AS RENTS FELL AND CONCESSIONS rose across the apartment industry in 2008 and 2009, apartment owners and managers took a defensive, hunker-down approach. They kept heads in beds and slashed expenses.
“Last year, it was expenses, expenses, expenses,” says Cris Sullivan, senior vice president for property operations at Atlanta- based owner/operator Gables Residential. “We’ve all kind of bled the stone.”
Now, as the apartment market begins to turn, the focus isn’t just on cutting expenses. “There really are no more expenses to be cut,” Sullivan says. “In many cases, there are things to be added because a lot was just deferred. Although we continue to be mindful of expenses, the focus this year is on [boosting] revenue and other income.”
In a way, 2010 is a delicate balancing act of how to increase revenue and maintain net operating income (NOI), while continuing to hold expenses. “Our focus this year has been making sure that all of our ducks are in a row as things start to swing up,” Sullivan says. “They’re not swinging high, but they’re swinging.”
Here are three strategies to help boost revenue, enhance NOI, and control costs— all in order to generate more cash at the property level.
1. Push Rents
Like many companies, Gables wants its on-site personnel to start pushing rents. But Sullivan realizes that’s often easier said than done. “It’s one thing at an upper [management] level to say now we’re going to focus on revenue, and we’re not going to waive fees,” she says. “But the leasing agent doesn’t even know how to do that.”
That’s because Sullivan says a lot of Gables’ younger leasing agents haven’t worked in an environment where the market wasn’t in a decline and they could actually push rents. So this year, the firm implemented new training programs to teach leasing agents the basics: How do I sit down and negotiate a renewal? How do I not waive an application fee? How do I close a lease when there are less expensive apartment units down the block?
Along with retraining, Sullivan says the best way to get leasing staff to increase rents is to offer incentives and recently launched bonus programs offering agents rewards for pushing rents, eliminating concessions, and/or enforcing application fees.
2. Find Ancillary Income
As the economic climate improves and residents are willing to spend more money on extras, multifamily firms are able to increase on-site revenue by charging for ancillary services including utilities, pest control, trash service, and even prime parking. Steve T. Lamberti, chief operating offi cer of Dallas-based The Milestone Group and president of Milestone Management, says he’s still finding limited places to get extra income, such as charging residents for pest control services. “Each year, you are seeing more pushing out to the clientele,” Lamberti says.
In the past, REITs such as Houstonbased Camden Property Trust and Birmingham, Ala.-based Colonial Property Trust have successfully boosted income by offering valet waste services, cable television, and even painting unit walls. Companies saw a slowdown due to the recession, but the services may be coming back, says Haendel St. Juste, an analyst with Keefe, Bruyette & Woods, an investment banking and security brokerage firm based in New York. “People were closely guarding their money,” he says. “Painting of the walls went away, but it’s starting to come back. It’s something owners found that could bring in some extra dollars because it doesn’t cost them too much to paint.”
In strong markets, residents are still willing to pay for anything from parking to laundry services. For example, in Alexandria, Va., Wellington, Fla.-based The Bainbridge Cos.’ Eaton Square property reached 97 percent occupancy after a renovation. “As a result of the high occupancy, parking has become a challenge, so the team has recently started leasing reserved parking spots [in our standard open parking lots] for $50 per month,” says Jared Miller, the firm’s vice president of marketing. “The property already has 20 people who have reserved spaces.”
Additionally, Miller says that at one property, monthly apartment cleaning services now yield $3,000 per month, while laundry services delivered to residents’ front doors result in an 8 percent commission. And then there’s video rental. “Onsite DVD rentals via a Red Box-type video rental machine provide ancillary income to the property,” Miller says.
Still, St. Juste wonders from what other places apartment owners can squeeze income. “Companies get heating reimbursements; and they get valet, waste, cable, and paint payments,” he says. “I’m not sure what else there is to do.”
3. Maintain Cost Controls
It all comes back to cost control. Like many firms, Dallas-based Riverstone Residential has taken all of the corporate steps to reduce on-site expenses. The firm went back to its vendors to renegotiate service contracts with reduced prices, and it unbundled services. At the property level, the firm continues to take a proactive approach, such as keeping its on-site inventory of supplies much lower than in previous years.
“We need to just be frugal as far as the way in which we’re operating our properties,” says Nancy Freeman, executive vice president handling Riverstone’s Southeastern region.
Riverstone has also gone to free Internet sites, social media, electronic newsletters, and paperless guest cards to cut advertising costs. And like Gables, the firm also is focused on training on-site staff. Specifically, Riverstone wants to raise their environmental consciousness and encourage them to use energy-efficient light bulbs as one way to cut costs.
Ultimately, pushing associates to reduce on-site energy bills may be the best remaining way to cut costs. “We’re pretty much done [cutting] on the expense side,” Lamberti says. “Our vendor base really grasped the problems we were having [and adjusted their expectations].”
And now, as the rental market slowly improves, vendors may circle back around and expect payment increases. “They’re saying, ”˜We got nothing in 2008 and saw flat to negative growth in 2009. We need some help in 2010, and here’s what we’re thinking in 2011,’” Lamberti says.
And, in many cases, Lamberti says he’s open to these discussions.
