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HIGHLIGHTS FROM THE PODCAST:
0:32 - The beginning of COVID 4:04 - Why did we sustain so well? 6:51 - The few months of the pandemic 10:43 - Was there a rent cliff? 14:51 - What is different about the Recession of '08/'09 compared to COVID? 17:07 - U-Haul Index FULL TRANSCRIPT OF THE PODCAST AUDIO: Matthew Whitaker: I was scared. I mean, I feel like we handled it very well. We started internally, essentially, a daily meeting just talking about, "Hey, let's make sure that we're communicating with our team. Let's make sure we're watching collections." So, we literally started all this very soon. What I will tell you is a year later, I am pleasantly surprised with how well our portfolio is held up. Spencer Sutton: All right, everybody, welcome back to another episode of the Birmingham Real Estate Investor Podcast. I'm your host Spencer Sutton, I've got my co-host here with me, Matthew Whitaker. Matthew, welcome to the show. Matthew Whitaker: Thank you very much. Glad to be here. Spencer Sutton: All right. I'm glad to be here too. We like all of our content to really be timeless. We think that it's good. So, if somebody listens two years from now, three years from now, it's very, very relevant, but today we do want to look back over the past 12 months, and I'd really like to just explore what this past 12 months, because it's been a year since COVID started, shutting everything down. So, I remember when the NCAA Tournament got shut down, basketball tournament, that really started to make things real. And then we started to ask the questions here at EverNest, how is this going to impact our business? So, Matthew, when you think about it, 12 months ago, what were your initial reactions? Matthew Whitaker: I probably can't say everything that I thought on this podcast. Spencer Sutton: This is G-rated podcast. Matthew Whitaker: G-rated podcast, family show. When it first started hitting, I mean, everybody was very ... At first, if you'll recall, it was going to be one week and then it was two weeks. And then I arrived very early at the fact that this was going to be a prolonged thing. I really felt like, just looking at the data, it was going to be a really long thing. And there's even some podcasts and some videos out there of me talking about that. But- Spencer Sutton: And I remember that, because I remember thinking, "Matthew, I think you just being a little extreme." But you weren't. Matthew Whitaker: Yeah. Well, I remember being ... Not trying to say I'm right, but I remember thinking, "If we get out of this by next summer ... " I mean, this was like three or four weeks into it, "Then we would be good." And here we are at the doorstep of next summer. When it first hit, obviously, when you sell to the public, and the public in a broad way is affected by something like a pandemic, then you get really scared. I mean, are people even going to pay rent? If people aren't working, are they going to pay rent? And so, immediately, the government started moving into this PPP fund. So, we started looking at that as a company, but I will tell you immediately just didn't know. There was a lot of questions. Matthew Whitaker: I mean, you had a lot of people saying that this is a hoax. You had a lot of people saying, "This is going to cause mass chaos and mass destruction of people financially." And so, there was just a lot of information flowing, and in an age where the information is very easy to get from one source to another, right? Everybody became a COVID-19 overnight- Spencer Sutton: Expert. Matthew Whitaker: ... Expert. That's right. But I was scared. I mean, I feel like we handled it very well. We started internally, essentially, a daily meeting just talking about, "Hey, let's make sure that we're communicating with our team. Let's make sure we're watching collections." So, we literally started all of this very soon. What I will tell you is a year later, I am pleasantly surprised with how well our portfolio has held up over the period of time. Spencer Sutton: So, when we started about a year ago, we were managing, what? Roughly 3,000 properties or so? Matthew Whitaker: No, I think it was more like 2,500 at the time. But- Spencer Sutton: Okay. 2,500. Okay. Matthew Whitaker: Yeah. Spencer Sutton: Yep. Matthew Whitaker: And I'll tell you, there are some reasons that that is, and I'll start, first of all, with our footprint. At the time, we were mostly concentrated in the Southeast, and then Denver the front range, and the Southeast, like it or not, held up better because they didn't shut down all the businesses. They were more willing to allow businesses to stay open. So, our residents were still working. And I- Matthew Whitaker: ... So, that would be number one. Number two is Denver's a very fluent area. So, they weren't as affected because most of those white collar jobs were just able to go work from home. So, that to me is number one on the, why did we sustain it so well? Spencer Sutton: Yeah. And I would say one of the first things that we did, we wanted to be very proactive when we saw this, everything started to be effective. So, one of the first things we did was to communicate with our residents, because if you're an investor listening to this podcast, this is one of the first things you want to know about. That's the fear for an investor, is my resident going to pay rent? And so, one of the first things we did was we wanted to be proactive and drafted a letter, an email, to all of our residents talking about this. And what was the content of that letter for the most part, Matthew? What was the message? Matthew Whitaker: Yeah, actually, we shot a video too, and sent it out, and it got watched a number of times. I mean, the message was this, "Hey, look, if there is a problem, we're going to help you with that problem." We wanted to create a little bit of friction though, so we wanted them to fill out essentially a form before we were willing to be more flexible on our rent