July 12, 2022 |
Updated July 12, 2022
NAA’s Apartmentalize welcomed a record-breaking crowd to discuss, debate and learn the key issues driving today’s winning property management strategies and tactics.
The trademark camaraderie, networking and chance to make new friends was back in full force at the 2022 Apartmentalize conference in June in San Diego.
A record turnout of more than 11,300 industry professionals helped demonstrate that the apartment industry is alive and well and the future looks bright, as “Success in a New Light” was the more-than-appropriate theme this year.
Rent growth and apartment demand have never been higher. Perhaps the industry has peaked for now in this regard? – only time will tell.
While joy was abundant, apartment management professionals also expressed a tempered outlook based on the unsteady economy that is affecting all Americans, companies and industries.
Inflation is playing a greater role in operations than most can recall – it’s measured at its highest level in 40 years, after all. At the same time, hiring and retaining workers has persisted as apartment companies’ No. 1 challenge.
Employees seeking higher pay and new opportunities has contributed to heavy stress and burden on most onsite teams. And while technology continues to advance – putting solutions and improved efficiencies in front of all – the industry continues its determination to make sense of it all, wanting to implement what makes works for their unique situations and company culture.
In turn, an increasing number of companies are reconsidering their staffing models, wanting to blend technologies such as artificial intelligence and machine-learning virtual leasing assistants, the continued innovation behind “smart” living and touring, and improvements in collections via FinTech platforms.
It all seems so futuristic to many – but it’s the here and now for plenty of others.
Thinking about “what’s next” in apartment management, the conference invited plenty of friendly debate about strategies, tools and data needed to win on the horizon.
Housing itself – which every real estate analyst will say is greatly insufficient to meet demand – is changing. Whereas the industry grappled in recent years over short-term rental models, today the talk is what to make of the booming build-to-rent or single-family rental models. Compete? Or play along? Regardless, this burgeoning sector is performing well nationwide.
At the same time, affordable housing developers continue their battle with NIMBYism (Not In My Backyard) and some are finding breakthroughs in making their case.
On the expense side, operators can find little that either hasn’t seen huge pricing spikes or been in short supply due to supply chain management repercussions from the pandemic. Energy costs, in particular, have skyrockets, so operators spent time at Apartmentalize looking for new and better ways to save on energy.
A Deeper Dive into Critical Issues
Here’s a look at these topics with comments from leading thought leaders:
HR, Hiring, Retention
Operators are still dealing with havoc the pandemic wreaked on their business operations – particularly this number one challenge: HR, staffing and recruitment.
Information was shared about attracting new team members, according to research issued by NAA with AppFolio.
Paula Munger, AVP, Industry Research and Analysis, NAA; and Donna Smith, President, Enclave Property Management; reviewed the insights with moderator Daniel Waas, Vice President, AppFolio.
The research was based on surveys performed in April and followed up on last year’s survey. In both cases, hiring and HR were the top concerns. Additionally, polling of the 200+ attendees at the session also placed that atop the worries.
Smith said finding qualified workers is toughest in maintenance. Munger pointed out that the larger the apartment operator, the greater difficulty they were having.
Munger said more companies are hiring compensation analysts to evaluate pay structures to help companies better compete with peers.
Smith said improving company culture goes a long way in creating happier employees and better retention rates.
“People leave people, they don’t leave companies,” said Smith, whose growing company operates 3,000 apartment homes in North Dakota.
Exuberance, Anxiety, Inflation and Recession
Periods of extreme optimism and others mired in a rising-inflation environment are circumstances the multifamily housing industry has dealt with before.
But rare is today’s mood gripping many in the industry, according to RealPage’s Jay Parsons: “I’ve never seen so much exuberance about the ‘now’ and anxiety about the ‘future’ all at one time.”
Real estate data analyst Parsons sat with Daniel Mahoney, managing director, LaSalle Investment Management; during a panel about economic conditions.
Borrowing a line from Mark Twain, “History doesn’t repeat itself but it does often rhyme,” Mahoney said, citing today’s inflation read at the highest it’s been in 40 years.
“But we’ve been here before and we can look at what happened then,” he said. “From 1974 to 1986, rents still grew 9 percent to 10 percent annually. The Fed came in and raised interest rates that put us into two unique recessions. Even during these recessions rents were up.”
Stagflation, too, has entered the conversation – defined as a period when wages stall, but the cost of goods continues higher. “This is a scenario right now, and not reality,” Mahoney said.
Competing with Homeownership
What is reality is the lack of housing in most markets as demand for renting as a lifestyle choice has become a preference for many over homeownership.
Home-price growth rates nationally are even higher than those for apartments – about 20%, panelists shared. Mortgage rates and financing costs are up 60% year-over-year and this will help the apartment industry continue to succeed for the time being.
Lease renewals are at high double-digit rent growth rates in many key markets, according to RealPage. Parsons said owners and investors can see that renters’ incomes are rising along with inflation, and asked rhetorically: “But for how long?”
