2 things that derail most sale-leasebacks

You’ve opted to own the location from which your company operates. A great move by the way! A limited liability company was formed and owns the building. Presumably, the LLC’s members are similar to that of the occupants.

You struck an agreement with the resident – your enterprise – to pay the LLC an amount of money each month for the use of the address. In effect, you’re paying yourself. It’s a beautiful thing! Tax benefits are afforded for the owners of an LLC, such as depreciation of the asset, write-offs for any mortgage interest, property taxes, and operating expenses. Over time, the LLC’s investment appreciates.

Your occupying business pays rent just as it would to a landlord who has no stake in the company. Plus, because the owner of the real estate and operation are synonymous – if business ebbs and flows – so can the rent you pay yourself monthly. We are fortunate to have such a situation.

We own the building from which we ply our brokerage. Each month Lee & Associates Orange – the occupant – pays Taft Lee LLC – the owner – a dollar amount that provides a nice return on our investment. However, during the term of our ownership, we have deferred rent increases, banked reserves for a new roof, and kept the rent commensurate with market conditions. We can do this because we are the landlord AND the tenant.

Generally, a business or ownership transition will create a commercial real estate decision. As an example, if you acquire a competitor, will the real estate you own and occupy adequately house the marriage? Conversely, if you sell the business, does the buyer of the business have their own location? Thus making your asset an excess?

An election to move your enterprise out of state requires some time to facilitate and turn the equity in the real estate to buy your new location. In all cases, as you can surmise, you’ll make a decision. Keep the building or sell it.

When selling is chosen, one of the strategies employed is a sale-leaseback. By definition, a sale-leaseback inserts an investor to replace the LLC ownership. The group – your company – stays in the building, and in the leaseback, pays rent to the investor.

With that as a backdrop, let’s discuss what can derail most sale-leasebacks.

The operating company cannot afford market rent.

Remember. One of the reasons you own your business location is to provide flexibility during tough times. Maybe the amount allowed to your operation to pay is well below what comparable rents are. This is done because your two interests – business and building – are satisfied.

In order to maximize the value of your investment, however, you’ll need to shore that delta. Someone buying your real estate – and relying on rent – is only concerned with a return on their money. Therefore, the price an investor will pay you is based on a formula known as a capitalization rate or cap rate.

A cap rate is determined by net income (rent less expenses) divided by purchase price. The relationship is inverse: the lower cap rate, the higher the price. But, the higher the rent, the higher the price … within reason. If the company housed cannot afford market rent, the sum an investor will pay will result in a lower value.

As a seller, you’d like to max your sale proceeds but don’t want to saddle the business with an unsustainable monthly rent. A true dilemma!

What to do with the proceeds?

Your ownership LLC with a related company paying you is a tidy investment. If you sell the real estate, where can you reproduce the return? Remember, you’ll need to accomplish a tax-deferred exchange into another income property or be faced with a whopping tax bill.

In the three transitions above – acquire a competitor, sell the business or move out of state – a sale-leaseback could ensue. However, each presents complexity.

Buying a competitor is easy, especially if you need more space. No lease-back is needed. You simply sell the smaller and exchange into a larger. Boom.

A business sale – especially if the business buyer doesn’t need your real estate – is challenging. You’ll have to fill a vacancy by selling or leasing. The timing of an out-of-state move works great for a sale-leaseback. Simply, point A is sold. A lease is created for two years. Point B is bought and rented short-term while you prepare to move your enterprise. The lease expires on Point A and the relocation to Point B is completed.

More on these later.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. 

Real estate news: 20-story office tower in Orange sells for $150 million

City Tower, a 20-story, 435,177-square-foot high-rise office building in Orange, has been sold for $150.5 million.

The building at 333 City Boulevard is home to UC Irvine Medical Center, Enterprise Rent-A-Car and Sedgwick and Spaces.

The transaction, which was brokered by Newmark Knight Frank, is the largest office sale in Orange County this year, according to the firm.

