Are we heading into a recession? For many in real estate, the recession has been going on for months. For others, the worst is yet to come. Whatever the answer, a recession apartment portfolio plan comes down to five actions you can take today: budget cautiously, build a disaster plan, watch your local markets, audit your loans, and put budgeting and business intelligence tools to work. Each one improves profitability even in the toughest of times.
Whether you are a real estate investor, a property manager, or an asset manager, where we stand in the economy and how it will impact the portfolio is a top question on many people’s minds. We watch the market, listen to jobs reports, and hold our breath waiting for the Fed’s next move. None of that is action. There is action we can and should take to be prepared for the worst.
The useful framing is that the timing does not change the work. Whether a recession is on the way, happening right now, or the worst is behind us, preparing with some basic steps will help improve profitability. A recession apartment portfolio strategy is not a bet on the economy. It is a set of habits that pay off in any market and pay off most when conditions turn.
Budget cautiously. Include systematic cash flow forecasting and goal accomplishment so you can track property performance with precision. Deviations in the budget over the next year can add significantly to the bottom line if they are not managed correctly, and in a downturn the margin for surprise is thinner.
Systematic means the forecast is rebuilt on a schedule, not once at budget season. Each period, actual collections and expenses are compared against the plan, and the forecast for the remaining months is updated with what the property is actually doing. Goal accomplishment is the companion practice: each budget line has an owner and a target, so a miss is visible to a person rather than buried in a variance report.
Set alerts that allow your team to adjust, reforecast, and take action before making any big capital decisions with long-term impact on reserves. An alert is simply a threshold on a metric that matters: collections below plan, expenses above plan, or occupancy sliding past a line you set in advance. The point is to see the deviation while there is still time to respond to it.
Our guide to multifamily budgeting strategies goes deeper on the forecasting mechanics and the common ways apartment budgets go wrong.
Develop a list of potential problems and prepare a disaster plan. If you do not have a potential problems list, start one. As scary as it is to plan for the worst, you will either be prepared if disaster strikes or pleasantly surprised if it does not. A recession apartment portfolio disaster plan should include at least the following categories.
The list does two jobs. First, it forces each problem to be named while heads are clear, which is when the response is easiest to design. Second, it gives every item a trigger and an owner, so that when the problem appears, the team executes a plan instead of improvising one. Resident satisfaction deserves particular attention in a downturn, because turnover is expensive and a departing resident is hard to replace when demand softens. Our piece on resident retention strategies covers what keeps residents in place.
The final and most important step to any potential problems list is to dig deep and find the greatest amount of compassion you can. In a downturn, residents and staff alike feel the squeeze of job loss, family pressures, and inflation, so stress levels may be running high. When putting together a disaster plan, add some reminders to be as kind as possible to your team, your community, and yourself.
Watch trends and activity in the local market. Microeconomic factors that affect your properties vary greatly across the country, depending on whether a community is located in a big city, a suburban area, or a small town. Some cities are experiencing significantly higher rent growth than others. Employment drivers and new supply will have a tremendous impact on where rents are going in your markets and submarkets.
This is why a national recession headline is the wrong input for a property-level decision. A recession apartment portfolio spread across several metros is really several different markets, each with its own employment base and its own construction pipeline. The right question is what is happening to the competitive set around each property.
If you do not already, consider doing rent surveys or using a service that gives up-to-date information on the pricing and availability of similar units in your property’s competitive set. A rent survey has three parts.
The same comparison discipline applies inside the portfolio. Measuring each property against its peers, both external comps and sister properties, is the premise of portfolio benchmarking. It also sharpens acquisition underwriting, because a market you already survey is a market you can price with confidence.
Audit existing loans now. While interest rates have increased significantly over the last 12 months, they are still below historic averages. Consider refinancing any properties with loans that have balloon payments due in the next 12–36 months. If interest rates are increased again this year, or if a longer-term recession occurs, interest rates could skyrocket, which would be disastrous for any property or portfolio.
A loan audit is an inventory of every debt obligation across the portfolio and the dates that matter on each one. For each loan, record the maturity date, whether a balloon payment is due, whether the rate is fixed or floating, and what the property’s cash flow can support if the rate at refinancing is higher than the rate today. The audit’s output is a short list of properties where the timing creates risk, ranked by how soon that risk arrives.
The logic behind acting early is simple. A balloon that comes due in a high-rate environment forces a refinancing on the lender’s terms, at the worst possible moment. Refinancing while rates are still below historic averages trades some certainty now for protection later. Our analysis of interest rate impacts on apartment portfolios explains how the Fed’s moves work through to property-level returns.
Consider adding technology such as budgeting software and a business intelligence (BI) solution for your portfolio. Operating and market data are valuable tools that, used in conjunction with core financial data sets, allow operators to plan carefully. With plans in hand, set up alerts that let you maintain accountability and catch issues before they become full-blown problems.
The technology step ties the previous four together. Each of them depends on a data set that usually lives in a different place.
Budgeting software keeps the first set current and the forecast systematic. A BI solution brings all three together so that the alerts described above can fire on the combined picture rather than on one report at a time. That is what a business intelligence tool built for multifamily is for: one place where the plan, the actuals, and the market can be compared. Accountability follows naturally, because every person on the team is looking at the same numbers.
A recession apartment portfolio does not need more reports. It needs the reports it already has to agree with each other, and a way to notice when something moves. Whatever market conditions arrive next, that is the preparation that holds up.
Five actions form a recession apartment portfolio plan: budget cautiously with systematic cash flow forecasting, build a potential problems list and disaster plan, watch trends in each local market, audit existing loans for balloon payments due in the next 12–36 months, and add budgeting software and business intelligence with alerts. The steps apply whether a recession is coming, underway, or ending.
Start with the budget rather than a blanket cut. Cautious budgeting with alerts shows where deviations are actually occurring, so reductions target real overruns instead of guesses. Big capital decisions with long-term impact on reserves should wait for a reforecast, and cuts that hurt staff morale or resident satisfaction tend to cost more in turnover than they save.
A potential problems list is a written inventory of what could go wrong at a property, organized by category: staff, materials, equipment, and resident satisfaction. Each item gets a planned response, so the team is prepared if disaster strikes and pleasantly surprised if it does not. The list also includes reminders to treat staff, residents, and yourself with compassion during stressful periods.
Audit every loan first. Properties with balloon payments due in the next 12–36 months are candidates for refinancing while interest rates, although higher than a year ago, remain below historic averages. If rates rise further or a longer recession takes hold, a forced refinancing later could be disastrous for the property or the portfolio.
A business intelligence solution combines operating data, market data, and core financial data in one place so operators can plan carefully and set alerts on the combined picture. Those alerts maintain accountability and surface issues before they become full-blown problems, which is exactly the early warning a recession apartment portfolio needs.
Cautious budgets, a real disaster plan, local market awareness, a clean loan audit, and the data to tie them together. That is the preparation that improves profitability in any economy.
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