Increasing value by smart management

With the nationwide average vacancy rate at a three-year low of about 5.8% (see page 22), apartment owners and managers are likely to be eager to realize some increased income after several years of high vacancies and widespread concessions.

Apartment operations expert Jennifer Nevitt Casey believes improving the skills and mindsets of property managers can increase a property’s value by more than $10,000 per unit a year. Apartment Finance Today spoke with Casey to learn more about how multifamily companies can increase their bottom lines by improving their front offices.

Casey, a popular speaker, writer and trainer, is CEO of Bravo Strategic Marketing, Inc., a national consulting firm focused on investment strategies for real estate portfolios. She also co-founded YieldStar Technology, a yield-management software program that was bought by RealPage.

Q How are property managers’ jobs likely to change as their local markets move from weak rental markets to strong ones?

A They must adapt their daily focus to supply-and-demand review and income growth activities.

Their demand review will be their traffic report for the day. A traffic report for the apartment industry today has a summary of inbound calls, [Internet marketing] leads, and walk-in traffic. The current review of that could also be what types of apartment homes were requested by that traffic.

Say you’ve got 10 available three-bedrooms, but you have had zero traffic. That should say immediately – that day – to the property managers that they need to do an ad where they showcase those three-bedroom apartments. They should adapt their print ad to showcase a certain type of apartment when they analyze their traffic and realize they’re not getting any interest in that type of unit.

Q What are the top indications that the market has improved?

A Increased walk-in traffic counts, fewer days [that] inventory is available in the market [and] thus lower percentages of availability.

Q Is there anything that is a false indicator – something managers look at for signs of market movement that aren’t good indicators?

A Let’s say there is an apartment with a certain address – let’s call it 1023. When you look at that apartment on your availability report, it shows that it sat vacant for 67 days. In addition to that, it had been on notice for a period of time, so it’s really the on-notice period plus those 67 days – it’s really 97 days we’ve had it available for rent. Someone might say, “The market is not improving; I’ve had this apartment on the market for 97 days. How can you tell me I should raise the rent on this type of apartment?”

When you look at a one-off address, and you look at the circumstances of apartment 1023 … what you might find is that apartment was rented three different times by people who canceled. [The fact that it is still available] can be related to our performance as property managers.

Q How much do you suggest people base pricing moves on what they see their competition do, and how much can they do on their own?

A Philosophically, I believe that rents are market driven. As long as a property is absorbing rent increases and still renting apartments, I don’t focus on my competition. Like the great UCLA basketball coach John Wooden, I focus on the skill of my team. Wooden would never watch a film from the other team. He said, “I don’t need to see those films. I need to make sure my team is focusing on its game and that its game is the best it can play.”

What I have found is that when you’re raising rents, if you are focusing on your team’s ability to sell the rent increase on lease renewals, to increase the rents on your current available vacants and on notice, and you’re coaching them every day on increasing their skill sets, at the end of the day you don’t need to be focused on what the competition is going to do.

[I have proved] several times in my career that well-trained property managers can raise their property’s value by approximately $3 million to $5 million per year – given the training and income-increasing tools needed to understand how to do it. In that example, I’m assuming $1-a-foot rents on a 300-unit property that’s a B+ grade.

Q What’s the biggest mistake a manager can make with regards to pricing in an improving market?

A Make emotional decisions and live in fear instead of removing their human prejudice and analyzing the facts.

As an industry, for 40 years we have focused our Monday reporting on the importance of physical occupancy. So property managers throughout the country live in fear that on Monday, their physical occupancy will fall below a set standard. Especially those property managers who work for public companies.

If you look at basic real estate investment theory, economic occupancy is the driving factor to how well we’re doing financially.

So the biggest mistake that I see when I go in and coach a team is that they’re so caught up in the physical occupancy and the ramifications of dropping below 94%, that I have to refocus them on economic occupancy.

Q What’s the single best thing they can do?

A Refine their leadership style to become an income coach in addition to a property manager.