With a sizable portion of their portfolio in Southern California, one of the things that Palo Alto-based Essex Property Trust’s executives track is their properties’ proximity to major motion picture studios in Los Angeles.
That could be bad news right now with the industry’s writers and actors on strike, but so far it isn’t a major problem.
Jessica Anderson, Essex’s senior vice president of operations, assuaged analysts’ concerns about the Writers Guild of America strike by reporting that less than 1% of Essex’s Los Angeles properties are exposed to the studios, meaning the work stoppage that started in May isn’t having a major effect yet.
“At this point, we do not see it having a material impact on our portfolio,” Anderson said on the REIT’s second-quarter earnings call last month. “It would have to go on for some time. There may be specific property impact, but not to the larger portfolio as a whole.”
Other apartment companies doing business in Southern California are also reporting that they haven’t seen any vacancies or late payments tick up due to the strikes. But some wonder about the impact on rental housing if the strike lingers, especially in a market still recovering from the eviction moratorium.
A non-issue so far
When asked about the strike on his company’s Q2 earnings call, Mike Lacy, senior vice president of property operations with Highlands Ranch, Colorado-based UDR, pointed out that Los Angeles only accounted for about 3% or 3.5% of the REIT’s net operating income.
“This market feels pretty good to us today,” Lacy said. “[We’re] not really seeing a big difference in traffic. And I think we're in a good position as we move forward.”
Other companies operating in the area shared similar sentiments. Chicago-based REIT Equity Residential is still seeing healthy demand in Los Angeles, Chief Operating Officer Michael Manelis said on the company’s recent earnings call.
“We really just haven't seen any impact from the strikes and our on-site folks are telling us the overall direct exposure to it doesn’t seem to be significant,” Manelis said.
The REITs aren’t alone. Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles, told Multifamily Dive that his members have not seen any significant impact on rental payments as of yet.
“Both unions have strike funds to assist members who are in need,” Yukelson explained, “but if the strike continues for protracted periods of time, rental housing providers could see union members having difficulty paying rent.”
Magnifying other problems
Nevertheless, a prolonged work stoppage could lead to other issues, such as hurting local eateries and other businesses. “It really comes down to how long the strike is going to go on and if there's potentially a ripple effect to other industries,” Anderson said.
If the writers’ strike does continue, Yukelson foresees the issue compounding the ongoing financial struggles landlords have faced from unpaid rent over the last three years. A studio executive recently told Deadline magazine that the strike likely won’t end until writers start losing their apartments.
“This [would] only add to the disaster already being experienced by housing providers in Southern California … while costs [soar] under significant inflationary pressures and supply chain issues and labor,” Yukelson said.
After Los Angeles’s eviction moratorium expired in April, landlords have seen move-outs increase. For instance, EQR’s vacancy is 100 basis points below normal for this time of year in the LA market with long-time residents moving out earlier than the REIT anticipated, according to Manelis.
“We just think that if the strike is prolonged and keeps going on, it could just create a little bit of a pause in people's willingness to make decisions to move into a new place,” Manelis said. “And that could impact just the overall demand profile in the market.”
Despite the vacancy issues due to the eviction moratorium and the actors’ strike, EQR is still bullish on Los Angeles.
“We view both of these issues as isolated short-term impacts to the market as the strikes will end and delinquency will gradually resolve itself,” Manelis said.
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