, and are being extended every day. Currently it feels like June 1st is a slightly optimistic target to get things back up and running, and no doubt this is a challenging economic time for everyone. Onsite, we’ve seen collections within about 5% of where they normally are early in the month, but won’t have the full picture until closer to the 10th. We expect May could be tougher than April, as the economy remains closed. However, we know we are prepared as best we can be, and we’ll continue to work diligently to protect our investments.
We will leave you with the closing paragraphs from our investor communications dated 3/26:
“This Pandemic has exploded over the last 10 days and created an unprecedented national lockdown. We don’t yet understand the full economic impact or the length of an impending recession. What we do know is our investment thesis is going to be tested, but we’re confident in our business plan and financial position of our assets. We are not over-leveraged and we have cash on hand.
We provide an essential product – a home for our residents – that stands to weather a storm and bounce back quicker than most industries. At the end of the day, people need a place to live. However, with the uncertain outlook and duration of this Pandemic, we are preparing for all outcomes.
We have been in communication with all of our lenders, are reviewing the FHFA’s forbearance guidelines and are modeling The money that is left over each month or year from the property's income after paying for operating costs, mortgage, taxes, and other expenses. Positive cash flow occurs when the income exceeds the expenses, while negative cash flow indicates that the property's expenses are higher than the income it generates. View Definition scenarios with expected dips in collections over the next several months. We are squarely focused on maintaining the financial health of each asset and navigating these uncertain times.
In the same breath, we are continuing to look for new opportunities. While we expect the overall flow of transactions to slow and the debt markets remain extremely volatile, we will be scouring Central Texas for quality assets to add to our portfolio. If this becomes a prolonged economic recession, we anticipate seeing some incredible buying opportunities. As those opportunities to invest in hard-asset backed investments materialize, we will certainly keep you posted.
As we move into April, more of this picture will become clear. You can expect to receive your regular asset-specific update with detailed looks at occupancy, collections and delinquency by the 14th of April. We appreciate your continued trust in Wildhorn. Please know we are working non-stop to stay on top of the portfolio and general market.
As always, do not hesitate to reach out with any questions. Above all, cherish this extra time with your families and be safe.”
Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.