collections. We didn't want somebody to say, "Hey, I don't have a job. I can't pay rent." And then still have a job. So, what we did was we sent out a form. It basically created a little bit of friction where we also wanted their employer to sign it, say either, I was furloughed, laid off, or reduced my hours as a result of the pandemic. So, that was step one when we were communicating with our residents. Spencer Sutton: Yeah. And that was an important step, and the response we got, I think we were pleasantly surprised with the response. So, yeah. Matthew Whitaker: Yeah. It was only about 5%, and this was right as it first hit, maybe three, four weeks into it. So, for us, in our minds we were thinking, "Well, if 5% responded, maybe double that as a worst case scenario of people that aren't responding." Spencer Sutton: Right. We started laying out projections, revenue projections of rent collected and all that. What if it takes a 50% hit, worst case scenario probably? But that wasn't the case. So, again, we were pleasantly surprised. So, talk about the next several months as we started to move through the pandemic. Matthew Whitaker: Yeah. I started with one, our footprint, I think is important. Let me go into the other two things that I think was important. Number two is the government's intervention actually did help us. So, sending out money to people actually led to more collections. Even some people that were behind used that as a way to get caught up. What was interesting was if you've seen some of the graphs that have come out of when these payments hit, most people use that to pay off debt. So, credit card debt, rental debt basically went down as these payments went out, and savings actually went up. So, it was pretty interesting to watch what that did across the United States. But anybody that did have a problem was able to get unemployment. They bumped up the amount of unemployment they could get. And then they were getting that extra cash bump. So, then the fear for us became, well, what happens after summer? Right? Spencer Sutton: Yeah. Matthew Whitaker: What's going to happen after summer? We'll get into that in a second. But then the third thing I think is incredibly interesting, and this played out over summer, but one of the things we saw was a immediate increase in the number of people wanting to rent a house. And our summer, which is usually our busy time ... At the end of March, it was like we rented more houses than we'd ever done before. And what I thought was people were essentially using this break or whatever to move. And if you're sitting at home, your kids are doing school at home, and you're thinking, "Well, I've got this free time. I was going to move in June, but now I'm going to move in March or April." If they have the ability to do that. Matthew Whitaker: And people were doing that. And so it was amazing to see. And I think what was happening too is a move from density to less dense areas. So, you think about highly dense multi-family. I mean, you're seeing this in San Francisco, you're seeing it in New York. San Francisco, I read somewhere that rents are down like 30%. That was like a month ago. I don't know if it's worse, better, but you see people moving from highly dense areas to more spread out. I think that our footprint, Denver, Nashville is benefiting from people moving from California, benefiting from people moving from New York, and more of these dense city populations. And then the whole South is benefiting from people trying to escape that and move down here. Matthew Whitaker: And then, even in a micro world like a Birmingham, you're seeing people move out of the city and into the suburbs because if I have a one bedroom apartment, and I'm going to have to work from home for some period of time, it's weird when you get on a Zoom call and see somebody's bed in the background. And so, having an extra bedroom that they can use as an office just makes sense. So, I mean, this is hindsight, but a lot of this makes a lot of sense as it played out over the last 12 months. Spencer Sutton: And it did play out. I mean, and the same thing, what you just said for Birmingham applies for Atlanta as well. The days on market that were the longest were typically the Downtown condos, but everything on the outskirts of town were ... I mean, our days on market dropped dramatically in all of our markets, which is just really crazy in our applications. So, we're tracking applications per house on the market, that increased. So, summer started early for us. It got extremely busy. So, then as we move on through the summer, Matthew, what else is happening with the rental market in regards to COVID? What else did we see? Matthew Whitaker: Yeah. We were like, "Once all this money stops from the government, what's going to happen?" Spencer Sutton: Is there going to be rent cliff? Matthew Whitaker: Yeah, they called it a rent cliff. That's right. And there just wasn't. Again, I think areas like the Midwest, the Northeast were hit a little bit harder because, number one, it was colder. So, in the South you can ... And this is even happening today, it's warm outside today, whereas, a lot of areas just got a bunch of snow. And so, we're able to be outside, which now it's, again, a little more clear that you're safer outside. You're safer in big spaces. And so, people are more willing to be outside. I think it allows restaurants to be open outside. So, that extended from the summer for our Southern properties way into October and November. So, it was pleasantly warm from literally the beginning of March all the way to November. Matthew Whitaker: So, again, businesses stayed open, people were paying rent, and for the South, unemployment is just really low on a relative basis. Same thing with Denver. Denver gets that bump of people moving from California. That has not stopped. I mean, I think the point is even as we move through the winter and into the now spring, this has no signs of stopping. If people think