“The steady wage growth we’re seeing is key to help keep affordability concerns at bay,” Parsons said. “Affordability right now is a tailwind. Higher-income earning renters are doing well with the wage hikes, too, because most are well-paid to begin with and it’s a employees’ market and they are receiving raises in this competitive job market.”
Additionally, renter renewal rates are at approximately 57% – an all-time high. And these residents are renewing at about 10% more rent. Panelists said their residents are realizing it’s more affordable to “stay put” and they are reaching these logical conclusions.
Housing Supply and Oversupply
Multifamily construction in the U.S. is at its highest level in 40 years. Currently, there are 824,000 units in development and 450,000 of them are expected to be delivered this year.
Apartments.com’s National Director of Multifamily Analytics, Jay Lybik, addressed the situation.
“While that might seem like a lot, it’s simply helping the apartment industry play catch-up – something needed to make up for underbuilding from 2011 to 2017,” Lybik said. “Therefore, there is no ‘over-building’ today. But there are markets at risk for oversupply.”
Based on national patterns in rent growth, vacancy rates and supply, he pointed to Phoenix, Tampa and Austin as markets in potential danger of oversupply because absorption and new development is not balanced. Raleigh and Las Vegas should be on investors’ radars, too, Lybik said.
Build-to-Rent as the ‘New American Dream’
The “American Dream” is now available for rent. Renters want the lock-and-leave lifestyle and maintenance on demand and are finding it in build-to-rent single-family homes communities.
Investors are flocking into markets and creating this lifestyle. This shadow market is no longer lurking — it’s becoming front and center.
Greystar, the country’s largest apartment developer and manager, now has 3,500 BTR homes in its portfolio, spanning 13 states. It has another 4,300 in the pipeline, and is adding to its map, Taylor said. She said Greystar’s BTRs are about 96% occupied, a tick above the preferred 94%-to-95%range.
Lisa Taylor, Senior Managing Director, Greystar, said she expects its BTR portfolio to grow to 30,000 units in five years. Taylor singled out Salt Lake City as one attractive market among many.
“We’re changing the American Dream,” Taylor said. “Helping us to grow in this segment will be our ability to continually improve BTR operations and development – even if it’s something as simple as included outdoor outlets so our renters can plug in string lights – among other things, as we learn what most appeals to these customers.”
Taylor said that in investors’ minds, BTRs are not as “scary” to own or manage as something such as active-adult living or student housing. “BTRs are more reliable as revenue sources,” she said.
Parsons, VP, Head of Economics and Housing, RealPage, called BTRs the “new starter home” in the exurbs and that they are helping to fill the country’s overall housing gap.
“These homes are more expensive than what they could afford to buy or build, and now they can rent them and live in them,” Parsons said. “This option just wasn’t there years ago the way it is now. There is no stigma about being a BTR renter.”
Mortgage interest rates have climbed significantly this year with no end in sight. The panel said that for what loan costs were in January, qualified buyers could get $375,000 toward a home; today, it brings $264,000.
Parsons said that there’s tremendous upside for this segment; and it’s showing a lot of demand.
“BTRs cater to a different demographic than apartment renters and usually is located in places where apartments don’t exist,” he said.
NIMBYism and YIMBYism
Meanwhile, affordable housing continues to fight negative stereotypes, generalizations, ill perceptions and the NIMBY mindset that is causing extreme housing shortages across the country.
Executives from Indianapolis-based KCG Companies offered actionable takeaways on how to counter the resistance and develop YIMBY — “Yes. In My Backyard.”
Kimberly Hurd, Executive Vice President of Property Management, KCG Residential, said companies such as hers are constantly told, “Take it someplace else,” when it comes to proposing new development in markets across the country – generally the ones that need it most.
In Anderson, S.C., residents and local officials were all-in on bringing a Chick-fil-A restaurant to town. When KCG Companies proposed a 258-unit apartment community, Shockley Terrace, their immediate reaction was a different story.
At a packed town council meeting that ran about three hours, “the first thing they told us was that they had enough affordable housing because they had multiple Section 8 properties and that 90 percent of the residents would be carrying vouchers,” Karla Burck, Executive Vice President of Development, KCG Companies, said.
The town’s mindset was that they needed more apartments, just not “affordable” apartments. Its views were mostly formed by what they had heard or been told. These locals, however, weren’t able to back that up with statistics or other evidence.
KCG presented both a factual argument and tugged at the city commissioner’s heartstrings to make its case.
Council meeting attendees showed up to support building a Chick-fil-A restaurant, “we explained that for something like that to work, you need more households in your town to support it and affordable housing would help to provide that,” Burck said.
Burck next demonstrated to the town’s residents what it takes to qualify to live at the community and showed that less than 10% of the community’s applicants were in the Section 8 program. Furthermore, KCG Companies explained that it was looking to provide workforce housing for those with 60% of area median income.
