The S.O.S. Approach to Managing an Investment During Coronavirus
As I am sure you are aware, CDC is responding to an outbreak of respiratory disease caused by a novel (new) coronavirus that has first detected in China and which has now been detected in almost 70 locations internationally, including the United States. The virus has been named “SARS-CoV-2” and the disease it causes has been named “coronavirus disease 2019” (abbreviated “COVID-19”).
Consequently, the DOW Jones has dropped by nearly 10,000 points over the past 30 days.
Per the CDC, “the best way to prevent infection is to avoid being exposed to this virus.” Therefore, social distancing has been one of the main methods to combat the virus. As a result, many people are working from home and many others have been laid off or furloughed.
From a business perspective, when a crisis – like the coronavirus, hurricane, fire, earthquake, etc. – occurs and you have an investment property, you need to have a process for approaching the situation, and even more so when you have passive investors. The procedure I use is the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary.
S – Safety
The first step when a crisis occurs is always and most importantly safety. That is, safety for both the people and the money.
So, you first want to ensure the safety of both your residents and your team members on the ground. We sent all of our residents safety notices outlining the CDC’s guidelines for preventing the spread of the disease, which includes:
- Wash your hands often with soap and water for at least 20 seconds. If soap and water are not available, use an alcohol based hand sanitizer
- Avoid touching your eyes, nose, and mouth with unwashed hands
- Avoid close contact with people who are sick
- Stay home when you are sick
- Cover your cough or sneeze with a tissue, then throw the tissue in the trash
- Clean and disinfect frequently touched objects and surfaces
We also provided URLs to the CDC webpages with more information on the coronavirus:
- CDC Interim Guidance on Preparing Your Household Ready for COVID-19?
- CDC What You Need to Know about COVID-19
- CDC Frequently Asked Questions and Answers on COVID-19
- World Health Organization’s COVID-19 webpage
The money side of the safety equation is still up in the air. It is hard to tell how the coronavirus will impact multifamily real estate. The stock market is going down which means more money should flow into real estate. At the same time, many people are losing jobs, which means they will have difficulty paying rent. We will have to see how rent collections are impacted over the next few months.
One interesting strategy I’ve seen is to allow residents to use their security deposits to pay for rent over the next few months. For example, investor Julie Fagan will allow her residents with a $1000 per month rent payment and a $1000 security deposit to apply $500 to this month’s rent and $500 to next month’s rent, reducing their rents to $500 per month. In exchange, the residents sign a new 12 month lease and sign up for security deposit insurance. I like this strategy because it helps the resident as well as the bottom-line at the property.
Investors will need to start getting creative if the coronavirus does negatively impact multifamily collections.
O – Ongoing Communication
Once we have ensured the safety of the people, we sent an initial communication to our passive investors.
The communication we sent to our investors was similar to what we sent to our residents. The major difference is that it also included information on what we are doing to ensure the safety of both the people and the money.
In addition to the relevant CDC information, we mentioned that we are working closely with our property management partners to monitor the operations at the property and that we will have more information for them by the middle of next month. We also mentioned the coronavirus will not impact their distribution for the previous month.
So, we sent one email to let investors know that we are aware of and monitoring the situation and when they can expect another update. It is hard to tell how long the coronavirus pandemic will last, so the plan is to continue to provide monthly updates to our investors about the status of the rent collections at our properties.
Overall, I think it is better to only send emails when there is sustentive information to provide as opposed to hourly or daily updates.
S – Summary
Once things return to normal, we will send our investors a final email with a summary of how the coronavirus impacted the operations at our property and distributions, as well as any changes we will have moving forward to make up for lower cash flow and distributions, if applicable.
When a crisis occurs, like the coronavirus, the three step procedure is S.O.S. – safety of the people and the money, ongoing communication to provide your investors with status updates, and then providing a summary once things return to normal.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.