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COVID Effects On Real Estate Investments (Lots of Changes!)
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“Change is the only constant in life. One's ability to adapt to those changes will determine your success.” - Benjamin Franklin
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Benjamin Franklin once said, “Change is the only constant in life. One’s ability to adapt to those changes will determine your success”. And, while he may have lived over 200 years ago, his sentiment could not more accurately describe life and business today than if he were her to experience it himself.
It has been over a year since the Coronavirus first made its way to the U.S. causing, among many things, rapidly changing economic uncertainties which still persist today. In an effort to stay successful and ensure the success of our investors, Frontline Property Management has revamped many systems to keep up with the ever-changing times. From completely virtual showings and move-ins to providing the tenants with self-inspection technology, we have reduced the person-to-person contact while maintaining, and even increasing, the efficiency and integrity of our previous system.
In addition to adapting our system, we have made it a priority to keep up to date with the ongoing changes and have provided synopsis and references for a few recent changes.
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Texas Mask Mandate and Business Restrictions Lifted
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On March 2nd, 2021 Texas Governor Greg Abbot announced that the mask mandate and and business restrictions related to COVID-19 would be lifted for all counties which where not in an area with high hospitalizations*.
What does this mean for Real Estate Investors?
This should allow those who have been out of work for an extended amount of time due to the restrictions to make their return to the workforce, in time reducing the number of tenants who have been unable to make timely rental payments.
Click here for full details on the Governor’s Executive Order.
*“Any trauma service area that has had seven consecutive days in which the number of COVID-19 hospitalized patients as a percentage of total hospital capacity exceeds 15 percent”
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Texas Judge Rules the CDC Eviction Moratorium Unconstitutional
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U.S. District Judge John Barker issued a 21-page ruling which sided with a group of landlords and property managers in a lawsuit proclaiming that the eviction moratorium issued by the CDC surpassed the federal government’s constitutional authority.
What does this mean for Real Estate Investors?
Officially and Immediately: nothing. But this is a step in the right direction! In order to officially end the moratorium, the CDC would need to reverse the order of the Supreme Court would need to make an official ruling deeming the order unconstitutional. However, Judge John Barker issuing this order has moved us one pace on the proper path towards a release of the moratorium.
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The Texas Rent Relief Program
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The Texas Rent Relief program, while certainly not the only rental assistance program, is the largest to date for the state of Texas offering $1.3 billion in rental assistance for Texas residents. The program originally started accepting applications on 2/15/2021 but was delayed due to the ice storm Uri. The staff has officially started processing applications as of 3/8/2021.
The assistance offered through the program includes unpaid rent as far back as March 2020, three months current/future rental assistance*, and assistance with utilities. Applications are processed on a first come first serve basis as long as funds remain available or until the expiration date of 9/30/2021.
What does this mean for Real Estate Investors?
This program offers the most promising opportunity for recovery of rent so far. In addition to recovering past due rent, it gives investors the opportunity to ensure the next three months are covered while tenants attempt to catch up! Since February, Frontline Property Management has been working diligently with tenants to determine who qualifies and who has struggled to pay rent (and/or are behind on rent payments) to take full advantage of this program! As of today, we have successfully helped over half of our delinquent tenants submit their applications! We will continue with these efforts as we determine which tenants struggle in the coming months as well.
Click here for full details on the Texas Rent Relief Program.
*If funds remain available tenants may apply for additional 3 months/Not to exceed 15 months in total.
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No matter the duration of this pandemic Frontline Property Management, Inc. will continue to monitor and adapt to the changes thrown our way in order to protect the investments that we have been trusted with!
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Jay Hartley MPM®, RMP®
Owner - Managing Partner
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Office | 817.377.3190
Direct | 817.288.5546
Frontline Property Management, Inc.
3000 Race Street, Suite 132
Fort Worth, TX 76111
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Weathering the Pandemic: Texas Industries and COVID-19
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After a spike in July, new cases fell dramatically in August and September only to mount again in late fall. By Jan. 11, 2021, the Texas Department of State Health Services had confirmed more than 1.7 million COVID-19 cases in the state — and nearly 30,000 deaths from the disease.
But the pandemic isn’t only a health crisis; it’s an economic crisis that continues to wreak havoc on both small firms and major industries. Closures, quarantines and other restrictions come with significant fiscal implications and, despite its strong and diverse economy, Texas isn’t immune to the uncertainties of this unprecedented situation.