Burck and Hurd said they learned that the local commissioner at another development in Ellenwood, Ga., cared deeply about his constituents, so they presented to him the thought, “How do you feel about the fact that so few of the people who work in your town can afford to live there?”
This got his attention, Burck said, and he acknowledged that having diverse types of housing in his town was important to its success.
Centralized Leasing, Artificial Intelligence, Touring
Scott Wesson, Chief Digital Officer, UDR, is all in on self-guided tours, centralized leasing and the benefits of artificial intelligence incorporated into virtual leasing assistants.
UDR is doing self-guided tours on 98% of its visits; the 2% who are not are request an in-person tour.
“We began to go all-in on self-guided tours four years ago – before the pandemic – because we were finding that is what consumers wanted based on focus groups we conducted,” Wesson said.
He explained that self-guided tours speed up the decision-making process.
“We want our potential residents to decide at their pace, and we want to make sure those who want to decide quickly are able to do so,” Wesson said. “If someone is ready to ‘buy’ we want to get out of their way and let them do so.”
Most prospective residents who come to UDR community websites have done their homework. Once there, its [AI- and machine-learning virtual leasing assistants] can answer 85% of their most basic questions about scheduling, availability, hours, etc.
“Self-guided tours this way helps us to say ‘yes’ to them as much as possible,” Wesson said. “And at any point if the prospect has questions that the bot cannot answer, then they are kicked over to a live person who can help them.”
Self-guided tours tend to be shorter than the typical in-person tour because the prospects spend time only looking at what they want to see about the apartments. By having shorter tours, UDR is able to conduct more tours per day.
With UDR’s centralized leasing process, if the prospects want to see a different unit or even a home at another one of its properties nearby, UDR associates can quickly and easily arrange for that and by already having that prospect’s information in its system, the process is simple.
“Once a lease is signed, we again make it as quick and easy as possible,” Wesson said. “Prospective residents have filled out their application and sign the lease, and then through automated robots, their forms and background are reviewed and can almost instantly spot any red flags that kick the lease out, or approve it within seconds.”
All of this automation has led to a 40% reduction in staff size. UDR has rewritten its job descriptions so that associates can specialize in certain resident-related roles and functions needed onsite.
Pricing Spikes, Especially with Utilities
No consumer or apartment operator is blind to rising utility costs. Check oil, gasoline, natural gas and water and many want to close their eyes when the invoice arrives.
Mary Nitschke, Vice President, Sustainability, RealPage; Scott Wilkerson, Principal and COO, Ginkgo Residential; and Marc Treitler, President of Sustainability Solutions, General Counsel, Conservice; spoke about pain and remedies.
Wilkerson said that by saving 37 cents per month, per unit, a 300-unit building can cut costs by about $100,000 annually.
Given the median age for existing apartment stock is 40 years, these properties are ripe for improved conservation.
Owners might gnash their teeth over investing in energy conservation, and residents might not fully embrace new behaviors, but “whether you are a renter or an owner, wasting money in any way is never a good idea,” Wilkerson said.
“Some owners will say, ‘Why should I invest all this money to save on utility costs when it’s the residents who are paying for the costs?’ If you can help your residents to save on their energy bills, they will appreciate it, live more comfortably, and will tend to renew their leases – and that’s huge. After all, residents’ No. 1 complaint is about air and water temperature.”
Wilkerson said that one of the first things Ginkgo Residential does when taking over as a community’s management company is conduct a blow-door test that measures the home’s energy demand. He said these tests cost about $500 to perform and can save up to $1,000 in energy costs, “mainly because the HVAC systems won’t have to work so hard.”
Treitler said utility rates overall, nationwide, are up about 35% just this year; natural gas is up about 80% in the past three months; and electricity costs are up about 30% to 40% in the past two years. Not to mention: a great deal of electricity is generated through natural gas.
“If you think rising utility costs have been painful, well really, the pain is just getting started,” Wilkerson said.
Treitler said that by analyzing providers that are available in the states that allow operators to choose their providers, “we’ve seen cost savings in the six digits just by shopping around. A large property in San Jose saved $240,000.”
Finding errors in billing is another way to save. Treitler estimated that 15% to 25% of invoices have errors “and those errors usually are not in the owners’ favor,” he said.
Nitschke said benchmark properties against each other to see if there is disparity in the billing and usage often leads to savings. Wilkerson pointed out that 30% of water expense is due to mismanagement and owners benefit when they figure out solutions.
Environmental, Social, Governance (ESG) is getting a lot of headlines, Nitschke said, and many companies are choosing their “E” goals first – because they are easiest to measure – and then setting out to find ways to achieve them.
“You need to engage with your residents to have them help you to reach these goals because 60 percent to 70 percent of what drives this is their behavior,” Nitschke said.
Paul Bergeron is a frequent contributor to units Magazine.
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