For Apartment Buyers, Coronavirus Adds a New Wrinkle: No More Tours

The coronavirus is putting up a new hurdle for potential apartment investors: walk-through tours at properties they want to buy.

Tours of rentals are usually a key part of an investor’s due diligence process: right up there with inspecting rent rolls, reviewing trailing-12-month financial reports and doing deed searches.

It allows an acquisitions team to see how much, if any, unreported wear-and-tear in apartments may cost them in repairs and renovations down the line. Most investment shops have an investment committee that expects a thorough walk-through before laying down millions in cash for a property.

And the only way to do it correctly is to inspect a portion of units, both occupied and vacant.

That’s not possible in most major markets, where residents are practicing social distancing, and working – or nor working - from home. A money man with a clipboard is unlikely to be welcome inside these days.

“Tour activity is frozen for obvious reasons,” said Travis D’Amato, an apartment sales broker with Walker & Dunlop in Boston. “Which will likely just result in much longer marketing periods, with the hope that things get better sooner rather than later. “

Virtual tours seem to be the first solution to the problem. While many marketing campaigns for apartment properties being pitched to investors now include enhanced photos and 360-degree web-cam footage of common areas, amenities and model units, brokers expect the offerings to get more sophisticated during the coronavirus pandemic.

“CBRE is already working on technology for virtual tours; we have made this a priority to assist clients ASAP,” said the brokerage giant’s spokesman Aaron Richardson last week. “This will involve virtual tours that use action cameras to live stream high-quality footage with audio capabilities that would broadcast to a cellular phone or tablet device. A participant would be able to ask questions and dictate direction in real time.”

A longtime broker in metropolitan New York with several big apartments out to market said last week: “It’s all going to be virtual tours now.”

For industrial properties and office offerings, tours are less challenging. A new potential owner can walk an empty office building after hours or on a weekend. And webcam footage of an industrial property – four walls and a ceiling – is easier to rely on, say experts.

But some brokers worry that virtual tours won’t satisfy apartment acquisitions pros and their money men.

Another possible solution is to make greater use of escrow. Should a new buyer demand that some of the purchase price be put in an escrow account to be drawn down if unexpected, costly improvement are needed once they close?

“Yes, we think employing virtual tours and all kinds of other mechanisms to accommodate a challenging due diligence period are good ideas,” said Blake Okland, head of Newmark’s multifamily practice. “But one of the remedies that are likely to offset the suspended animation will be escrow.”

CoStar research will be coming out soon with its first quarter multi-family sales report, but expectations are that transactions will be down. The market may have already been headed in that direction, as many of the choicest, most desirable downtown core properties have already been snatched up and now is the time when buyers of smaller older, cheaper apartments tend to come to the fore.

Escrow and virtual tours may offer a solution to the problem investors will have with new apartment purchases. But maybe not.

It may be that buyers will hold their fire until they can get inside these properties.

CBRE’s Richardson said his company concedes the point.

“It remains to be seen whether it will be a substitute for an in-person inspection,” he said.