All Texas industry sectors have been affected by the pandemic to some degree, but some have struggled more than others, raising concerns over what some have called a “K-shaped recovery” — one in which different sectors, industries and employee groups fare differently, some recovering and others remaining in recession. In this special issue of Fiscal Notes, we take a closer look at some of the industries most affected by the pandemic: leisure and hospitality providers, restaurants and bars, retailers, passenger airlines and hospitals.
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THE STEEPEST DROP
The “steepest and fastest drop in Texas economic activity in modern history” — that’s the Federal Reserve Bank of Dallas’ description of the pandemic’s effects. This crisis is unique compared to previous downturns, adversely singling out certain sectors and making the economic effects and recovery process uneven and hard to predict. Sales tax collections, buoyed by retail sales, have declined moderately, but other affected industries have suffered much more. As of December 2020, the effects were still evident in some major taxes:
- sales tax — $2.86 billion, down 5.0 percent from December 2019
- oil production tax — $197 million, down 45.5 percent
- natural gas production tax — $86 million, down 25.0 percent
- alcoholic beverage taxes — $84 million, down 28.5 percent
- hotel occupancy tax — $26 million, down 48.5 percent
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Employment Changes During the Pandemic
Initial job losses due to COVID-19 were staggering. Between February and April 2020, the U.S. lost 22.2 million jobs, more than 1.4 million of them in Texas. Texas’ unemployment rate spiked at 13.5 percent in April 2020, up from 3.5 percent just two months earlier. By November, nearly 1.2 million Texans remained unemployed (Exhibit 1).
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From mid-March through Jan. 2, 2021, Texans filed more than 4.1 million initial claims for unemployment insurance, 300,000 in the week ending April 4 alone. These have fallen significantly, but remain historically elevated.
The number of continued unemployment claims, which reflects those receiving benefits after an initial claim, peaked in Texas at 1.4 million in the week ending May 23, remained above 1 million through the week ending Aug. 29 and totaled 368,223 for the week ending Dec. 26.
Employment among Texans making less than $27,000 per year fell by 17 percent from January through Oct. 22, 2020.
Low-wage workers, disproportionately employed in service industries, bore the brunt of job losses. Many of these workers are women and minorities; in 2019, for instance, 58.7 percent of U.S. hotel and motel employees were women and 58.6 percent were members of ethnic minorities, according to the U.S. Bureau of Labor Statistics. Opportunity Insights, a Harvard-based research and policy institute, found that employment among Texans making less than $27,000 per year fell by 17 percent from January through Oct. 22, 2020. Employment for middle-wage workers ($27,000 to $60,000 per year) declined by just 3.6 percent; for workers earning more than $60,000, employment actually rose, though only slightly (0.5 percent).
Hardest-Hit Industries
A September analysis of federal labor data by the Washington Post found that nine out of the 10 U.S. industries with the biggest job losses during the pandemic were service providers, including hotels, performing arts venues and restaurants. Texas Workforce Commission data indicate employment in the arts, entertainment and recreation fell by nearly half from February to April 2020, and remained 27 percent lower in November (Exhibit 2). Employment at hotels, restaurants and bars fell by 12.5 percent during this period.
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Among these industries, the most significant shared characteristic is their inherent necessity to operate in close quarters with their customers; their profitability typically depends on face-to-face encounters or crowds, from restaurants to sports arenas. In addition, some businesses have been affected by the lack of consumer confidence and by a concern for individual health and safety. Many sectors are financially fragile, with little cash on hand to weather an economic downturn.
Leisure and Hospitality
According to the federal government’s industrial classification scheme, leisure and hospitality is a “supersector,” a wide-ranging category including restaurants, bars, hotels, tourism, performing arts, sporting events, amusement parks, gyms and other enterprises. The supersector includes two sectors, arts, entertainment and recreation and accommodation and food services. The latter, in turn, is divided into two subsectors, accommodation and food services and drinking places — or, in other words, restaurants and bars.