The property got a $3 million renovation that upgraded the lobby, fitness center, conference center and main entry.

Newmark’s Kevin Shannon, Paul Jones, Brunson Howard, Ken White and Brandon White represented the seller, Pacific Oak Capital Advisors. The buyer was Opal Holdings, a New York-based real estate investment firm.

El Verano, a new, 54-unit affordable and supportive housing apartment complex for the homeless and low-income seniors, is now fully occupied at 1248 E. Lincoln Ave. in Anaheim. Innovative Housing Opportunities converted the blighted Sandman Hotel into a three-story community with Spanish architecture. (Courtesy of Innovative Housing Opportunities)

Anaheim housing project fully occupied

El Verano, a new, 54-unit affordable and supportive housing apartment complex for the homeless and low-income seniors, is now fully occupied at 1248 E. Lincoln Ave. in Anaheim.

Innovative Housing Opportunities converted the blighted Sandman Hotel into a three-story community with Spanish architecture.

The city bought the hotel in 2017 for $3.5 million along with parcels at 1239 and 1249 E. Broadway. IHO, which proposed spending $23 million for the conversion, holds a 55-year lease with the city. Federal funds and tax credits were used to develop the apartment in addition to a $2.5 million loan from the city.

Amenities include a community room, computer room and dedicated health office. All the services are aimed at helping residents remain housed and to “age in place with dignity and grace,” the organization said in a statement.

El Verano is next door to IHO’s Rockwood Apartments, another multifamily complex that provides housing and support services for 48 formerly homeless families, as well as 15 permanent supportive housing units for Mental Health Services Act (MHSA) residents living with mental illness.

Newport Beach-based CapRock Partners has bought 21 acres of land in 10 parcels for the development of three industrial buildings totaling 441,554 square feet in north Las Vegas. (Rendering courtesy of CapRock Partners)

More deals in Vegas

Newport Beach-based CapRock Partners has bought 21 acres of land in 10 parcels for the development of three industrial buildings totaling 441,554 square feet in north Las Vegas.

CapRock bought the land for a Class A project that should break ground in early 2022. Its completion is expected by the end of that year.

The new project, named CapRock Tropical Logistics Phase II, is the second phase of the adjacent CapRock Tropical Logistics, a two-building 1.1 million-square-foot logistics complex that is nearly complete.

Together, the two projects will encompass 105 acres or 34 legal parcels. CapRock said the first phase is 100% pre-leased and should be ready in the fall.

Newport Beach-based Alere Property Group, a developer and investor of industrial real estate, has bought a 72,051-square-foot, single-tenant distribution warehouse in Rancho Cucamonga. Terms of the transaction were not disclosed. The building at 8700 White Oak Avenue is occupied by Bluestar Express Group, a third-party logistics user. (Courtesy of Alere Property Group)

Inland buy for Alere

Newport Beach-based Alere Property Group, a developer and investor of industrial real estate, has bought a 72,051-square-foot, single-tenant distribution warehouse in Rancho Cucamonga.

Terms of the transaction were not disclosed.

The building at 8700 White Oak Avenue is occupied by Bluestar Express Group, a third-party logistics user.

Nick Velasquez and Mike Hartell of Colliers International represented the seller and Alere in this transaction.

The Bascom Group in Irvine and Spirit Investment Partners of Stamford, Conn., have bought a 221-unit apartment complex in Evanston, Ill., for $49 million or $222,217 per unit. The complex, called 415 Premier, is a 17-story high-rise built in 2008.

Bascom buys in Chicago area

The Bascom Group in Irvine and Spirit Investment Partners of Stamford, Conn., have bought a 221-unit apartment tower in Evanston, Ill., for $49 million or $222,217 per unit.

The building, called 415 Premier, is a 17-story high-rise built in 2008.

Dan Cohen of CBRE represented the seller. Peter Marino, also of CBRE, arranged the acquisition financing through Rialto Capital Management.

