Apartment pros poised to keep increasing rents in 2013 stress that presentation, as well as product and service, are critical to raising rents in the right way.
That means educating existing residents about the costs to move, and even the alternatives they have to your property, while keeping common areas and other amenities sparklingly enticing.
Nicholas Dunlap, vice president of Fullerton, Calif.–based Dunlap Property Group, is aiming for a 5 percent increase in rents for 2013 across his 1,000-unit portfolio. To Dunlap, the main point to get across when selling a rent increase is simply to outline where it’s coming from.
“It amazes me to see the landlords that take the ‘throw the stone and hide the hand’ approach to rental increases,” Dunlap says. “We make it a point to share with our residents some of the rising costs we’re facing: utility increases and the new taxes and fees associated with owning and operating a multifamily property. We explain that we shoulder the burden as best we can and only pass through a little of it. We let them know where we are relative to our comps. We’ve found our residents appreciate the transparency.”
Many operators are still cautiously optimistic about their ability to push rents going forward, even though many temper that enthusiasm by emphasizing a need to return to the core fundamentals—superior customer service, continued maintenance, upgrades to common areas and amenities, and an intimate knowledge of your submarket and comps.
“Rent increases are still best accepted by residents where there is visible evidence of continuous improvements and upgrades at the property,” says Barbara Gaffen, co-CEO of Northbrook, Ill.–based Prime Property Investors (PPI), which runs 3,500 student housing beds on six campuses nationally, and 508 conventional units in the Chicago area, and has seen 22 percent rent growth since 2010.
The firm is projecting continued growth of 3 percent to 4 percent in 2013. “You’ve got to keep on top of your common areas, building exteriors, and amenities, as well as pay attention to what you’ve got in your individual units,” Gaffen remarks.
Even if you do all that this year, though, residents may still bolt. MPF’s Greg Willett emphasizes that while demand should remain strong, resident behavior will start to change from the stay-put attitude of recent years.
“We are entering this phase of the cycle where people are just going to move a lot more than they have been,” says Willett, vice president of research and analysis at the firm. “Some are going to move to the newer product that’s come [on line]; some are going to head down to something more affordable because of the rent growth we’ve seen; and the for-sale sector is coming back to life as well.”
As competition increases, you’ll have to keep working to keep your residents from going elsewhere, whether to their own home or to someone else’s apartment community. That means keeping exteriors looking sharp and giving residents a reason to stay.
“Every year, we invest millions of dollars into our properties by painting exteriors, replacing roofs, sealing and striping parking lots, and adding desired amenities,” says Kevin Finkel, executive vice president at Philadelphia-based Resource Real Estate, which is projecting 5 percent rent growth across its 24,000-unit portfolio in 2013. “Our No. 1 priority is to provide our residents with well-maintained, safe homes.”
Germane to running and maintaining your properties in a professional manner, of course, is keeping a close eye on your comps. A push to raise rents based on projected demographic trends without keeping fundamentals in mind isn’t what running apartments is about.
“No matter what the market is like, you still have to constantly monitor vacancy, turnover, and rent growth,” says Ken McElroy, author of The ABC’s of Real Estate Investing and principal of Scottsdale, Ariz.–based MC Cos., which runs 8,000 units. “If you push out a resident over a $10 rent increase, then you have made a bad business decision, but if it’s $100, it may be a good one, if your vacancy is low. There’s no one-size-fits-all answer.”
Contributing editor Joe Bousquin is based in Sacramento, Calif.