No part of the state economy was injured more deeply by the pandemic than these industries. For the past several decades, leisure and hospitality jobs have comprised an increasing share of Texas’ employment base, accounting for 10.9 percent of the state’s total jobs in 2019. Between 2010 and 2019, employment growth in this sector outpaced statewide gains, rising by an annual average of 3.7 percent versus 2.4 percent for all Texas jobs (Exhibit 3). Restaurants and bars led employment growth, adding jobs at an average 3.8 percent per year.
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But then the pandemic arrived. In November 2020, Texas leisure and hospitality employment was down by 13 percent from the same month in the previous year, a loss of 181,800 jobs and 37.2 percent of all Texas job losses during this period. Restaurants and bars suffered the heaviest total losses, falling by 10.1 percent or 112,500 jobs. Employment in the arts, entertainment and recreation industries experienced the greatest percentage decline at 29.6 percent or 42,800 jobs.
After a rebound in May and June, sector employment growth had improved only modestly through November (Exhibit 4).
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The contribution of the arts, entertainment, recreation, accommodation and food services — a group defined by the U.S. Bureau of Economic Analysis — to the Texas gross state product (GSP) also slumped. In 2019, these industries contributed $63.5 billion to the Texas economy, or 3.4 percent of the state’s $1.84 trillion GSP. Between the first and second quarters of 2020, their combined Texas GSP fell by more than $19 billion or 32 percent. Total output in the arts, entertainment and recreation industries declined by more than half (Exhibit 5).
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Opportunity Insights’ data describe the impacts on the sector in Texas:
- small business revenue in leisure and hospitality fell by 74.3 percent between January and Dec. 30, 2020, versus a 39.1 percent decline for all small businesses.
- the number of small businesses open fell by 57.7 percent during this period, versus a 31.5 percent decline for all small businesses.
- compared to January 2020, consumer spending at Texas restaurants and hotels was down 11.8 percent for the week ending Dec. 6, and down 45.6 percent at entertainment and recreation sites; total consumer spending fell by just 1.0 percent in this period.
Accommodation
The accommodation industry includes businesses that provide overnight and short-term lodging for travelers. It plays a significant role in our economy by supporting tourism and hosting meetings and events. The sharp reduction in travel caused by the pandemic has forced many businesses in the accommodation industry to consider taking drastic steps to stay above water.
In Texas, most hotel and motel employees earn considerably less than $45,000 annually; the industry’s top three occupations earn an average of less than $25,000 a year (Exhibit 6). This is an economically high-risk group; among maids and housekeeping employees, nearly 55 percent are between the ages of 34 and 55 and almost 79 percent have only a high school degree or less.
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In 2019, the accommodation industry contributed an estimated $9.4 billion to Texas GSP (Exhibit 7); this contribution showed a 5 percent compound annual growth rate between 2010 and 2019, slightly higher than the rate for all Texas industries.
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As of November 2020, Texas’ accommodation industry had lost 26,500 jobs in a year, a 19.5 percent decline. In April, the American Hotel and Lodging Association estimated (PDF) that more than 296,000 Texas jobs, directly and indirectly, related to lodging were endangered by travel restrictions.
According to Justin Bragiel, general counsel for the Texas Hotel and Lodging Association, the statewide hotel occupancy rate in November 2020 was at about 36 percent, 30 percent below average for that time of year. He cites examples of hotels that have created alternative revenue streams to help relieve financial pressures, such as leasing rooms for use as office space or contracting with local governments to provide quarantine space for COVID-positive employees.
“We believe difficult economic conditions will continue through 2021, [but] we’re hopeful that the development and deployment of a successful vaccine will allow more travelers to return to normal conditions in late 2021 and beyond,” Bragiel says.
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An Uncertain Year to Come
The COVID-19 crisis has changed life as we knew it a year ago. It may be a long time before pre-pandemic life returns — if it ever truly returns. One bright spot in these times is the way the public, businesses, schools and others have risen to the occasion by restructuring their workplace practices and accelerating their use of technology.
When everything paused last spring, nearly all Texas businesses saw a decline in commerce. While most supply chains have resumed and many Texans are getting back to business, not all industries have bounced back. Some industries and some people have been more affected than others, and that disparity will make our recovery more challenging.
But Texans are known for their resiliency, and our businesses and industries are working hard to adapt, meeting the economic chaos with creativity, agility and ingenuity. When the crisis passes, these innovations will remain. Amid the disruption, we will grow stronger.
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Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.
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