Buchanan Street Partners in Newport Beach has bought Village of Rowlett, a 249-unit apartment complex in Rowlett, Texas, a suburb of Dallas, from Catalyst Urban Development. Terms were not disclosed by the firms. (Courtesy of Buchanan Street Partners)

Buchanan Street buys in Texas

Buchanan Street Partners in Newport Beach has bought Village of Rowlett, a 249-unit apartment complex in Rowlett, Texas, a suburb of Dallas, from Catalyst Urban Development.

Terms were not disclosed by the firms.

The 3-year-old Village of Rowlett includes 16,000 square feet of retail space plus a mix of studios, one-bedroom, two-bedroom units, in addition to 27 two-bedroom townhomes. The property was 96% occupied at the time of sale, Buchanan Street said.

Amenities including a swimming pool and sun deck, camp-style fire pit, urban community garden and yoga/fitness center.

Aaron Kirman Group in Los Angeles has named former NFL cornerback turned real estate agent Morgan Trent as managing director for its expansion into Orange County. Trent, who started his real estate career in Orange County at The Related Companies in 2012, co-starred with Kirman on the CNBC show. (Courtesy of Aaron Kirman Group)

‘Listing Impossible’ team expands into OC

Aaron Kirman Group in Los Angeles is looking for more luxury sales in Orange County, naming former NFL cornerback turned real estate agent Morgan Trent as managing director for the new venture.

Aaron Kirman, founder and president of the firm and president of International Luxury Estates at Compass, is the host and agent that stars in “Listing Impossible” on CNBC. Season One included a listing in Dana Point that had toiled for three years before Kriman sold it for $9,995,000 in October 2018.

Trent, who started his real estate career in Orange County at The Related Companies in 2012, co-starred with Kirman on the CNBC show.

So far, there is no office space for the Orange County division. Trent, the firm said, will be focused on growing his team first.

On the move

Jim and Margaret Turco have joined the Mission Viejo office of Berkshire Hathaway HomeServices California Properties. The Turcos were among the founders of Surterre Properties, which has offices in Laguna Beach, Monarch Beach and Newport Beach.

Troy Dao has joined The Saywitz Co. in Newport Beach and will help the brokerage expand its business development group and its brokerage operations. He has a background in customer service and sales.

Troy Dao has joined The Saywitz Co. in Newport Beach. Patty Arvielo, co-founder and president of Tustin-based New American Funding, has been named one of the Most Powerful Women in Mortgage by Mortgage Banker.

Milestones

Patty Arvielo, co-founder and president of Tustin-based New American Funding, has been named one of the Most Powerful Women in Mortgage by Mortgage Banker. This is the first time that Arvielo has been honored by the magazine. First American, with 179 locations and some 4,800 employees nationwide, said it wrote 170,000 loans for $43.4 billion in 2020.

Good works

Sea Pointe Construction, a residential design/build firm in Irvine, has donated new cabinetry and has partnered with Galleher to provide flooring to renovate a unit at Thomas House Family Shelter in Garden Grove.

This is the second unit Sea Pointe has renovated at Thomas House during the COVID-19 pandemic.

Thomas House has provided over 1,500 families with rent-free shelter with a goal of helping residents maintain permanent housing while monitoring and bettering their personal finances.

Real estate transactions, leases and new projects, industry hires, new ventures and upcoming events are compiled from press releases by contributing writer Karen Levin. Submit items and high-resolution photos via email to Business Editor Samantha Gowen at sgowen@scng.com. Please allow at least a week for publication. All items are subject to editing for clarity and length.

 

15-year fixed mortgages drop to record low of 2.1%

Where is the bottom?

This week the Freddie Mac primary market mortgage survey shows the 15-year fixed hitting a record-low of 2.1% with a 0.7-point cost.

One year ago, during Wave 1 of the COVID-19 triggered refinance mania, the 15-year was 41 basis points higher at 2.51%.

