In 2016, the apartment industry will see the most new units delivered to the market since the post-recession cycle began around 2010. So much new product coming to the market could ultimately make switching properties an easy decision for unsatisfied residents.
And there's another change in housing choice that is tricky to combat—homeownership. These two aspects of the housing industry pose a threat to lease renewals for property managers across the country.
In 2016, New York will deliver three times the number of units seen in the past two years, adding more than 23,000 units compared with around 7,000 each year in 2015 and 2014. Houston will also see more than 20,000 new units this year, though with a less dramatic increase from previous years when approximately 15,000 new units were added to the market.
AMLI Management Co.’s Steve Hallsey knows these numbers, along with the number of units coming on line in other cities where the company operates apartments. That’s why the company is launching its “Staying Relevant” campaign.
Instead of assuming that the company just can’t compete against all the fancy features that come with a new building, AMLI looks at reasonable and affordable ways to upgrade the property and therefore stay an option on a resident’s radar.
“We’re not going to have all the bells and whistles of a new product, but [we say], what can we add that we can afford that would keep us relevant and in the discussion for a new resident?” asks Hallsey. “If you find those amenities and services that continue to make you relevant and in the discussion with a prospect, then I think you’re going to win more than you lose.”
A smart pricing strategy can also keep residents from moving to an often more expensive new option.
“The new properties being built are coming to market with pricing that is typically $150 to $200 per month higher than a property that we may have that is just a few years older, allowing the slightly older properties to maintain a pricing advantage and, at times, even drift off of these higher-priced neighbors,” says Mark Fogelman, President and CEO of Memphis, Tenn.-based Fogelman Management Group.
But, finding a strategy that’s not based on just price will do even more to set a property apart, since market-rate affordability isn’t the biggest concern that renters have, according to MPF Research. Residents will actually pay a premium to stay at an apartment that they enjoy based on other criteria, a reason that renewal rates recently hit 10-year records even as rents continued to climb.
“You don’t want to have the whole game played on price, and if price is the game, then we lose,” says Hallsey.
Unfortunately, there are some reasons residents move that are just out of the control of managers, and one of the rental industry’s biggest threats is home purchases.
Managers seem to be divided on whether efforts should be put toward convincing renters to wait on buying a home. Some managers are well aware that renters who want to transition into homeownership are going to leave.
“The people who can buy a home are just going to buy a home,” says Laurie Lyons, partner at Cardinal Group Management, a Denver-based firm that owns and manages apartment communities across the country. Hallsey agrees, and says more attention should be placed on the fewer residents who actually have the potential to renew.
“Part of the issue is that you’re not going to change the [person’s mind] who wants to buy a home, and you’re not going to change the guy whose job changes,” he says. “So the biggest things [to focus on] are ones that we believe we can impact and correct, and therefore have a better chance of renewal.”
Other companies think it’s possible to hang on to residents who are interested in buying but haven’t started house hunting just yet. HHHunt developed a program
called “Smart Choice” that helps residents see what the best option for them is when it comes to housing, and while it’s not meant to discourage ownership, the guide provides a breakdown of upkeep costs, property taxes, and down payments that in the end might make renters realize purchasing a home isn’t the right decision.
Companies, like HHHunt, that have their foot in both the rental and single-family home markets, find that the best way to retain residents—even the ones buying homes—is to focus on customer service and serve their customers during every stage of their lives. That way, even when residents want to change their housing type, they won’t want to change the company they’re getting it from.
HHHunt’s apartment division offers a 5% discount to customers who move into one of Hunt’s units while waiting to close on one of the firm’s single-family homes.
“Our diversity of product is very unique, and it’s good for us,” says Janet Riddlebarger, senior vice president at Blacksburg, Va.–based HHHunt Apartment Living, which manages apartment communities in Virginia, Maryland, and the Carolinas. “We recently had one of our team members meet a woman in a yoga class who said her daughter rents an apartment from us in Richmond, Va., and she loved our company so much that she’s ready to buy a home from us.”
For more ways to ramp up a retention strategy, read Multifamily Executive's full coverage the process here: