Has months of multifamily asset vacancy created a significant cash flow issue?
By Christina Simms; Contribution by Rick Burkhalter
Globe St.’s recent article, Apartment Market Deteriorating According to New Data, has brought to light that the unprecedented apartment growth in the multifamily industry may be coming to a halt, according to research recently done by Costar. While rent growth has seen exceptional increases, August saw the most deceleration in the past two years. A recent Wall Street Journal article, Rents Drop for the First Time in Two Years After Climbing to Records, reported rents that have precipitously risen in past years are now dropping in specific markets, and economists are saying the declines are likely to continue. Can you continue to ignore the underdog in your multifamily portfolio? Are other properties starting to see sluggish returns?
I think it’s pretty clear that the writing is on the wall. For the past two years, assets in many portfolios were humming along at 95% occupancy or better. Even during these unprecedented times of rising rents and higher occupancy, many Portfolio Managers still had that one underdog of a property, and its performance was often accepted due in part to the performance of the sister properties.
That level of complacency can be pretty expensive. Let’s say you have an apartment (for simplicity’s sake) with 100 units and an occupancy level of 80%, and the average rent is $1,250. Your property is bleeding 25K a month, 75k a quarter, leaving 20% of your apartments vacant for six months, costing you $150k in lost revenue. Vacant for a year? That’s $300k.
Perhaps you have considered selling the underdog. Recent increases in interest rates, coupled with a lower revenue stream, will discount your property further. Before you sell and they buy, prospects may want to see your property at a certain occupancy level first, and ownership will want the best return on investment.
If you already had a lackluster performing asset, going into the new year with the expectation that it will stay that way, along with the economic forecast for rental rates, will mean more loss in revenue. Where do you focus your efforts? Your leasing team. Here is what your leasing teams need to accomplish to elevate the underdog.
Despite the slowdown in fall and winter, leasing teams CAN produce any time of year.
If your leasing team has the following characteristics, they may be able to lease no matter the time of year; here’s how.
1. They are focused on leasing only. Traditionally leasing teams wear more hats than one. While expected to lease, leasing teams are responsible for ongoing management details like answering various maintenance requests, resident inquiries, rental payments, and outside vendors. When it comes down to a resident and a prospect, the resident almost always wins. With only so much bandwidth, the leasing agent will spend their day taking care of your current residents, which is essential, but any business development will fall by the wayside.
2. Have a sales mindset. Your leasing agent is a salesperson, so why are you hiring an administrator to do a salesperson’s job? Furthermore, why are you waiting for someone with multifamily experience? Start looking for ideal candidates who are recent graduates with business or marketing degrees or have a sales history and are looking to get into the multifamily business. Consider candidates from different aspects of the service industry. Salespersons (good ones) do not avoid engagement, understand the prospect’s needs and pain points, and use these as tools to help the future renter find an apartment with your property. And most importantly, they can close.
3. Training on the best techniques. If you had a great leasing training program in play, you could hire people from outside the industry with the skillsets to do the job; you only need to teach them the industry’s nuances. Many leasing teams often have little to no training, most of it on the job. This uncertainty can leave them stunned, disillusioned, and disappointed. With no training, they feel less empowered to do their job well, have low performance and eventually quit.
4. They are motivated and supported. You expect your leasing staff to be available and motivated to speak to any prospect that comes through the door. Consider incentives for those that close, especially during non-peak seasons. Have team meetings to celebrate successes and share best practices. Slower times are great coaching times of the year, and sharpening skillsets keep them engaged. Adopt AI into your Martech/Salestech stack. These technologies help your teams engage with the prospect in many ways. Your community stays top of mind with prospects anywhere in the funnel, and your leasing teams continue to focus on your future residents who are ready to lease today.
Christina Simms is a Marketing Manager, and Rick Burkhalter is a General Manager for Sales Inc., a leading leasing marketing company helping multifamily property owners lease their properties faster.