The 15-year fixed is currently available at a 1.75% interest rate in California if you are willing to pay some points. Because mortgage sizes are much larger in California, mortgage pricing is always better than Freddie’s national polling shows.

The average 30-year fixed is currently at 2.8%, Freddie Mac reported, just 15 basis points above its Jan. 7 all-time low of 2.65%

Before I explain what is going on, let me first eat some crow.

Just two months ago, I wrote a column predicting the 30-year fixed rate would hit 3.5% by year end. There have been just a handful of times in the past 50 years where mortgage rates have climbed about three-quarters of a percentage point in five months, according to Freddie Mac historical data.

In most cases, that occurred when hyperinflation was in the wind. The inflation pressures in front of us today are nowhere close to hyperinflation. So, the chances of us seeing 3.5% by year end are slim and none. Crow it is.

Obviously and quite unexpectedly, a new COVID-19 virus variant named Delta is clobbering many corners of America. New cases are rapidly mounting. Masking up is the new mandate-again.

Uncertainty is never good for the economy. Uncertainty tends to drive rates down. Are we going back to lockdown mode? When will this new strain get contained? What is next? Will we see a wave of some other variant when this one comes to an end?

Here’s what we do know: Federal Reserve Chair Jerome Powell announced Wednesday, July 28, that the Fed will continue to buy at least $40 billion of mortgage-backed securities each month until substantial further progress has been made toward maximum employment and price stability goals.

Remember, Fannie and Freddie dropped their one-half point “adverse market” fee for refinanced mortgages a few weeks ago. That saves borrowers $2,500 on a $500,000 loan.

With home prices and home appreciation exploding, Black Knight reported America had $8.1 trillion of tappable home equity as the first quarter of the year.

Black Knight’s Optimal Blue refinance rate-lock data shows 42% of all rate locks were for cash-out refinances during the first three weeks of June.

As of July 21, Black Knight data shows nearly 14 million borrowers could save almost $300 per month by refinancing. Of those, more than 1.8 million were in California. The estimated savings to California refinance borrowers was even higher at more than $400 per month.

Local refinance activity over the past few years has been remarkable.

Starting in the first quarter of 2019, refinance volume in Los Angeles, Orange, Riverside and San Bernardino counties increased 10%-20% each quarter through December 2020, according to Attom Data Solutions. The exception was in the first quarter of 2020, when volume dropped as COVID-19 first hit.

If you want to take cash-out, you should determine if you are better off refinancing your first mortgage or getting a home equity line of credit, or HELOC.

Generally, if you have a really good rate right now and you don’t want to pull out much cash, a HELOC might be a better choice. Most banks don’t charge anything to get a HELOC.

The downside of a HELOC is rates and payments may adjust monthly.

If you are looking to drop the rate you pay for a fixed loan, you should be able to get around 2.875% on a 30-year fixed and 2.375% on a 15-year fixed without any closing costs. This assumes excellent income, credit, and equity.

The biggest break is if you can go from a 30-year fixed to a 15-year fixed. You can typically reduce your interest rate by 0.5% by taking on the shorter-term mortgage.

Freddie Mac rate news: The 30-year fixed rate averaged 2.8%, 2 points higher than last week. The 15-year fixed rate averaged 2.1%, a record-low that’s 2 basis points lower than last week.

The Mortgage Bankers Association reported a 5.7% increase in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $55 more than this week’s payment of $2,253.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without closing costs: A 30-year FHA at 2.5%, a 15-year conventional at 2.375%, a 30-year conventional at 2.875%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.5%, a 30-year conventional high-balance at 3.125% and a 30-year fixed jumbo at 3.25%.

Eye-catcher loan of the week: A 15-year fixed mortgage at 1.75% with 1.625 points cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

Burned by bidding wars, some buyers back off

The first house was in Midvale, Utah — a three-bedroom, just over 2,100 square feet, listed for $479,000. Rob Ettaro and his girlfriend, Kaliana Veros, who had moved from western New York to Salt Lake City, drawn by career opportunities and the stunning scenery of the Wasatch Range, decided to make an offer.

