Rising operating costs, coupled with years of weak rental demand in many markets, have put pressure on property managers to look for ways to help apartment owners who have been pinched by property expenses.
Fred W. Prassas, CPM, is president of Property Management Concepts, Ltd., in LaCrosse, Wis. He also serves as president of the Institute of Real Estate Management, which recently convened a meeting of 600 property managers to discuss critical issues facing the industry. Top issues included technology, declining profit margins and managing risk. Apartment Finance Today spoke with Prassas about what apartment owners and managers can do to control their operating costs.
Q What opportunities did your members identify for controlling operating expenses?
A Insurance is one of the largest expenses, and sometimes it’s perceived as being an uncontrollable expense. We’ve been working with our members to help them look at insurance more as a controllable expense and look for ways they can get discounts and reductions in premiums, and by shopping the market [for a new insurance provider]. A pretty good standard in the industry has long been that you should shop insurance every three or four years, and now it’s gotten to be pretty much an annual thing. Also, keep your claims down by having a good risk management program. … [Finally, though it] varies state by state, some management companies can pool insurance for a large group of properties and pass that discount on to the owners of the properties.
Another expense that continues to escalate rapidly is real estate taxes. Most people also consider it to be uncontrollable, but at the same time, you should have your taxes looked at every few years to make sure you’re not over assessed.
Q What role can technology play in controlling operating expenses?
A Part of it is by providing access to information – transparency for getting information to owners, so they can have more, better and faster access to data and use the same data that you’re working with on a daily basis. My own experience with clients has been, during the last five or six years, that clients have more and more interest in getting information on an immediate basis. Provide ways for them to get into your computer system, go on the Web and get the information.
Also, use technology to get rid of paper. I think we’ve finally reached the point – because there’s good data-storage techniques and technology – that you really can create some efficiencies by [handling] your documents electronically.
[Another role is] adding value, things like providing high-speed Internet access; this is now much more cost effective than it has been in the past. Properties are adding cafes and cyber centers with copiers and Internet access, which can add value.
From a corporate point of view, it’s a matter of whether you want to make technology in and of itself a part of the strategic vision of your company. If you want to have the best way to communicate with your clients, then technology is a cost-effective answer.
Another thing is responsiveness to tenants. You can use your Blackberrys and Treos for inspections and communicate with your maintenance staffs. Some companies don’t even use paper work orders. They get the work order on their handhelds, and they go out and complete the work.
Q Does technology have a different value depending on whether it is used at market-rate or affordable properties?
A It becomes a case of having the service that meets the needs of the particular types of tenants you are serving. One place I’ve seen where it was kind of [surprising] was a seniors property, where you think, “What would they want with Internet access?” But gosh, they’re some of the bigger users of Internet access. It’s not only a matter of different types of properties, but [technology use] can differ between two different properties [of the same type].
Q What do you say to owners who look to cut operating expenses by replacing experienced property management staff with cheaper, less-experienced staff?
A The way you differentiate yourself is with your track record showing that you can provide value for the company. The experience level of managers has proven itself out many times in terms of market knowledge and the ability to provide cost savings to owners. In a time when the management business is being looked at as a commodity, those are the things that constantly are a struggle, where the way management functions can really be a key to the operating success at all the other levels.