The average single-family home is over 40% more expensive than it was in 2019—driving more people to rent rather than buy. This makes it easy for many people to assume that despite the current economic downturn, multifamily property owners are recession-proof.
However, skyrocketing interest rates, stock market volatility, and high inflation have resulted in one of the most unstable housing markets in recent memory. The severity of rental increases nationwide, coupled with inflation and an impending recession, could leave many renters struggling to pay on time, if at all, which could in turn result in a higher rate of rent default and leave property owners with smaller net operating incomes.
Taking protective measures to stay ready for anything, even before things take a turn for the worst, can make all the difference.
Think Critically About Staffing
One way for operators to feel more stable is to scale and staff smarter. During recent periods of economic uncertainty, many people have changed how they view their jobs and the kind of position they want to hold.
Even prior to the pandemic, the National Apartment Association (NAA) reported that the property management industry had a turnover rate of 32.7%. Leasing agents are a property owner’s most valuable asset in an economic downturn, regardless of size. Ensure that you are getting more value out of each employee by investing more in those individuals, creating more opportunities for leadership, and providing visible and realistic long-term career trajectories.
Show your leasing agents the career path that will get them to leasing manager and then to regional property manager. Consider opportunities to move hourly employees into salaried positions, with a commensurate increase in responsibilities.
Get the people in the right seats that are aligned with their interests. While some people are “farmers” (property management) and some are “hunters” (sales/leasing), there are some people in the farmer roles who want to be in the hunters’ vertical and vice versa. This might require difficult conversations, but they are well worth it.
Economies of scale through talent-sharing across properties benefit both the staff and management. Figure out who wants to work remotely. Having a centralized team to handle certain tasks enables those who want to work remotely to do so, and to also increase their areas of responsibility and prospects for promotion. With the right systems in place, the same leasing agent can make commission off of three times the number of units they did in the past.
Don’t rest on your laurels. Fine-tune responsibilities by roles, and review consistently to continue to optimize.
Use the Technology at Your Disposal
The NAA and AppFolio surveyed property managers in October 2021 and found that 62.8% of respondents named “operational efficiencies” as one of their top three challenges, which included finding quality vendors, freeing up teams from labor-intensive processes, and reducing costs. The fact is, labor-intensive processes, like dealing with delinquencies, defaults, and vacancies, increase during periods of recession.
Many of the fintech, insurtech, and proptech solutions that property operators implemented amid the pandemic scramble have stuck. These solutions, including leveraging proprietary technology to offer rent guarantees that protect properties in case of lost rent, will continue to be useful during the next economic downturn.
In addition, security deposit replacement options provide renters with a better leasing experience, which in turn increases lease conversions and keeps occupancy high. Several companies in the space also offer helpful rent collection platforms and even automated conflict resolution, so operators have many tools at their disposal.
Prioritize Innovation and Empathy
Operators are getting savvier about implementing payment plans, making it easier to prevent someone from ever needing to be evicted. Start asking how your company can streamline renter default—where can your company offer residents options to get back on track?
Find a way to help mitigate renter default from the outset by working hand in hand with renters who are delinquent or by enlisting a company to assist in navigating renter default scenarios. Property managers should be prepared to make necessary innovations in how they deal with outlying market factors impacting formerly dependable renters versus traditional eviction situations.
The bottom line is to take action before a recession occurs: Think about where the market could go, bolster your company’s technology, consider restructuring, and plan empathetically. Waiting until the eve of a recession to find a Band-Aid for lost NOI is simply too late.