The State of the Economy, The Consumer, and The Effects on Multifamily Investments

2021 is now well underway and as we head into the first anniversary of the COVID-19 pandemic, we at Arcan think that this is a good time to reflect on the state of the economy and what we think the near-term future holds. Hard as it is to believe today, most people had not heard of COVID-19 at this time last year. When the pandemic did strike the U.S., most of us thought that it would be short-term economic blip and we would all go back to normal within a few weeks at most. Clearly, this would not be the case. Only now, however, can we start to see some of the economic trends that have emerged. Many are not what we imagined them to be when the virus first hit.

In addition to looking at economic data in the aggregate, we believe that informed investors will also pay close attention to the performance of distinct sectors, regions, and consumers. Perhaps the most interesting dynamic is that of the consumer. While we have written on the burgeoning stratification of workers previously (see discussion on that topic in our prior post), the American consumer remains, generally, in good shape. This is somewhat surprising given the historic job losses over the past year, but it does reflect a potential for strong growth once the virus is under control.

For multifamily assets specifically, the continuing stratification of workers will play a meaningful role in determining which properties perform well and which do not. We continue to see Class C assets struggling with collections and rent growth. These properties tend to cater to tenants who work in retail, hospitality, and other public-facing jobs. However, many consumers who live in Class A and Class B properties are actually sitting on substantially more cash reserves than pre-pandemic. This bodes very well not only for overall near-term economic performance, but it indicates that most will continue to pay their rent and it could lead to increasing rents as well.

2020 GDP and Where We Are Today

In the spring of 2020, most observers predicted a sharp economic contraction followed by either a “V”, “U”, or “L”-shaped recovery. The road back has been more complicated (i). The economy contracted sharply in Q2, followed by a significant “snap-back” in Q3 and strong growth in Q4. Q4 growth could arguably have been stronger, but many states and localities reimposed lockdowns of their economies in November and December (ii). End of 2020 Nominal GDP was $21.48 trillion compared to $21.74 trillion at the end of 2019 (iii). Thus, the economy has regained much of its losses, but it has not yet reached its 2019 high. The pace of growth has also slowed considerably, though this was to be expected. Moreover, while GDP growth did bounce back to a large degree, major stratifications opened between sectors and different types of workers. Restaurants, for example, continue to struggle mightily while many tech firms are reporting record profits (iv).

As we head further into 2021 and beyond, we expect the pace of economic growth to subside and return to recent historic averages in the 2-3% range. This is barring any unforeseen negative externalities related to the virus, such as a vaccine-resistant variant emerging. Unfortunately, the virus does remain a major risk factor and will continue to do so until far more of the population is inoculated. Given the recent ramp-up in vaccinations, however, we are hopeful that the economy will continue to emerge from lockdowns and resemble its pre-pandemic form by the end of 2021, if not sooner. The reduction in COVID-19 cases and hospitalizations should lead to increased consumer confidence and continued economic growth in 2021 and 2022.

Longer term, there are increasing worries about the federal debt-GDP ratio as well as individual firms overleveraging on cheap debt. However, with interest rates likely to stay at or near their current levels until at least 2023, these concerns may remain muted. Arcan believes, however, that these longer-term risk factors must be considered when looking at multifamily investment opportunities, particularly as this monetary stimulus substantially raises the risk of inflation.

The State of Today’s Consumer

One of the most interesting developments over the past year has been the incredible degree to which Americans are saving their money. The personal savings rate surged to unprecedented highs in 2020, with over $1.4 trillion saved in the first nine months of the year alone (v). This amount was double the total savings over the same period in 2019. While the savings rate has come down substantially off its highs from the spring, it remains elevated relative to its historical average. Americans are sitting on vast sums of saved money, much of which is expected to be spent later this year as the COVID-19 situation is brought under control.

The savings rate has remained elevated for a variety of reasons, including the effect of consumer perceptions of safety as well as government lockdowns. Consumers have shunned certain types of businesses and most states and municipalities have either closed bars, restaurants and music venues wholesale or severely limited their capacity. Spending at these businesses has declined precipitously during the pandemic. While much of this spending has shifted to goods, consumers have saved more than in prior periods.

An additional factor in the increase in the savings rate is fiscal stimulus from the U.S. government. As of February 22, 2021, Congress has passed two distinct rounds of fiscal stimulus directed at the consumer. While the policy merits of such stimulus can be debated, there is no question that many Americans have used this additional cash to either save or pay down debt, presumably leaving them in better fiscal health. As the pandemic is brought under control and the service sectors of the economy begin to re-open, the consumer is surprisingly very healthy.

