When it comes to optimizing rental rates, it pays to manage supply.
Lease expiration management (LEM) can have a powerful impact on a communitys profits. Rainmaker LRO® analysis shows
an improvement upward of $1 million.
Consider a 250-unit community with:
A constant monthly rent of $1,000 per unit;
A perfectly flat expiration profile (each month sees exactly the same number of expirations); and
The seasonal demand of the average U.S. apartment community.
Under such a scenario, the cumulative annual vacancy loss per unit is $999.
This changes for the better when a hypothetical community leverages LEM to create an expiration profile that mirrors its demand.
By creating stabilized expirations with LEM, the vacancy loss is now $978 per unit, saving $21.
This quickly becomes a significant amount when considering the effect on the annual revenue of the community as a whole. LEM in this scenario would increase total community revenue by $5,250 per year.
Now witness the impact on portfolios of varying sizes:
50 communities = $262,500 of NOI;
100 communities = $525,000 of NOI; and
For the average, mid-sized portfolio of 250 communities, LEM could deliver an additional $1.3 million annually in net operating income.
Of course, an expiration profile that perfectly coincides with demand isnt entirely realistic. Even when supply is difficult to predict, the benefits of formal LEM programs are considerable.