Smart Property Management Strategies
Multifamily property owners can implement these ideas to cut costs and improve returns.
You’re pretty sure you’ve priced the asset correctly.
You’ve looked at comparable apartment communities for sale in the market.
You’ve figured the sales price in dollars per unit and dollars per square foot
and both seem to be right. Yet for some reason, when you apply a capitalization
rate to the net operating income, you get a lower value. Does this sound
Many reasons account for value discrepancies, but as the
multifamily sector continues to consolidate in most markets, some
small-property owners may be missing out on economies of scale that allow
larger competitors to run properties more efficiently. The resulting higher
expenses cause lower net operating incomes, and consequently, the market prices
calculated using cap rates are lower than those of comparable properties.
The days of simply collecting rent and making sure the
grass is cut are long gone for today’s multifamily owners and managers.
Competing effectively requires more skills and knowledge than in the past,
especially for small-property owners. Some of today’s savvier owners are
improving bottom lines by leveraging technology and other resources. They are discovering
that what works for the big players can work for them with a few modifications.
Commercial real estate professionals can use these
strategies to help prospective multifamily sellers implement operating changes
to command higher sales prices; they also can highlight these potential cost
savings to buyers. On the flip side, brokers representing buyers should look
closely at a seller’s operating expenses. The opportunity to make changes can
help clients boost NOI and increase a property’s value after purchase.
Where the Money Goes
Nationwide, multifamily property owners spend about 9.4
percent of their gross potential income on payroll. It is the single biggest
expense, followed by real estate taxes at 7.1 percent and maintenance and
repairs at 4.6 percent, according to the Institute for Real Estate Management’s
income/expense analysis. These three cost areas combined account for 21.1
percent of GPI. However, as an industry, multifamily properties run at expense
ratios of about 45 percent; so payroll, taxes, and maintenance account for
about half of all expenses.
Technology is the one factor that has most influenced
property management in recent years and offers the greatest money-saving
potential. Options ranging from online tenant payment records to selling
integrated cable and telephone services are creating cost-reducing
opportunities and greater profit potential. Small-property owners can leverage
such features and manage their businesses more efficiently.
Not only is payroll the single biggest operating expense,
but staffing on-site offices is an ongoing challenge for many small-property
owners. A property staffed too lightly risks losing potential renters who
cannot wait while one harried staff person fields phone calls and deliveries.
It also risks annoying current, rent-paying residents who stop by on their way
to work to resolve problems or request repairs. Today no one has the time to
wait for service or attention.
Web-based property management applications offer
solutions to these problems. For example, RealPage, which calls its platform
OneSite, provides a module that is particularly attractive for small-property
owners. The service forwards unanswered leasing office calls to an off-site
RealPage provider. Since the property’s management staff uses the OneSite
system to update prices, upcoming vacancies, and rentals, the off-site team has
Web-based computer access to the most recent information and can answer
callers’ questions about leasing, availability, and the property’s features.
The off-site team also can log maintenance calls, and in
emergencies, contact maintenance personnel. In addition, OneSite and other
programs can dispatch logged maintenance calls directly to a repair
technician’s personal digital assistant, shortening the time between request
and action. For example, a resident calls in a request, and the maintenance
technician just happens to be finishing a job in the apartment next door.
Thirty seconds later, the resident gets a knock on the door and the minor
repair is completed within a few minutes. That’s using technology to improve
Software can track the time a particular work order was
started, how long it took to complete, what parts were used (to track
inventory), and if the resident needs to be billed for the work. Large
properties also use this information to analyze how quickly various personnel
complete tasks, which may reveal a more-efficient division of duties.
Web-based call monitoring is another useful technology
tool, since many potential renters receive a first impression of an apartment
property over the phone. At any time, owners and managers can monitor these
calls to assess the quality of information being given. The system can help
them determine if leasing consultants are promoting the community properly and
creating an image that encourages prospects to visit.
This valuable tool also allows managers and the leasing
staff to analyze how (and when) calls come in, which helps determine staffing
needs. Companies such as CallSource can forward these calls in e-mail
attachments to improve marketing analysis by tracking lead-generation sources.
Call monitoring also helps to ensure that staff responses comply with
Real Estate Taxes
Many markets have experienced significant property value
increases, meaning that real estate taxes also are rising. But since it is a
major expense category, taxes are always worth discussing with a tax appeal
expert, even if the resulting savings is only a few thousand dollars.
While most assessment appeal companies work on a
percentage basis, sometimes it makes more sense to negotiate a fixed fee,
according to Mark C. Ogier, CPM, senior vice president of property management
for ContraVest, an upscale apartment developer and owner in Lake Mary, Fla. For
example, if a property is overassessed by a million dollars, an appeal might
result in a savings of $25,000 or more — 20 percent to 30 percent of which
might be paid to the tax appeal analyst. Depending upon the market and property
size, an owner may be able to find a tax expert to handle the process for a
fixed rate ranging from $2,500 to $5,000.