Effect on Multifamily

Overall, consumer spending represents roughly 2/3 of U.S. economic output, thus the increasingly sunny consumer outlook bodes very well for the economy and is one of the primary reasons the fourth quarter of 2020 was so strong. Indeed, Q1 GDP projections have increased sharply as economists factor in the surprising strength of the American consumer. The Atlanta Fed, for example, revised its Q1 GDP forecast from 4.5% growth to 9.5% growth within the span of a week (vi). As the pandemic subsides, we are likely to see a surge in demand for certain goods and services, specifically those tied to hospitality. In turn, this should prompt additional hiring in these sectors and continue the cycle of growth.

Multifamily stands to benefit greatly from the strength of the consumer. The increase in the savings rate and the renewed economic growth could potentially translate to higher rents in the near to medium term. Many cities, particularly those in dense, heavily-taxed states have seen outflow of population and corresponding rent decreases during the pandemic. Conversely, cities both large and small in the Sunbelt have generally experienced population growth and rising rents as well. This trend is likely to continue post-pandemic, though rents are likely to bounce back in gateway cities such as New York and San Francisco.

Arcan focuses exclusively on the Southeast, thus we are increasingly confident that well-located properties in our region will not only continue to outperform those in other regions, but the pent-up demand and increase in consumer savings could lead some renters to look for more premium product in the next few years. As such, we think that there may be some additional market rent increases in select markets. However, as monetary stimulus continues to inflate asset values, the need to be a strategic investor is ever more important as the turnaround in pricing can always come sooner than expected. And while most consumers are in excellent shape today, inflation can quickly erode any savings power they may have attained over the past year.

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(i) “This is how the global economy will recover from COVID-19, according to CEOs”. September 22, 2020. World Economic Forum. “https://www.weforum.org/agenda/2020/09/covid19-recovery-shape-economy-ceo/

(ii) Grace Hauck and Chris Woodyward “New Coronavirus Restrictions: Here’s What Your State Is Doing To Combat Rising Cases and Deaths. November 13, 2020. USA Today https://www.usatoday.com/story/news/nation/2020/11/13/covid-restrictions-state-list-orders-lockdowns/3761230001/

(iii) Economic Indicators. Moody’s Analytics. https://www.economy.com/united-states/nominal-gross-domestic-product

(iv) Annie Palmer. “Amazon reports first $100 billion quarter following holiday and pandemic shopping surge”. February 2, 2021. CNBC. https://www.cnbc.com/2021/02/02/amazon-amzn-earnings-q4-2020.html

(v) Josh Mitchell. U.S. Household Income, Savings Rose at End of Last Year. January 29, 2021. The Wall Street Journal. https://www.wsj.com/articles/consumer-spending-personal-income-coronavirus-december-2020-11611873351

(vi) Federal Reserve Bank of Atlanta. GDPNow. https://www.frbatlanta.org/cqer/research/gdpnow

Arcan Capital Multifamily Update: The New Normal

Much to the dismay of all Americans, the COVID-19 pandemic has continued throughout the summer months. The case count in the United States has climbed to over 5 million before the end of summer and the ongoing nature of the disease is beginning to make the crisis feel more like a new normal than a temporary crisis. This new normal is also being felt in the multifamily business. Social distancing remains in place and nearly all properties have adopted a new way to operate which minimizes in-person interaction where possible and includes new signage and rules for amenities and common areas. While property operations have successfully made the ”COVID” adjustment, the capital markets have not. An enormous amount of capital remains on the sidelines as sellers and buyers are waiting for signs that jumping back in and transacting are the right move. While there is no consensus on exactly where we are and where we go from here, things are beginning to take shape. 

Transactions

Transaction volume across the country collapsed in the second quarter of 2020. By way of example, the Atlanta market had $2.6 billion in transactions in the fourth quarter of 2019. There were less than $500 million in transactions in the second quarter of 2020[1]. This represents the lowest transaction volume since the first quarter of 2012. Transaction volume bounced back in August of 2020 but Q3 volume is still on pace to be the slowest third quarter since 2014. Much of this was anticipated as the pandemic forced shutdowns across the country. In many respects, it is not possible to acquire apartments when shut down. There is simply no way to adequately perform physical diligence on a real estate asset without physically inspecting the property and that was almost impossible in the second quarter of 2020. A complex single question remains: how will the pandemic affect multifamily?

