While the recession has chipped away at the balance sheets of many multifamily firms, it’s also presented opportunities to cut down on some costs.
As the recession hits vendors, contractors, and white-collar professionals alike, multifamily firms are now saving big bucks by renegotiating contracts on the fly. “We’ve found that, for once, the shoe is finally on the other foot,” says David Messenger, CFO of Highlands Ranch, Colo.-based UDR.
Here's a look at three rules that are helping multifamily firms do take advantage of current market conditions.
1. Analyze all of your contracts and compare them to current market rates.
“Whether it’s the suppliers or contract services from landscapers to security personnel, you have to make sure it’s competitive in today’s marketplace,” says Clay DeMara, CFO of Phoenix, Ariz.-based Mark-Taylor Residential.
Mark-Taylor has reaped the biggest savings from rebidding contracts for routine capital improvements on its properties. “A lot of subcontractors are doing everything they can to cut their costs to make people pull the trigger, whether it’s a roofing project or painting,” DeMara says. “But we’re definitely seeing it on service-oriented jobs, too, like cleaning or landscaping.”
2. Make sure you’ve got the ability to terminate the contract.
Alliance Residential has achieved its biggest savings by rebidding all of its current construction contracts. The company has 3,000 units currently under construction—in Portland, Ore.; Phoenix, Ariz.; Hollywood, Calif.; Denver; Atlanta; and Houston—all of which were financed in 2007 or early 2008.
“The purchasing power has really shifted to the owners,” says Jay Hiemenz, CFO of Phoenix, Ariz.-based Alliance Residential. “Our biggest opportunity was seeing that we could rebid out all of our construction contracts, even if it was stuff that was already contracted and under construction.”
The company has seen savings of as much as 25 percent on some of its construction contracts, especially in the hardest-hit markets. “We have a deal that finished recently in Las Vegas that was probably a $5 million or $6 million savings,” Hiemenz says.
3. Don’t limit your efforts to construction, maintenance, and service-oriented jobs.
Many white-collar professionals are also desperate to keep business flowing, according to Dennis Steen, CFO of Houston-based Camden. “The last couple of quarters, everything’s up for negotiations,” Steen says. The company has seen significant savings in renegotiating contracts with accountants and lawyers."
Another area ripe for cost-savings is in grieving property taxes, one of the biggest debits on a company’s balance sheet. Since apartment property valuations have fallen by 20 percent or more nationally over the last year, firms are doing everything they can to see similar drops in their tax bill. “We’re working diligently with country tax appraisers to ensure that real estate taxes don’t get out of line or go up significantly at a time of declining asset values,” says UDR’s Messenger.
That sentiment is echoed by DeMara, who says that Mark-Taylor is currently challenging the tax assessments of nearly its entire portfolio, all of which are located in the hard-hit Phoenix, Ariz., metro.