This was back in the wintertime, when the young couple had a modest wish list that included room for family to visit. Their hearts still raced at the idea of being homeowners. Ettaro and Veros offered $6,000 over the asking price. The house sold for $60,000 over.

Wised up, on the next house they offered $60,000 over list and waived the inspection. There were 54 offers. They were not even close.

On it went through the spring, their mounting frustration told in the numbers: 70 house tours; 14 offers made; not one accepted.

“Here’s another one,” said Ettaro, reading from the detailed spreadsheet he keeps. “We did $35,000 over asking, and they ghosted us. No repairs. As-is. They just never answered us.”

Finally, after five months, Ettaro, 30, and Veros, 26, had had enough; they stopped looking. “Just the mental energy we were expending going to see these houses and trying to envision ourselves in them and it not working out again and again and again,” Veros said.

Ettaro added, “We’re literally giving them everything we can, and that’s still not good enough. We were feeling really burned out.”

Bad time to buy?

Mortgage rates may be historically low, but so is homebuyer morale these days. Last month, the Fannie Mae Home Purchase Sentiment Index showed that 64% of people believe now is a bad time to buy, up from 56% the month prior. Stratospheric prices, brutal bidding wars and record-low inventory have conspired to make many prospective homebuyers frustrated and fatigued.

And some are calling off their search, for reasons that range from an inability to compete financially, to an unwillingness to waive contingencies like an inspection, to a belief the market will cool in time. Home sales have dropped for four months straight, even as prices have hit record highs.

Mark Boyland, a Realtor with Keller Williams in Bedford, New York, is noticing “some buyer fatigue out there,” he said. “If you’ve lost out on four or five multiple offer situations, you say, ‘Maybe we should wait until things cool off.’ ”

A real estate market like the current one may be a boon to sellers, but it is emotionally exhausting for would-be buyers. “Every time you’re putting an offer on a house, you’ve effectively fallen in love,” Boyland said. “And now you’re getting your heart broken — over and over and over again.”

Thomas Brown is co-founder of the Agency Texas, a brokerage that serves San Antonio, Houston and the Austin metro area, where home prices were up 43.9% year over year in April, the biggest jump among the country’s largest 85 metros, according to a report by Redfin. Not surprisingly, “there’s a lot of people pausing their searches right now,” Brown said. “The market is starting to stabilize. Not normalize. Stabilize.”

That stabilization is happening, in Brown’s view, because “there’s just going to be less buyers.” Austin’s rental market is heating up for the same reason. “People are going, ‘I can’t buy the house. I’m going to rent for a year.’”

Greg and Daphne Decoteau are renting in Boise, Idaho, though not by choice. In 2019, the couple, empty nesters in their 60s, moved from California’s Napa Valley to Boise to live out their retirement years, drawn by the lower cost of living and active lifestyle. Acting prudently, they visited the area in all four seasons before moving and rented before committing to a home purchase.

Then the pandemic hit, pulling their attention away from house hunting. By the time the Decoteaus started looking again last December, the local market, already hot, had taken off like a rocket. They waited and watched, “expecting some sanity to creep in,” as Greg Decoteau put it.

Instead, he said, “it just got worse and worse and worse. Now it is at the point of absurdity. A $400,000 house a year ago is selling for $650,000.”

A retired technology hardware salesman, Greg Decoteau had a real estate license in college, and his wife is a former broker. They consider themselves financially astute. They have bought and sold several homes over the course of their marriage. Finding themselves in limbo, they are now reduced to living in a 1,000-square-foot rental with most of their belongings in storage. They, too, have stopped looking.

“Frankly, we don’t have the resources to play that game,” Greg Decoteau said. “We’re past our prime earning years. It’s less a question of appetite than our financial reality. I wake up every morning and kick myself for not having seen this coming.”

