WHEN PEOPLE LOSE their jobs, they look for any way to cut costs. Since rent often forms the biggest monthly expense for these individuals, that's where many start. “People are wanting to consolidate their residences, lower their overhead, and move in with someone else because they've lost their job,” says Michael Stewart, CEO of Irvine, Calif.-based apartment owner Pacific Property Assets.
So, while cutting costs and employee satisfaction are important to property managers, neither matters if you don't have warm bodies, who pay their rent, in as many units as possible. Once residents move out, you not only have to invest in finding replacements, but also you lose precious cash flow. “Our overall philosophy in 2009 is keeping heads on beds,” says Christy Freeland, CEO of Dallas-based Riverstone Residential Group. “We have to make sure that we keep our current residents in place.”
To keep monthly rents flowing in, Stewart is trying a number of tactics. He's offering free premium cable TV service, which costs him $18 to $28 a unit per month, along with free laundry usage (limited to a certain number of loads per month), and he is considering providing discounted or free gym memberships. “Ideally, we look for something that is a ‘pay as you go' item,” he says. “We generally try to avoid front-loaded promotions such as a free VCR—where the tenant could potentially leave with the gift after only a few months.”
Freeland knows that her residents are pinching pennies, so she offers activities that allow them to save money. “People are tight on money,” she says. “They'd rather do something on-site. We're trying to figure out what we can do to make their life easier and better.”
Despite these perks, today's residents may have financial needs that run deeper. Free cable is nice, but it won't save enough to off set rent payments. In fact, if a family of three can live in a one-bedroom unit, that may alleviate the financial burden. As a result of this reality, Freeland is changing Riverstone's occupancy standards. In the past, Riverstone allowed only two adults plus an infant under 18 months in a one-bedroom unit. Now, it's allowing two adults and a child under 18 years in those same apartments. “That's allowed people to stay in place with their child and make ends' meet rather than move out,” she says.
In two-bedroom units, four adults and two children under 18 can inhabit a unit. “You're allowing people to double up,” Freeland says. “It might be a little more wear-and-tear on your apartment, but it's better than having an empty unit.”
In addition to ensuring current renters stay put, some owners are modifying how they sell and lease. David D. Fitch, president and CEO of Gables Residential in Atlanta, is shunning concessions in an attempt to convince both his employees and, most importantly, the firm's renters on market-to-market rents. That's no easy task, especially when apartment owners down the street offer two months of free rent.
“We're educating our prospects about the math—taking the total and dividing it over the entire lease, which is a smarter way for the renter to take advantage of the current market conditions,” he says.
Fitch's motivation for moving away from concessions illustrates why monthly cash flow is so critically important in these difficult times. “We think that in a decline, it will allow for a smoother, less volatile cash flow,” Fitch says.
In times of crisis, Chicago-based AMLI Residential CEO Greg Mutz thinks leaders should divide everything that comes at them into two categories: those things they can control and those they cannot. A CEO can't control stock prices, unemployment rates, and the global financial turmoil, for instance. But a CEO can control his property management platform, the company's culture, its focus on resident services, and customer satisfaction. That's in addition to the company's drive and commitment to execute and operate as a strong and successful team.
So Mutz, who says he has AMLI in a solid financial position for 2009, will focus on property management. He's investing in back-office technology with his Smart Office suite; generating quality Internet leads and sales (75 percent of leases are generated online and roughly 7 percent of AMLI residents rent without seeing their units); and creating more energy-efficient properties (he's sending around 20 associates to LEED courses). Now that's taking control where a CEO can.