Anyone who believes that top leaders only focus on the big picture apparently hasn't spent much time with property management executives. These people may oversee the operations for a 20,000-unit portfolio across multiple states, but they can also tell you down to the dollar what their electricity bill is for a vacant apartment.
That type of mental database comes in quite useful in today's apartment market, where costs rise while rents stagnate. No wonder expense control has become a top agenda item in property management. “Rent growth is the main driver in this industry and will continue to be our number-one priority, but expenses are right behind that,” says A. David Lynd, COO of The Lynd Co., a San Antonio, Texas-based firm that manages roughly 21,000 apartments. “Those two things together are what create your bottom line.”
Here, Lynd and two other multifamily executives—Steve Heimler of Stratus Real Estate in Woodland Hills, Calif., and James Kjolhede of Archon Residential Management in Irving, Texas—share strategies for controlling expenses.
What are your largest cost centers?
JAMES KJOLHEDE, COO, Archon Residential Management: Payroll and utilities, which although they are listed as uncontrollable, I think they absolutely are [controllable]. There are three ways we look to manage that [cost]: We bill back what's legally and ethically allowed; we [control] consumption through energy-efficient lighting and [water] flow restrictors; and wherever we can [such as in states with utility deregulation], we pay less for energy and gas. Out of all the utilities you pay—electricity, gas, water, trash—which is the easiest to control? Which has the greatest opportunity for savings? STEVE HEIMLER, president, Stratus Real Estate: We focus on water usage, and I think we've come up with a magical system. We put our larger communities on a maintenance team incentive plan [based on] utilities savings. This was by me personally meeting an asset manager—a once-a-year meeting—in Nevada [at a property with almost 40 acres of lawn]. We were sitting in a clubhouse on a rainy day, and the sprinklers came on. The asset manager said, “Steve, you've got to come up with a way to solve this.” So we [established] a program where the maintenance team got 20 percent of the year-over-year savings. Suddenly, the sprinklers weren't coming on when it was raining, and the photocells were replaced as soon as they broke. Between electricity and water, that team saved almost $28,000 and created nearly a $5,000 bonus [for themselves].
KJOLHEDE: We look at electricity. We bill back 80 percent of our water consumption, so we're not quite as motivated [to look for cost savings there] from a cash-flow standpoint. Our electricity is almost all common area, and our assets are typically 1970s and 1980s vintage, so they've got a lot of incandescent lighting, which is very inefficient from a consumption standpoint as well as a [brightness] standpoint. So we've retained a company that changes out the bulbs, replacing them with high-pressure sodium and fluorescent lighting. This reduces energy consumption significantly and usually has a 12- to 18-month pay-back, cash on cash. You buy it below the line and your consumption reduction is above the line, so therefore [this investment] grows your property's value as well. Plus, you've got less labor involved with changing bulbs. ... That helps your maintenance team focus on more revenue-generating tasks, such as turning units.
What savings have you seen? KJOLHEDE: You typically see an 18 percent reduction in electricity usage in the first year.
A. DAVID LYND, COO, The Lynd Co.: One area where we've definitely seen some savings relates to vacant [apartments'] electric costs. We came up with a plan where every Friday, properties are divided into zones and each [on-site] employee is required to walk the vacant units in their zone and sign that all lights, utilities, and breakers were turned off unless they are working in the unit at the time. We got our vendors to agree that if they left a utility running in an apartment, we would deduct that charge from their service call. We saw about a 25 percent reduction in our vacant electric bills after we implemented this. ... The average bill went from $25 a month to $10 to $15 per month.
KJOLHEDE: We have our water rebilling company pay the bills and have them tell us what the cost-per-vacant-day is [per property]. Then we rank the entire company based on that [statistic]. ... If you're at the bottom, it doesn't mean you're bad, but you might want to give someone at the number-one property a call to see what they do to make them better.
HEIMLER: We also verify that the resident put the utilities in his or her name the day he or she took occupancy. I think this [resulted in] a 15 percent savings just by going back and verifying that utilities went on at the right time [in the right resident's name].