But how could anyone have predicted the irrationality of this housing market? Candice Smith, a Redfin agent who covers Westchester and Rockland counties, north of New York City, is still working with buyers who started looking in February. “This market, you’re going to be in it for the long haul,” Smith said. “The average person would be tired if you put in 15, 20 offers and are getting outbid by the competition.”

Even under normal conditions, the buyer-broker relationship has aspects of a therapy session, with buyers projecting their hopes and dreams on a house and agents trying to translate and temper those desires. These feelings only become heightened when large sums of money are involved. But brokers are doing extra hand-holding these days as buyers get their hopes crushed and lose faith.

“After every loss, you have to keep encouraging them,” Smith said. “I have a buyer right now who said they’re going to take a break. I advised them to take the emotion out of it. What I do is restrategize. I’m walking them back through the process of why they lost, talking about the appraisal strategy.”

Jennifer Louis, an agent in Boise who has been working with the Decoteaus, said that she makes sure her buyers understand what it takes to find a house in a “Hunger Games”-like environment. And what does it take?

“You have to make a decision literally sometimes in an hour,” Louis said. “Sometimes not even. There’s a line out the door. You have 15 minutes to see the house and make a decision.

“I need people who are reactive and available. I’ve had others where they don’t get back to me for a day or two. Well, it’s gone. You have to take time off work. You have to fly into town or do whatever it takes.”

House hunt is work

For any buyer who wants to seriously compete, the house hunt has become an all-consuming second job. That level of engagement, often without reward, is also leading to buyer burnout.

Ettaro and Veros were seeing between five and 10 houses a week, spending hours scanning listings online and living on takeout food as they drove to open houses in farther-out areas they hoped to better afford. Instead of hiking or mountain biking on weekends, activities they both love to do, they were touring houses they were all but assured not to get, and arguing.

“We were having arguments over whether, ‘Hey, do you want to look at five houses today?’” Ettaro said.

“We came to the conclusion this is clearly affecting us. We need to step back and relax for a minute and see how things go,” Veros said.

Faced with such fierce competition, buyers tend to fall into two camps: those who become defiant and determined to land a house, and those, like Nick Sauro, who would rather check out of the mania.

Sauro, 41, and his wife, Ilone, 39, own a starter home in New Rochelle, New York, where they live with their 18-month-old twin boys, 8-year-old daughter and Ilone Sauro’s mother. They need more space, desperately. They have a budget of $750,000 to upgrade. But when they started looking this spring, “there was just nothing out there,” Nick Sauro said.

“Every house we liked was this crazy bidding war,” he said. “Then these other houses just aren’t that great. They need a lot of work. You walk out. You’re kind of disgusted. We can’t move to a fixer-upper. And that’s all that’s out there.”

As summer came, the Sauros decided to enjoy the weather. Their current house may be cramped, but they own it, and buying it eight years ago was relatively stress-free. “If you’ve been through the process,” Nick Sauro said, “why would you partake in this craziness?”

For first-time buyers, however, it can feel like they may never get beyond the frenzy and become homeowners. And in markets where prices have increased by 25% or more in a matter of months, a sense of hopelessness is not an overreaction to losing a few bidding wars.

Bubble Watch tracks housing risks. Read it here!

“For the young ones, it’s heartbreaking, because if they don’t already have a house or a family that’s going to finance them, it’s getting almost impossible to find them a home,” said Louis, the agent in Boise.

Ettaro and Veros have made the decision to continue renting in Salt Lake City, wait it out and hope they can eventually buy. “Maybe it will level out,” Ettaro said. “Maybe we won’t have to go $70,000 over asking and get beat out by 50 other offers.”

The Decoteaus, too, at a different stage in life but facing the same dilemma, are sitting on the sidelines, feeling not so much burned out as plain burned.

“We’re sitting here trying to figure out what the hell we’re going to do,” Greg Decoteau said. “We’re not sure we’re going to be able to stay here. We’re just about priced out.”