Valuation

The primary question Arcan is contemplating is: what are assets worth in today’s environment? In a normal market there are scores of sales one can use as competitive points for reference (“comps”). These sales essentially inform the value of other, similar properties. While every investor has a proprietary financial model they use to analyze a property, the basis for valuation, appraisal, and lending is competitive sales. When there are no comps, most people, investors, appraisers, and brokers included, are guessing. For professional investors, it is an educated guess based on lending rates and returns, but it is a guess, nonetheless. Thus far, investors are still willing to be aggressive but there is a tangible gap between what sellers want to receive and what buyers want to pay. 

Collections

Another key component of valuation is collections. If properties cannot collect rents and other charges, valuations will suffer as underwriting gets more conservative. Thus far, collections at apartment assets have been very good, all things considered. Nationally, collections increased in June and July (95.9% and 95.7%) from April and May (94.6% and 95.1%). The April to June 2020 average of 95.3% is below the 2019 figure of 96.7%[2], however. While the pandemic is the cause, the eviction moratorium is just as likely to blame and will likely has been extended beyond the initial August end date through the end of 2020. The Arcan portfolio remains approximately 95% collected throughout the pandemic, though the rates on certain properties are falling slightly each month. Non-paying tenants cannot be removed via eviction and there is now a backlog. Every month you have a few more tenants who are unwilling to pay rent and they now cannot be removed. In prior years, the non-paying tenants would be replaced by another with a far better likelihood of payment.

The Market

There are other metrics to consider in determining valuations, such as market factors that can dramatically change valuations. The first is rent growth. In the Atlanta market, rents fell dramatically in the initial stages of the pandemic. Arcan believes this was a mix of panic and lower traffic as properties fearfully tried to stay full during the uncertainty. While growth has been slow, market rents have recovered to pre-pandemic levels. Annual rent growth now stands at 3.3% in Atlanta since March and other markets have showed strength as well. Rents in Birmingham, Charlotte, Raleigh-Durham and almost every other major market in the Southeast that Arcan tracks are above those of one year ago[3]. That is an enormously powerful statistic, if it holds. Lenders are also back in the game even if less aggressive. While bridge loans are still slowly coming back, the agencies are very much helping the market with substantially lower rates. In many instances, Agency pricing is 100 Bps below rates from 1 year ago, often coming in at well below 3%. Even if prices remain the same, initial yields on investments will go up. This is a major factor in investors ability to keep paying all-time high prices.

The Way Forward

The final results of the pandemic are simply not in. The federal government is pumping money into the system via multiple rescue packages, so it is hard to know what will happen when the flow of free money stops. To date, renters have been paying (even if less than in prior years) and performance of multifamily assets has been good. It may turn out that multifamily assets are the ideal asset to hold given the current environment. Unlike other real estate like retail, hotel and office assets, people still need a place to sleep every night and apartments fill that need. However, cracks are beginning to form in collections. In markets Arcan tracks closely, a clear distinction can be made between properties that collect nearly all their revenue and others that struggle.

Investors are now jumping back in and new transactions are beginning to take shape. This will inform pricing as we move towards the end of 2020. As deals come to market, pricing expectations are all over the board. We do see some good opportunities, but others seem shockingly overpriced. For Arcan, the key to success is underwriting and experience. Some forget that the definition of value is not only what a buyer will pay, but also the present value of all future cash flows. Those whose expectations of rent and expenses are aggressive will ultimately pay the price with cash flow and an asset worth less than they planned. The days of underwriting a blanket collection loss for all assets are over for now as delinquency should be a key component of every acquisition. Arcan is very cautiously approaching investments as it does not feel as though the pain of the pandemic has been fully felt. While there are good investments out there, we feel more are coming and only time will reveal them to us.