life is just going to get back to normal, everybody's just going to move back to New York, move back to San Francisco, I don't think that's going to happen. I think what we're going to see is ... Well, it's been well-documented that people are going to be more willing to be remote, have remote work, and to do that, they're going to need more space. Single family, and small multi-family is going to benefit from that in areas like Birmingham, areas like Atlanta, areas like Nashville. I even saw a Wall Street Journal article that talked about Nashville, Denver, Boulder, these areas that are going to be the benefits of the COVID era. Matthew Whitaker: And if people think that we're just going to get over COVID too, that's another thing is the scars of this are going to last a long time, like the recession. I mean, you and I went through the 2007, 2008 recession. We still have wounds and scars from that, that we're just like, "Oh, well, we'll never do that again." Right? Spencer Sutton: Right. That's right. Matthew Whitaker: So, it's not like people are just going to go back to normal life. Even in the future, I think they're going to want a little bit more space for the possibility that that might happen. I also think we're still going to deal with COVID. Some of the messaging coming out from people now is COVID is going to be a little bit like the flu, and it could happen on an annual basis in the winter, much like the flu. Let's hope that's not the case, but it's a possibility. And the benefit of that would be if you're investing in single family and small multi-family is that you're the beneficiary of people wanting more space for that very reason. Spencer Sutton: And what I think is just really interesting about this entire period, this entire 12-month period is for the investor, rates remained extremely low. There was plenty of cash in the market. And I mean, the housing market just didn't slow down. So, not only the rental market do well and just houses weren't staying on the market for long, but inventory is probably at an all time low. I mean, there are so many people out there looking for investment properties, really in all of our markets. Yeah. So, for people like you and I, Matthew, who do have scars and wounds from 2007, 2008, we're like, "Oh boy, when is it going to slow down? When is it going to stop?" Matthew Whitaker: What's interesting though, a couple of things that are different about this than last time, number one is there's still a lot of institutional dollars on the sidelines that are wanting to invest. So, that does create a little bit of a floor where they're going to want to put that money to work if housing values fall any. But the reason that they want that is because they're looking at some of the same data that I saw coming out of John Burns Real Estate Consulting, which is the future demand is outstripping the current supply. So, in other words, the people we think are going to need houses are way bigger than the current number of available houses that are out there. And so, if I'm investing in houses, that's a good thing. And I need to think, again, what are the communities that are going to benefit from that the most? They're building houses like crazy to rent right now in areas like Atlanta and here in Birmingham. Matthew Whitaker: And so, those are areas that are going to benefit. People are moving South. There is a migration South. You can look at some of the data, again, coming out of John Burns where people are moving South. I mean, they were already moving South and now after COVID, they're moving South. So, I mean, it's going to be really interesting to see how things play out. But if I'm thinking about investing, where are people moving to? And then, I wouldn't buy with the idea that I'm just going to be 100% appreciation. You could, but where can I catch that appreciation wave? Whereas, I can make a few mistakes and appreciation will make up for it, even in a worst case scenario. Spencer Sutton: Yeah. And I agree with those points. I mean, the future still looks really strong for single family investing in small multi-family. So, know your asset class. Be prepared to take advantage of any kind of deals that you see. Matthew, anything that you want to say in closing? This was really a recap of, "Hey, our 2020, the past 12 months in this COVID world with real estate." Anything else you want to say before we close? Matthew Whitaker: Yeah. The last thing I think is pretty interesting looking at data migration and where people are moving. There's this thing, I don't even know what it's called, call it the U-Haul index. But if you think about it from U-Haul's perspective, where are trucks moving starting, and where are they moving to? Right? Spencer Sutton: Right. Matthew Whitaker: And so, one of the things that these consultants look at is the cost of a U-Haul truck to move to certain areas. So, I would say if you're moving from San Francisco to Denver today, it's going to be really expensive because a lot of people are doing that, and so, they jack up the price to make a lot of money. If you're moving from Denver to San Francisco, they may actually pay you to take the truck back so they can get that next person moving from San Francisco to Denver. And so, there is a whole psychology behind the idea of where are people moving by looking at this U-Haul index. And so, another fun thing to watch to see where people are currently moving. Spencer Sutton: Yeah, I think that's great. So, listen, this was just an episode we thought it would be good just to give you all an update as far as what's going on the past 12 months from a COVID standpoint in the rental market. So, if you still haven't subscribed to our podcast, we hope that you do that. Also, share this episode with some of your friends, and make sure to leave us a five star review on Apple. That is the way that other people find us. So, we will be back next week with another episode of the Birmingham Real Estate Investor Podcast.
