Asset Management: Ensuring Operational Excellence - Part 2

In the second part of the asset management series, we will cover Operational Excellence and how asset managers can ensure properties are operating best-in-class. 

Most operators refer to occupancy, collections and NOI as the vital Key Performance Indicators (KPIs) of a multifamily property. While these are good KPIs at a high level, they do not help identify root causes when they are not meeting expectations. Thus, it is important to monitor more action-oriented KPIs that will help manage and pivot the business. 

Running the day-to-day operations of a multifamily property boils down to 3 main areas of focus: Leasing, Retention and Maintenance. We will cover each of these areas and provide KPIs that asset managers should have a pulse on. 

Leasing:

Leasing is arguably one of the most important elements of running a multifamily property. It is the front door sales channel that ultimately enables the property to create a recurring revenue stream. The following are key areas of the leasing function:

• Marketing: There should be a defined marketing strategy per property that outlines how it will attract tenants, where it will advertise online, what resident referral / locator bonuses it will provide, etc. 
• Traffic: Commonly referred to as “leads” or “prospects” by on-site staff. It is very important to understand the actual source of traffic (e.g. online, drive-by, referrals, etc.) so that the marketing efforts can be evaluated and adjusted. Too often, management companies focus on total traffic versus breaking down the traffic per source, which provides more meaningful data.
• Closing: Marketing efforts should drive traffic, which should lead to closed leases. Managers must understand the ratio of leases signed per traffic source and move-in per traffic source. This will help identify whether the property really needs people to physically tour a unit or whether the virtual tours will suffice. It can also help identify where you have a property specific issue (poor maintenance, no units ready, too high rents, bad leasing agent, etc.) if there is a lot of physical traffic but the closing ratio is low. 
• Rents: Having competitive rents is crucial to be able to lease units. Site staff should be doing regular market surveys where they get an idea of how competitors are renting. Timing of unit renovations and rent increases is also important as seasonality can come into play. If certain aged units are sitting for a long time, it could indicate a lack of demand or that rents are too high, thus requiring concessions to get them leased.
• Reviews: In an online world, reputation management is very important as most prospects will read reviews before visiting properties. Management needs to be monitoring and replying to reviews consistently and looking for issues that need to be resolved. A property’s online reputation is often the only chance to make a good first impression in today’s digital world. 

Retention:

After we have attained a resident, we want to ensure that we can retain them for long periods of time. Residents that stay at the property, pay on-time and continue to renew leases results in lower turnover/marketing costs at the property and help increase NOI, which helps drive value. Key areas of focus include:

• Renewals: In 2019, the apartment industry had a 53% renewal rate per CBRE. Owners should be tracking lease expiration's and renewals percentages in 30-90 day increments to see where there may be high exposure and alter course, as needed. 
• Move Outs: Residents are required to provide notice to vacate if they plan on moving out at the end of their lease term. It’s very important for management to understand the rationale as it could identify potential problems on site like poor maintenance, rents too high, etc. 
• Collections/Delinquency: It goes without saying that the faster a property collects the rent, the better off it can manage its cash flow. However, in the workforce housing space, collections can span several weeks even though rent is due on the 1st. Tenants that are continuously delinquent and late on rent should be seen as higher risk and may not be the best suited to renew. 

Maintenance:

Very good property upkeep and maintenance is critical to both leasing and retention functions and without it properties can really struggle with occupancy and rents. 

• General Upkeep/Curb Appeal: It doesn’t take a seasoned contractor to notice basic deferred maintenance and upkeep issues when driving a property. How a property presents itself on the outside is often a good indicator of what you’ll see on the inside. Well maintained grounds with minimal deferred maintenance is a marketing tool that lures prospects in. As an asset manager it’s important to make surprise visits to evaluate the general care of the property. 
• Work Orders: Addressing work orders timely is very important to tenant retention as a tenant with a good experience will likely stay. An asset manager must understand a) the types of work orders to identify any major trends b) how long work orders are outstanding to identify personnel issues and c) resident satisfaction (via surveys) to ensure quality. 
• Make Readies: Units (a property’s product) need to be made ready to lease to effectively support the leasing process. It’s vital that units of each available floor plan be ready for immediate move-in to ensure leases efforts are rewarded.  

Summary:

There are many moving parts in operating a multifamily property well. Technology and processes are huge components that help management companies and asset managers effectively manage operations, which we will touch on in a future article. Though asset managers are not involved in the day-to-day, they need to have a strong pulse on operations via KPIs that will help them proactively make changes. In our next article, we will cover how asset managers are involved in implementing Capital Improvements for multifamily properties. 

About the Author:

?Shane Thomas is co-founder of Catalyst Equity Partners, a Texas-based private equity firm focused on helping busy professionals earn double digit returns through investing in apartments. To learn more, visit www.catequity.com and connect with Shane on LinkedIn and Facebook.