[1] Multi-Family Capital Markets Report, Atlanta - GA - CoStar

[2] National Multifamily Housing Council, NMHC Rent Payment Tracker

[3] CoStar Market Analytics

The Pandemic-Era Labor Market and Its Effects on the Multifamily Real Estate Market

Since the onset of the COVID-19 pandemic, the labor market has been a hot topic amongst economists, policymakers, business owners and, of course, workers themselves. Seemingly overnight, the virus and subsequent public health response transformed one of the best labor markets in U.S. history into one of the worst. U.S. unemployment declined to 3.5% in February 2020. By April, it had peaked at 14.7% (i). Starting in mid-March, many workers, particularly those in hospitality and travel, lost their jobs as consumers dramatically pulled back spending amidst the lockdowns. By August, the unemployment numbers had improved to 8.4% (ii). While this is clearly an improvement, the job market still must recover millions of jobs to return to its pre-pandemic level.

As the labor market situation continues to unfold, clear trends have begun to emerge. While the initial economic recovery outpaced expectations, it has begun to slow down in recent weeks. The same is true of the labor market, as weekly new unemployment claims remain stubbornly above 850,000 (iii). There is also now a clearer picture of which industries and workers have suffered the most. Due to the dramatically uneven recovery, the state of the labor market has significant implications for multifamily real estate operators and investors.

Sectors and Workers are Becoming Increasingly Stratified

Upon examination of the data, it immediately becomes clear that certain sectors have been hit substantially harder than others. For example, from March-August 2020, leisure and hospitality has shed over 4.1 million jobs, or 24.5% of the total in that sector. The financial sector, on the other hand, lost only 191,000 jobs, or 2.2% of the total over that same time period (iv). Overall, it has become apparent that higher-wage workers who are able to effectively work from home have a significantly better employment outlook than those in service industries who rely on in-person interactions to do their jobs. Moreover, those in professional positions tend to out-earn their service industry peers (v).

This phenomenon is leading to an increasingly divergent outcome for workers in different parts of the economy. This is amply demonstrated by looking at employment data for college graduates vs. those with a high school degree only. As of January 2020, the unemployment rate for college graduates was 2% and for high school only it was 3.8%. By August 2020, the unemployment rate for college graduates had risen to 5.3%, but the high school only rate was a whopping 9.8% (vi). Thus, the unemployment differential between the two groups rose from 1.8% to 4.5% in eight short months.

As the recovery continues, this divergence in fortunes will persist until the public health situation improves and consumers feel more comfortable travelling, eating out, and engaging in other activities that require interpersonal interaction. That is likely to be months, if not a few years. Many non-college graduates work in the service sector where job creation will likely remain subdued for the foreseeable future. Moreover, many employers and economists had expected the job losses to be temporary as the general expectation was that COVID-19 would recede fairly quickly. As the public health threat and slower-than-hoped-for economic recovery have continued throughout the summer, however, some of those job losses previously thought to be temporary have become permanent. This will further hamper the recovery for lower-wage workers.

The Labor Market Divergence Has Meaningful Implications for Real Estate

As it pertains to multifamily properties, these diverging fortunes in employment directly affect a tenant’s ability to pay in-place rents, as well as his/her tolerance for rent increases. In the Southeast, which is Arcan Capital’s region of focus, we believe that most Class A and many upper-level Class B properties have tenants with professional occupations. With a few exceptions, they should continue to have the financial resources to remain current on their rents. Therefore, we would expect collections on these types of properties to remain relatively stable or decrease slightly. This is particularly true of well-located properties with a diverse tenant base. Higher quality assets in Arcan’s portfolio have remained quite durable and some of them did not have a single delinquency in August.

As for rent increases, we believe that the slowing economic recovery and, to some degree, the recent, dramatic increase in home sales will have a downward effect on rents. Rather than see continued rent increases, most properties and markets should see flat or slightly declining rents over the next 12 months. There are some interesting outliers, however, as we believe that certain well-located Class B assets could continue to see selective rent increases as cost-conscious tenants move down from Class A properties. Indeed, some markets, such as Atlanta, have seen rent increases on Class B properties during the pandemic (vii).

Overall, the labor market is telling a much more complex story than the headlines might suggest. While certain segments of the population are feeling tremendous pain, others appear to be somewhat insulated. For multifamily owners and operators, this means that success will hinge on tight investment selection criteria, careful underwriting, intensive management, and paying close attention to data and labor market trends.

(i) Kochhar, Rahesh. “Unemployment rose higher in three months of COVID-19 than it did in two years of the Great Recession”, June 11, 2020, Pew Research Center https://www.pewresearch.org/fact-tank/2020/06/11/unemployment-rose-higher-in-three-months-of-covid-19-than-it-did-in-two-years-of-the-great-recession/#:~:text=The%20Great%20Recession%2C%20which%20officially,Center%20analysis%20of%20government%20data.

