David Brogan is the executive director of the New Jersey Apartment Association. — Photo by Mary Iuvone for Real Estate NJ
By Real Estate NJ
With New Jersey’s coronavirus crisis entering its seventh month, the state’s apartment industry still faces a long list of challenges amid legislative efforts to address the economic fallout.
Real Estate NJ connected with David Brogan, the executive director of the New Jersey Apartment Association, who weighed in on everything from rent collections to state and federal policy proposals that he believes would have dire financial consequences for landlords. Below is the first part of two-part Q&A with Brogan, whose association represents more than 210,000 apartment homes in New Jersey and has more than 400 vendor members.
We spoke with you just as the crisis was starting. Where do things stand now?
Since March, we have seen increases in nonpayment of rent. In many areas of the state, nonpayment equates to 10 to 15 percent. In other areas of the state, it’s as high as 30 percent. With no rental relief for a majority of New Jerseyans, and even with a loosening of restrictions on businesses so people can get back to work, we still expect these numbers to go up in the coming months. Also, vacancies are up and it is taking more time to get new tenants. All of this impacts the viability of rental properties.
At the same time, the strain on properties is still being felt from both staffing and operational perspectives. I mentioned in a previous article of the added responsibilities being placed on apartment communities. We have been on the front lines of the crisis since day one. The stay-at-home order, coupled with restrictions on businesses, has forced many New Jerseyans to spend much more time in their apartments. This leads to a greater strain on heating and air conditioning systems as well as plumbing systems, especially when people are flushing things like antiseptic wipes down the toilet. Beyond that, there is a tremendous amount of stress being placed on apartment staffs through enhanced cleaning and disinfecting, strict protocols on how to respond to tenant maintenance and repair requests, as well as responding to general concerns from tenants.
I honestly wish there was more recognition by the governor and the Legislature on how we are helping them and the residents of New Jersey get through this crisis. Some of the rhetoric we have been hearing about the perception of the apartment industry is not only unfair, it is unproductive.
Regarding the perception of landlords, can you expand on that?
The biggest frustration I have is, in an attempt to craft legislation to assist tenants, there seems to be this constant effort to make landlords “the enemy.” Tenant advocates and even some legislators have characterized our industry, which includes mom-and-pop rentals all the way up to large multistate operations, as simply being uncaring and greedy. The fact of the matter is, many of our members have decades-long relationships with their residents and they are making necessary concessions to help residents make it through this crisis and stay in their homes. We must remember, the virus is the enemy, not our industry.
Having said that, there are bad landlords out there, just as there are bad tenants and bad actors in other industries. However, given that we are talking about people’s homes, the actions of a few bad apples can taint the perception of the majority of landlords who are, in fact, good actors. The NJAA does not advocate for slumlords. We advocate for those who own and operate apartment communities throughout the state in a professional manner. These properties are part of the fabric of neighborhoods throughout the state. And given that the cost of buying a house in New Jersey is so high, the apartment industry is critical in providing affordable, clean, safe places to live for over a million people. Even so, those who want to paint the industry with one broad brush will continue to do so.
There is a fear that if the virus continues to spread, the economic and health effects will be even more devastating. For our industry, that means that tenants will not be able to pay their rent, and there is a fear of mass evictions at some point in the future. Under those circumstances, everyone loses, and it has a negative effect on what I call the multifamily ecosystem. That includes tenants, landlords, employees, vendors, municipalities and the state. As such, any proposed legislative solution to assist tenants needs to consider the fact that landlords are simply trying to collect rent because that is the source of their revenue stream, that is their business. They too have financial obligations. Recognizing the financial circumstances of tenants without also recognizing the financial circumstances of landlords, and everyone connected to landlords, is shortsighted.
Also, we need to eliminate the hypocrisy embodied in some proposals. We can all agree that food and shelter are necessities. However, I have yet to see a bill that authorizes people to walk into a grocery store and take as much food as they need and simply walk out the door without paying, or that they would have six months to pay for the food they took today. Even so, that concept is being applied to rent.
Lastly, in the same vein, there seems to be a double standard when it comes to government. That is, government can make policies that eliminate a business’ ability to generate revenue by saying that the customer (or in this case tenant) does not need to pay for the product they are using. At the same time, landlords still must pay taxes and utilities on time and in full. I have yet to see any proposal that says that since we are reducing or eliminating your rent revenue, you can defer or eliminate tax payments. And the icing on the cake is that not only are those tax payments due in full and on time, but those taxes are going up. It is truly disheartening.
You mentioned legislation. S-2340/A-4034, also called “The People’s Bill” is moving through the Legislature and Gov. Phil Murphy has not only indicated his desire to receive that bill, but has given a commitment to signing it. What are your thoughts?
The bill in its original form was a disaster and it was unconstitutional. Quite honestly, it was one of the most poorly written pieces of legislation I have seen in my two-and-a-half-decade career in Trenton. In its original form, it would have bankrupted small landlords, severely impacted larger landlords, and it would have created the biggest property tax shift onto homeowners in New Jersey’s history. The bill has improved since its introduction thanks to the assistance of legislative leadership, but more work needs to be done.
If the solution to this pandemic is to help tenants by destroying the multifamily industry, the result will be higher property taxes for homeowners, banks owning assets that they don’t want, and tenants seeing a reduction in the quality of life at those properties. If you think it is difficult to get a toilet fixed when you call your landlord, imagine how hard it would be when your first call has to be to a bank.
Even so, the NJAA agrees that something needs to be done to ensure that mass evictions do not occur. However, if we are going to do it, let’s do it right. Let’s consider the impacts to both tenants and landlords. With the state and federal eviction moratoriums in place, we have time to work on this legislation. There is no justifiable reason to rush it.
At the end of the day, we are in the business of renting properties, not evicting tenants, so we have the same concerns tenants do about the impact of this virus on housing. I should note that the NJAA and its members from the start of this crisis were urging all landlords in New Jersey to talk to their tenants, understand their situations and work on repayment plans. We also supported the governor’s executive order to use security deposits. Finally, we have been vigorously advocating for federal rental assistance. We understand that tenants are hurting, but there also needs to be an understanding by legislators and the governor that landlords are hurting, too.
You argue that The People’s Bill would have caused the biggest property tax shift onto homeowners in New Jersey’s history. Explain that further
People need to understand that for property tax purposes, multifamily properties are taxed based on net operating income. In New Jersey, multifamily properties pay over a billion dollars in property taxes annually. However, if rental income drops dramatically because of this bill or other legislation, the assessed value of those properties will also drop. So, an owner whose property tax obligation was $250,000, may be reduced to $100,000. However, the town still needs that $150,000 in tax revenue that it is no longer getting from the apartment owner, and that differential will have to be made up by homeowners.
The increasing loss of rent revenue has a direct correlation to the increased losses faced by landlords. I do suspect that the pandemic may lead to some property tax appeals. However, the state can mitigate this problem through increased rental assistance or even a tax credit to incentivize landlords to write off that debt. In short, the pandemic may create lower valuations of multifamily properties, but without government assistance, the corresponding property tax shift onto homeowners will be exacerbated.