In addition, tax appeal experts often are aware of
little-known local loopholes. For instance, several years ago after a property
suffered significant vacancy loss, a tax specialist pointed out that even
though the appeal deadline had passed, in that particular county the deadline
does not apply to properties overassessed by more than 25 percent. Therefore,
the owner still had reason to appeal the assessment.
Another tax appeal approach is to understand which
factors diminish a property’s value. For example, nearby contaminated gas
stations or dry cleaners can discourage potential buyers, thus diminishing
value. Similarly, if a property lacks a pool or other amenities or the units
are undersized compared to the competition, these factors may reduce the
property’s value and tax burden.
Being aware of cap rates and how class A properties sell
compared to class B and C properties is another factor to consider. Sometimes
tax assessors might look at a 100-unit class B property and raise the value to
50 percent of what the nearby 200-unit class A property sold for last year. It
is important to point out that there are economies of scale involved in
managing 200 units compared to 100 units and that class A properties are
selling at cap rates that are significantly lower than class B or C properties.
In some markets, a significant number of apartments are
being converted to condominiums. Conversion developers are paying more for
these units, taking on greater risk and reaping higher rewards than
conventional apartment investors. This is another factor for a tax assessor to
consider when valuing a property.
Source: Joseph DeCarlo, CCIM, CPM
Maintenance and Repairs
Steve Jankowski, CPM, president of Massachusetts-based
Gatehouse Management, is a big proponent of saving money through preventative
maintenance. “A solid preventative maintenance program extends the life of
major mechanical machinery,” Jankowski says. There’s also a big payoff if you
“invest in the equipment to perform maintenance in-house, such as augers and
pressure washers, rather than using outside vendors.”
No expense is too small to examine as companies such as
Gatehouse, which owns more than 5,000 units in Florida, Massachusetts, and
Rhode Island, look to implement cost-saving strategies throughout their
portfolio. For example, by using wood thresholds to separate bedrooms from
hallways, sometimes carpeting can be replaced only in the smaller,
more-traveled hallway and not the adjacent, less-worn bedrooms.
As certain industries become more competitive, Jankowski
says it’s worthwhile to re-bid contracts once a year or more, particularly for
pest control, fire-safety inspections, and alarm monitoring.
Frequent training and continuing education also can be a
big savings. The value of getting maintenance personnel certified to clean
pools or retrieve Freon from a compressor usually pays for itself. Not only do
classes expose employees to new ideas and technologies, but they give these
professionals the chance to network and share ideas about how to do their jobs
better, vendors to use (or avoid), and work-related situations they may
Several organizations including IREM (www.irem.org) offer
comprehensive designation and certification programs for multifamily industry
Other Ways to Save
The potential for saving — or making — money exists in
other property management areas. It may require an initial investment in
software or other types of technology, but owners and managers should consider
the long-term benefits. Determining when to change focus or introduce new
procedures can make a big difference in the bottom line.
Online advertising. Once print advertising, such as
apartment guides, was considered the primary venue for attracting new renters.
Today, more owners are finding a higher payback in online advertising. Typical
renter demographics include a large number of technologically oriented 20- to
35-year-olds. The Internet is a better way to reach this group. In addition, it
gives prospects access at any time of day and lets prospects retrieve more
information than by telephone or in a printed directory.
Even small properties should have a Web site where
callers can see property pictures, layout, and unit floor plans and learn about
the community’s features. It also can be set up for renters to submit
maintenance requests to the office and even to pay rent online.
To assist in attracting Web site traffic, owners can buy
easy-to-remember domain names. For a property in Phoenix, for example,
PhoenixApartments.com is probably already registered, but something similar
such as MyPhoenixApartment.com may be available. The Web site address should be
on all literature and advertising including front entrance signs to catch
To ensure control of the domain name, register it
directly rather than through a Web site designer, who may later claim some
ownership of the name. Several companies, such as GoDaddy.com, offer
registration for less than $10 per year.
Submetering. Many properties have switched from including
water and sewer in the rent to having residents pay these charges. One study
found that overall usage decreased by almost 30 percent when residents pay
water and sewer charges directly. There are several ways to do this. The
easiest method is ratio-#llocated utility billing systems, or RUBS, which
simply is allocation of the monthly bill. Slightly more complicated is hot
water allocation, which involves estimating each apartment’s usage based on how
much hot water they use.
The most involved but also the most accurate method of
billing is direct submetering. Owners should conduct more detailed analyses of
these methods before making changes. In addition they should check local laws
as submetering is prohibited by some local ordinances.
Profit producers. Miscellaneous income is gaining more
attention from owners because it is usually pure profit. This can include
contracting for phone/Internet/cable services, computer and printer usage,
faxes, copies, door-side garbage pickup, notary services, package delivery and
mailing, and even dog walking. Polling tenants to see what services they want
may be a good starting point for discovering new profit centers.
properties offer a wide range of opportunities for investors of all sizes in
both large and small markets. While large property owners and managers often
benefit from economies of scale, small-property owners can implement similar
cost-saving strategies to retain their assets’ value and remain competitive in
the marketplace. By leveraging technology and other systems, commercial real
estate professionals can help to improve properties’ value in this very active