Ongoing Impact of the Emergency Rental Assistance Program on Collections
February 28, 2023
By Brennen Degner
My last DB Blog posts focused primarily on what we are seeing on the acquisitions side and what our general thesis is on the broader multifamily market in the near term. Today I wanted to focus on a relatively new phenomenon that we are seeing in operations, a significant spike in aged receivables we carry across the portfolio. At a time when operating costs and interest rates are rising at a rapid clip, the additional blow to cash flow is driven by the fact we are seeing total receivable balances at an all time high.
When you peel the onion on our collections picture we find that the increased level of total AR is generally highly concentrated in just a few residents. Historically, assuming the management team was dialed in on their notice and eviction process, it was rare to see any single tenant accrue such a large balance. What we are seeing is that these large balances are made up almost entirely of tenants who are waiting on money from assistance relief programs, including but not limited to the local funds allocated from the Emergency Rental Assistance Program (“ERAP”).
To no surprise, we are seeing the general gridlock associated with anything managed by the government making its way into our property balance sheets. As an example, we have an asset in the Denver submarket where we are owed over $145,000 from ERAP. The money is a collection of tenants owing as much as five months of unpaid rent. Each individual tenant (as of the time I am writing this we have 25 residents at the property waiting on ERAP payments) has their own specific nuances as to why the funding has been delayed. Sometimes it is because the tenant’s file went from one case worker to another. Sometimes it is because the tenant filled out a portion of their application wrong and it gets kicked to the back of the line. Sometimes it is because after weeks of trying to get answers on the tenant’s file from various caseworkers they finally tell you that the tenant submitted to the wrong assistance program. The most recent excuse was that the manager assigned to releasing the funds was out on vacation so the $100,000 of approved applications would have to wait for them to return to be sent out. On a related note we currently have a full time corporate employee dedicated almost exclusively to dealing with assistance payments in our various markets.
Meanwhile, the properties obviously go on operating. Expenses related to the tenant occupying that unit build up and guess what, the utility company isn’t going to wait until the ERAP caseworker is back from their two week vacation to get paid. Unfortunately, this isn’t an isolated incident and although on the extreme side as far as total balances for one property, the reasoning for the delay in payment is consistent across the portfolio. It is like calling the DMV to collect on your resident payments.
The good news is we are seeing a downward trajectory on the trend of tenants needing to apply for any ERAP assistance. I am hopeful that we are in the midst of a last wave and that the expectation going forward is for that trend to continue the downward movement until stabilizing collections back at a more normalized figure. I am curious to hear if other operators are seeing the similar issues? Feel free to reach out to discuss and mention any tricks you are using to make the process more streamlined.