(ii) U.S. Bureau of Labor Statistics https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm

(iii) Ip, Greg. “A Surprisingly Durable Economy Faces Tougher Tests,” The Wall Street Journal. September 9, 2020. https://www.wsj.com/articles/a-surprisingly-durable-recovery-faces-tougher-tests-11599662594

(iv) U.S. Bureau of Labor Statistics https://www.bls.gov/charts/employment-situation/employment-by-industry-monthly-changes.htm

(v) U.S. Bureau of Labor Statistics https://www.bls.gov/oes/current/oes_nat.htm#00-0000

(vi) U.S. Bureau of Labor Statistics https://www.bls.gov/web/empsit/cpseea05.pdf

(vii) Tenenbaum, Sam; Kahn, David. “Workforce Housing Withstands the Worst of the Pandemic”, September 2, 2020, CoStar Insights https://product.costar.com/home/news/shared/383663251?utm_source=newsletter&utm_medium=email&utm_campaign=personalized&utm_content=p5

Arcan Capital Update: Early April Results and the COVID-19 Effect on Our Properties

The COVID-19 pandemic continues to wreak havoc on our way of life in the United States and around the world. As the novel coronavirus makes its way through a locked-down populace, the U.S. has experienced a sharp reduction in economic activity, with many economists projecting a 30-35% drop in GDP in Q2 alone. Moreover, over 10 million new jobless claims have been filed since mid-March. While the total impact of the pandemic will not be known for months, there has been widespread concern regarding the performance of apartment properties as of April 1st due to the dramatically higher unemployment numbers. As such, we wanted to share with you the initial results from our properties. Over the past few days, Arcan Capital has compiled the collections results from its assets and compared them to the previous months prior to COVID-19. The results are different than what you might expect.

Collections

With regard to collections, Arcan took a proactive approach and moved to incentivize early payments in the wake of the pandemic. Among the steps we took was to offer discounted rent for tenants who paid early. The results have been quite positive. Collections across our properties through the end of the day on April 5th remained ahead of the same period for March and February by 13% and 28%, respectively. As of this writing, Arcan has collected over 70% of total rent due for the month of April.

Leasing and Move-in Activity

Leasing and move-in activity across our portfolio have also been better than expected, though it is down from 2019. For the year-over-year period from March 1 through April 5, move-ins and applications are down by 13.6% and 12.9%, respectively. Move-ins during this period represent an annualized tenant replacement of over 46%. Historically, that is enough to replace all move outs in normal market conditions. While traffic is down 19.9%, we see this as a big victory considering these extraordinary circumstances; it would not be unreasonable to see this metric fall by 50% or more. It is also pertinent to note that our unit count changed during this period, but we adjusted our metrics to ensure that the analysis is statistically accurate.

Looking Forward

In our view, the story of April collections was always going to be about how challenging it would be to collect the last dollar, not the first. The reason for this is that at every property there is a solid base of residents who predictably pay rent on-time, every month. In our portfolio, we believe that percentage is about 75% of our residents. The remaining 25% struggle every month to make their rent payments and the real question is: what percentage of the challenged 25% eventually pay? The next few weeks will tell this important story.

Conclusion

While many were predicting collections and traffic in the apartment business would fall precipitously in early April, that has not been the case so far for Arcan. Activity has certainly slowed, but we can clearly see that people are still actively leasing and paying their rent. While the economic environment has clearly deteriorated due to the COVID-19 pandemic, we are encouraged by these early results. It is important to note, however, that each property and portfolio is different. Arcan Capital owns and manages assets that would rank between a high C and low A on the quality scale. A portfolio entirely composed of C-quality assets is likely to have worse results. A portfolio of entirely A class assets would likely have performed better. While our numbers are obviously preliminary, the results from our properties so far give us hope that overall performance in April will be better than many predicted.

THE IMPACT OF COVID-19 ON MULTIFAMILY REAL ESTATE

Dear Arcan Investors, Partners and Friends,

Earlier this month, life as we know it changed immeasurably. The worldwide spread of COVID-19 and its full effect on our nation and the world remains uncertain, as does its effect on our business. As the principals of Arcan Capital, we wanted to take this time to discuss the current situation and the steps we are taking to confront these new challenges with our investors, partners and friends. Arcan Capital’s mission is: create exceptional returns for investors by providing exceptional homes for residents. Now, more than ever, we take that mission seriously as the pandemic creates uncertainty for our investors and makes homes, our residents’ private refuge, even more valuable than ever.

