Urban areas are 'the biggest concern' in the real estate recovery, here's why young people may save it

Ivan Kaufman, Arbor Realty Trust CEO, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the road to recovery for the real estate industry, what categories are 'winning' during this time, arising trends, and much more.

Video Transcript

BRIAN SOZZI: The escape to the suburbs continues. Home prices are skyrocketing as families look to move to the suburbs during the coronavirus pandemic. Moreover, your active listings and pending home sales have also increased.

Here to discuss that more is the CEO of Arbor Realty Trust, Ivan Kaufman. Ivan, good to see you this morning. So how has the shift from urban to rural markets impacted your business?

IVAN KAUFMAN: So there's no question about it. If you go to New York City, or San Francisco, or to some of these other cities, they're vacant. Not a lot of people on the streets. And several years ago, it absolutely accelerated, and people are moving out of the city very rapidly.

Has a lot to do with family formation as well, right? The millennials have late family formation. They lived in the urban areas. They began to shift. And now that shift has clearly accelerated-- the data that we're seeing on home sales and price appreciation and the amount of time a home is being listed. I think homes are being listed for almost less than two weeks, and the asking price is met 99% of the time.

There's a lack of inventory. And the demand is great. That might slow a little bit, because initially, people moved very, very quickly. So we'll see what's in store for the next couple of months.

ALEXIS CHRISTOFOROUS: Ivan, most of your business, most of your portfolio-- something like 80% is in multifamily units. How has the pandemic impacted demand for those units?

IVAN KAUFMAN: So I say there are a lot of winners and losers with COVID and definitely our company, Arbor Realty Trust, as well as the multifamily asset class, is one of the winners. Initially, there was a huge fear factor-- would people be able to pay their rents? The CARES Act, as we know, is a great opportunity for many of the people, and it provided an enormous amount of money for them to be able to pay their primary bills-- their rent, their mortgages, their food, and all their basic stuff. That has changed a little bit. But on the multifamily side, only a slight drop-off in rent collections and occupancy. So that asset class has outperformed all other asset classes.

BRIAN SOZZI: Ivan, there has been no more stimulus, and it's unclear when or if it will come. Do you fear that people will just get forced out of their homes and that your business is impacted by that?

IVAN KAUFMAN: No, we're not we're not seeing that at all. We're seeing a little bit of a drop-off. People did very well initially. They caught up with their bills. They kept their rents current. And initially, you got to keep in mind, unemployment was 14%. It's 8%. It's improving a little bit.

It's really the urban areas that are getting hit most. And that's where we have the greatest level of concern. But our baseline on people paying rent is extraordinarily good. We can absorb a little bit of softness. And hopefully--

Fall is going to be really bumpy. But I think the baseline of where we're at is a good baseline. It's almost at a zero baseline.

So for a couple of months, it'll be a little touch and go. But overall, I think people are paying their rents. Maybe not all of it, partially. But things are beginning to return to normal in all areas except the urban areas.

ALEXIS CHRISTOFOROUS: Ivan, isn't this really cyclical? I mean, we've seen with other challenging times throughout history, you know, there are times when cities are in vogue. There are times when suburbs are in vogue.

Right now, it's one of those times where people are leaving cities. There's an exodus there. But isn't it just a matter of time before the opposite happens? Or do you think this really is a seismic shift?

IVAN KAUFMAN: So I happen to agree with you. Things are cyclical and you have to look at the macro trends. And the macro trend was already in place. People were beginning to leave the city. So it's been a little bit accelerated.

But remember, young people love to be in the cities. And young people will continue to move back to the cities. What's really making the situation worse is people going back to school. If the universities don't open, kids don't come back. They don't come back to the city.

But I would look at the world a little differently. I wouldn't look at it in the next couple of months. I would look at where are we going to be a year from now. Is the city going to return to normal a year from now? Are universities going to be open? Are restaurants going to be open? Are people going to be working back in the city? And I think most people would say in a year from now, it'll be 90% to 95% back to normal.

So in the interim period, which is not a long-term outlook, it's going to be bumpy. It's going to be a very bumpy fall. But I think the worst is behind us. If you go back to the last time I was on your show in April, that was a scary period of time. Nobody knew where the bottom was. Nobody knew what was happening.

Now we can roll the clock forward and say in a year from now, we're going to approach a high level of normalcy. And it'll be a gradual climb up with a couple of setbacks here and there. But all in all, we're in good shape.

But people have to go back to school sooner or later. Too many industries that are affected by it. And that's a key thing for us to look at in the urban areas.