Company Updates

In Economic Downturns, A Centralized Approach Benefits Everyone

March 2, 2023
Rowland Hobbs
CEO, Co-founder

It’s no secret that the current economic cycle is an unfavorable one for debt financing.

2020 and 2021 saw some aggressive acquisitions in the rental market. During the early pandemic, the multifamily sector “appeared impenetrable to macroeconomics,” according to Commercial Observer.

But those owners who financed in the early years of the pandemic will soon be facing a new reality. In the next few years, a record amount of loans will be maturing. If higher mortgage rates continue, owners will need to increase rents, or else lose money – or even their properties – come refinancing time.

So during unfavorable economic cycles, what can owners do to keep themselves afloat?

During downturns, owners face few good options

In cycles like these, owners may feel they have few good options – or, more accurately, two bad options. Do they dip into their own capital to get ahead of this problem? This is less than ideal. Do they bring in new capital for their properties? This could potentially result in plummeted returns on their investment.

The risks here are high, including loss of properties entirely. But owners may feel stuck, without next steps that seem viable.

Market changes impact everyone

The macroeconomics of real estate are constantly changing. All owners need to stay mindful of increasing their net operating income and remaining nimble. But larger real estate groups are more easily able to survive economic downturns.

Smaller, less connected owners and operators, on the other hand, are less likely to be able to weather storms like the one we’re currently experiencing. They are, on the whole, less well-connected in the debt financing industry, less able to increase rents, and more likely to need to abandon properties when they can’t meet the requirements needed to refinance.

Renters need financial empowerment

Meanwhile, renters are struggling to make payments on time, which can keep them in a cycle of rent burden, delinquency, and financial disempowerment. There's a difference between a “renter” and a “resident, and in unfavorable economic cycles, more renters will fall into the former category. This is a problem for owners: when renters don’t reliably pay rent on time, and when they fail to retain residents, owners struggle to stay afloat, especially during unfavorable economic cycles.

Finding a centralized approach

A centralized approach provides a solution, one that takes into account the needs of both owners and renters and aligns incentives between them.

Because Stake improves renters’ financial health with credit building, Cash Back, and other incentives, renters become more motivated to sign leases, pay rent on time, and renew – transforming them into long-term, reliable “residents.”

This aligns with the needs of owners. It keeps owners from falling back on unfavorable options – like dipping into their own capital or bringing in new capital, lowering the value and return on their properties. It presents a game-changer for smaller owners who are struggling to refinance by increasing the performance of each of their properties. And because potential renters always want to see that an owner is investing in the financial wellness of residents, it allows properties to stand out in a crowded and competitive rental market.

The real estate market is always changing. The dramatic swing between the early pandemic multifamily boom and today’s debt financing reality is a perfect example. But Stake’s centralized approach stays the same. Especially in times of economic downturn, a centralized approach can benefit everyone – by increasing the performance of properties, empowering renters, and keeping owners not only surviving, but thriving.

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