By Derek Loda, Jake & Gino Student since 2019
There is a vast array of uncertainty in the world right now, and it’s affects are wide ranging. From the stock market going on another roller-coaster ride, to soaring unemployment, our lives are now forced to adapt to the ‘new normal,’ or more appropriately, abnormal. Just a few months ago we were at the peak of a market cycle. It was near impossible to acquire a multifamily property for decent terms. There was so much reliance on the forced upside through ‘value-add opportunities,’ in fact, a C class deal I had looked at traded at a 4.6% CAP in a secondary market. There was so much money available from lenders, and they were happy to put it to work. Fast forward to today, Fannie Mae is requiring 6-18 months of reserves depending on leverage and market. Needless to say, a lot has changed, and it will change again. The big questions are: When, and by how much?
We have been through recessions before, but this is new territory: A pandemic led to our government shutting down all business deemed ‘non-essential.’ How is this going to affect our workplaces moving forward? What about how we live, both what we prioritize in a home and what we do for leisure? Having some foresight to notice trends early on can create an immense opportunity to provide high demand amenities and increased profitability from your apartment communities. Here are three areas that I believe will create opportunity:
Shift to ‘Work From Home”
We will see in the months to come how much businesses will have to cut back on expenses and readjust their practices moving forward. I anticipate that there will be a shift that leads to more companies allowing a certain percentage of their workforce to work from home. Of course, there are many facets to making those decisions, such as: who is best suited for such a role, how to manage data security remotely, and how drastic of a shift can be made without risking productivity.
Could a company shift 25% of its workforce to working from home either partial week, or full time and in turn, cut the amount of office space they have to lease by the proportionate 25%? If a company is leasing a 10,000 square foot space at $15/sf per year, that 25% reduction equals $37,500. Substantial enough to consider such a move, imagine how quickly that adds up across the board for a company that employs hundreds or thousands of employees. But how does this relate to multifamily apartment communities? I see two primary areas where you can capitalize: amenities, and in-unit office space.
Do you have large one-bedroom units where you can have a semi-separated office space, or have built in office spaces that can be advertised in a way to create added demand from prospective residents that now find themselves working from home? Perhaps you have some two-bedroom units where the second bedroom is smaller, and it has been tougher to rent out in the past. Now you can advertise as an executive style unit and have added appeal to a group that find themselves needing a dedicated office.
The other area of opportunity is the obsolete ‘fitness center’ that is not used frequently by residents. Can you transition that into four, six, or more offices that can be leased to residents so they have a space dedicated for them that is not in their unit, as some will want a space that is separated because like many, they are easily distracted. Now you have taken a space that is not best suited for your residents, and created an added benefit to your community, while also generating added income.
Stand Out Service and Communication
Now more than ever, people are taking notice of how companies treat their employees and customers alike. It is not difficult to take care of your residents, build rapport, while maintaining profitability. I would even argue that by having stand out service and providing a higher quality of living, you will be more profitable due to the increased demand for your product. As Jake Stenziano says, “I want to be the Chick-fil-A of apartments.” For those of you that have been, think about the guest experience at Chick-fil-A. I know I’ve been there at peak lunch hour with a drive thru line wrapped around the building that you would assume would lead to a 30-minute wait or more, but they are so prompt and efficient that it takes ten minutes from start to finish. Being quick to respond is not the only key, it’s the level of service and interaction with the employees that makes it a great experience. Even when they are serving 300 orders per hour, they let you know that it is “their pleasure to serve you,” and employees are actively attentive to serve your needs.
Enough about a fast food franchise, how does this relate to multifamily? Be quick to respond to resident’s needs, both current and prospective. Someone is inquiring about living at your community, be active in fulfilling their need for information. Perhaps a current resident has an issue with their unit, it doesn’t mean that your maintenance staff has to drop everything for a non-emergency issue, but have a line of communication with the resident so they know the timeline for resolving the issue. Let your residents know that you are happy to assist them and provide a place that they are proud to call home. Engage with your residents: perhaps keep track of birthdays and send them cards, get in tune with what is important to them, make sure to let them know that you do pay attention to their lives and care about their well-being. By engaging with your residents and taking care of the property, they are more likely to take care of you by being a good resident.
Community Within Your Communities
People want to enjoy where they live, it is not a novel concept. If your residents feel safe, are in a convenient location, and are treated with respect from their neighbors and staff, they will be more likely to want to remain a resident at that community. How can you create an environment that will instill a sense of community within your apartment complex? Do you put on cookie-cutter community events and just hope that you get an ample turnout, or could you work on a method to put on events that best suit your residents? By having conversations with them, understanding their priorities, what they enjoy doing in their free time, and so on, you can have a better grasp of what they are looking for moving forward. Imagine having a community that interacts with one another, both at management organized events and those set up by the residents. Contrary to what you may think, I believe that the Covid-19 shutdowns have created a heightened desire for personal interaction. We’ve been hiding behind screens for years, but once told are we have to, we have suddenly realized how much we do actually want a personal interaction. Of course, you want to ensure that you are doing so in a manner that allows your residents to feel safe.
If you can come out of this and address items that best achieve your residents needs and create a true sense of community, you can be better suited to reduce your turnover and the expense that comes with it. What would reducing your turnover rate from 50% (the rough national average) down to 40% or less do to your bottom line? My guess is that it will produce a result you will love, both now with cashflow, and in the future valuation for a refinance or sale.
Opportunity lies ahead, what are you going to do to thrive moving forward?