At a time when occupancy has softened and rents have stagnated or dropped in most U.S. markets, apartment owners and managers are struggling to push every penny to the bottom line.
A few companies are benefiting from operations in metros where overall conditions have remained comparatively healthy, but the list of cities with still essentially full occupancy and rising rents is short. Strategic submarket positioning helps as does product niche concentration, though no company can offer the ideal product in the ideal location across an entire portfolio of communities. Looking beyond these market trends, individual company management and marketing skills are perhaps playing an underappreciated role in balance sheet tallies.
M/PF Research's quarterly survey of nearly 4 million apartment units across the United States shows large differences in occupancy and rent achievement for projects of similar age and quality within many neighborhoods. These are differences that can't be explained away by significant variation in property characteristics or location. And the fact that management companies achieving the strongest performances in one neighborhood often are writing similar success stories in other locations helps to emphasize the importance of management and marketing expertise.
Providing a snapshot of life in the leasing trenches across the country are the largest management companies active in Atlanta, one of the toughest markets to operate in at this point; Houston, where overall conditions are fairly similar to trends seen for the country as a whole; and San Diego, which ranks among the markets where occupancy and rent achievement are strongest nationwide.
Almost without exception, this analysis of performance by individual companies reveals that the apartment industry real estate investment trusts (REIT) tend to have notable management skills. In these three cities, REIT properties typically generate overall revenue – considering both occupancy and effective rent production – that is at least in line with the levels achieved by age-comparable, privately-owned projects in the same neighborhoods.
In most cases, REIT communities command slight revenue premiums, and in several instances, the REIT projects can charge significant revenue premiums. Because they are required to answer to investors and analysts every quarter, the REITs are clearly plugged into trends down to the neighborhood level and, for the most part, appear to be maximizing performance potential.
The analysis also suggests a home court advantage. A company tends to rank among the best performers in its home town, usually because a comparatively large share of the company's portfolio is located in that city. Plus, more attention is likely to be directed to the management and marketing efforts in the metro responsible for a big chunk of the company's revenue.