On their list of places to retire to, the Decoteaus also included Asheville, North Carolina; Medford, Oregon; and Colorado Springs, Colorado. Perhaps one of those communities is still affordable?

“My suspicion is, those places are sucked up in this insanity also,” Greg Decoteau said. “Our other option is to stay in this little apartment until we go crazy.”

 

Why ‘unprecedented spike’ in evictions is expected as federal moratorium expires

By Noah Buhayar | Bloomberg

A federal ban on evictions is set to expire at the end of July, and this time it’s unlikely to be extended, putting millions of renters at risk.

The moratorium has been in place through much of the pandemic, but it’s part of a wave of emergency programs ending even as the Delta variant fuels rising COVID-19 cases in the U.S.

Related: COVID deaths soar when eviction moratoriums end, UCLA study finds

While some states, including California and New York, have their own eviction bans, the expiration of the Centers for Disease Control and Prevention’s moratorium has housing advocates worried about a surge in landlords forcing out tenants who have fallen behind on rent.

Congress has allocated nearly $47 billion in assistance but so far states and local jurisdictions have been slow to distribute the funds.

To understand what may happen next, Bloomberg talked to housing expert Ingrid Gould Ellen, a New York University professor who has studied federally funded emergency rental assistance programs during the pandemic.

Q: We’ve been talking about an eviction crisis since the start of the pandemic, but it hasn’t happened yet. Do you think we’re poised to see one soon? Why or why not?

A: It hasn’t happened yet because of moratoriums, federal assistance and uncertainty among landlords about finding new tenants. But there are still a lot of renters behind on rent, and some of them are far behind on rent and at risk of losing their homes, especially if they’ve reached the end of their lease. The Census Pulse Survey suggests that 16% of renters owe back rent. This is down from a peak of over 20% in January, but a lot of renters are still facing hardships, particularly renters of color and renters with children. Nearly one in four Black renters report being behind on rent.

A key factor will be whether the hundreds of state and local emergency rental assistance programs around the country can get these funds out the door quickly enough. The hardest-to-reach renters are also the most vulnerable to eviction, and that group is large enough to cause an unprecedented spike in eviction filings, warrants and, ultimately, homelessness if we don’t remain focused on getting them and their landlords the assistance Congress has made available.

Q: When the CDC eviction moratorium expires, where do you expect evictions to climb the most?

A: I would expect evictions to rise the most in places where housing costs are high or climbing, demand is strong and tenant protections are low. That probably means the Sunbelt and the southeastern U.S., though there are likely to be widespread increases.

Q: The economy is bouncing back. Who needs rental assistance in the U.S. now?

A: The majority of the jobs lost have been in industries that pay low average wages, and disproportionately employ renters, and the Delta variant spike poses a renewed threat. Our research on rent arrears in New York City suggests the greatest need is concentrated among a small group of households, many of whom were already struggling before Covid hit. As with so many issues, there are troubling racial disparities. Black and Hispanic households are more likely to have lost employment and therefore to be behind on rent.

Q: How important is it to landlords that this money get disbursed?

A: It’s essential, especially for mom-and-pop landlords who own a small number of properties. For small landlords, the funds are likely to be critical for preventing default, property tax arrears, forced sales, or cuts in repairs and maintenance.

Q: How quickly has the government been able to distribute the money and will the $47 billion that Congress allocated be enough?

A: Estimates of need suggest the $47 billion will likely be sufficient if they can get it out the door quickly enough. But again, the slow pace has been worrisome. All levels of government need to work together to get the money out quickly and to strongly encourage, or require where possible, landlords to apply for rental assistance before filing an eviction.

Q: Rents are soaring across the U.S. right now. How do you think that will impact the government’s effort to avoid an eviction crisis?

A: It will likely be more difficult to limit evictions in places with rising rents, as landlords will have a greater incentive to find new tenants willing to pay higher rents. Plus, rent increases will make it more difficult for renters who do lose their homes to find new places to live.

Editor’s note: This interview has been edited and condensed.