As the virus made its way into our markets, we quickly adjusted our operations. As a manager of people’s homes, however, we cannot simply close-up shop as some other firms are doing. Prior to the recent CDC guidance, we had already begun planning for how to best respect social distancing while also maintaining our day-to-day operations.  We now require residents, staff and vendors to communicate virtually whenever possible. Work orders and payments can be submitted online and unit tours can be done without a single in-person interaction. These online systems were already in place and were once viewed as a trendy modern amenity; now they keep our business fully functional.

We are adjusting our collections methods to make it even easier for people to pay rent online without person-to-person interaction. We are also adjusting our renewal process, making it easier for current tenants to renew leases and stay in their homes. The President recently announced his recommendation to suspend evictions and foreclosures through the end of April. Many of the markets in which we operate had already taken this step. We anticipate that these delays could last even longer as people get back on their feet and local governments remain reluctant to remove tenants due to non-payment. This is our greatest exposure and it has the potential to make the enforcement of collections difficult. We are responding by finding creative ways to incentivize and work with our residents like we never have before. Heading into the next few weeks, our goal is to maintain and increase occupancy and avoid move-outs whenever we can.  In this regard, we are closely monitoring rental rates and conditions in every submarket and we are making quick decisions about whether and how much to adjust rates. 

Despite the economic impact from COVID-19, our long-term belief in real estate investing is unchanged. Real estate has been and remains a great investment. One of the many reasons we prefer it over other assets is the tangible nature of the investment. While equities and fixed income investments are viewed on a screen, ownership of apartment properties includes the literal dirt and everything permanently affixed to it. You can see it and touch it. We remind ourselves that each piece of real estate is, by definition, unique. When the financial markets fluctuate, we are secure in knowing that we own land and buildings that are people’s homes.  As the population continues to grow, and as the meaning of home becomes even more important, we believe that our investments will remain stable assets that generate positive cash flow over the long-term. Historically, multifamily real estate has been a great asset to own in turbulent economic times and we think it will be now as well.

As uncertain as the near-term future may be, we want to remind everyone of the ability of the United States to bounce back. It was only 12 years ago that we feared the entire system was crumbling beneath our feet. There will be many doomsday pundits scaring investors with talk of 25% vacant properties and remaining residents unable or unwilling to pay their rent. It’s instructive to remember that we have been in challenging economic periods before and made it through. Indeed, we can look to the actual results of the last recession to illustrate our point. During the Great Recession of 2008, average rents in Atlanta fell from a high of $948 to $896, a total drop of only 5.5% (average Atlanta rent is $1,267 today). Vacancy climbed from 8.5% to a maximum of 10.6% (8.9% today). These figures represent arguably the worst downturn of a generation. Moreover, that financial crisis was in large part caused by real estate. We therefore believe that it’s easy to overestimate the downside of our current predicament. It is critical to remember that the real pain of the Great Recession was overleveraging and the subsequent instability of the foundation of financial markets. The financial industry, as a whole, is far healthier and more stable today. Additionally, the fundamentals behind our business were strong headed into this pandemic and we expect them to be strong coming out of it as well.

While the precise black swan event of a worldwide pandemic was a surprise to us all, for over a year now Arcan has repeatedly predicted that distress would befall the markets in 2020. As such, we have been actively planning and preparing for a recession and corresponding market correction. We want to remind everyone that although unfortunate, market distress creates opportunity. Indeed, this is precisely why we have been raising a fund to help investors capitalize on a pullback or correction in the market. While it is much easier said than done, on the investment side, we try to act as Warren Buffett advises and to “be greedy only when others are fearful.” As fear takes hold in the market, Arcan will remain ready to take advantage of opportunities. On the personal side, Arcan is doing everything it can to help our residents, employees and others during these difficult times. We will remain a calm employer, investor, manager and advisor. Our only advice to our friends is to do the same. We will continue to closely monitor every aspect of the market and report back as events unfold and the near-term future becomes more clear.

As always, if you have any thoughts, questions or ideas, please feel free to contact any or all of us. We wish you and your families the best.

In good health,

The Principals of Arcan Capital:

Steve O’Brien, Jeremy Lantz, Shauna Lantz, Carrie O’Brien & Andrew Lorber