Sharing is caring, but try telling that to the competition.
Benchmarking—both internally and externally—is critical to any apartment management company’s success, yet many say the quality of the data set is hindered by competitors’ unwillingness to give up the goods. “We find there are many companies that don’t like to share data,” says Mark Mahoney, Vice President of Asset Management for Dominium.
“Whether they think they’re giving away a trade secret or are worried people might poach their staff based on data being shared, I don’t know. It makes external benchmarking even more difficult.”
Even more challenging, operators use different charts of accounts. “Even where we find external data available, it doesn’t reflect our business practice and isn’t useful,” Mahoney adds.
Faced with a host of external roadblocks, cultivating quality, specific, reliable and timely data from within becomes even more important. Although many industry professionals say the tides are slowly turning as greater emphasis is placed on transparency, most agree that it’s still every man for himself.
“If you don’t create internal benchmarks, you’re in trouble,” Mahoney says. “Our industry does not have very good external benchmarks and you’ll be left to judge the performance of an asset or an employee by some nebulous factors. You risk not being aware of an issue until it becomes a five-alarm fire instead of nipping it in the bud earlier based on good data.”
Creating Value
With 20,000 units in a very concentrated market, MEB Management Services is in a unique position that allows it to utilize its own data to perform comprehensive benchmarking across the portfolio.
But simply having access to this data isn’t enough. It’s what MEB does with it that counts, says Principal Melanie Morrison, CPM.
“We are focused on creating value for each managed asset,” Morrison says. “We identified our key performance indicators (KPIs) that most significantly impact asset value and implemented a data gathering, reporting and consumption process that helps us identify outliers and potential outliers immediately through a proprietary algorithm.”
MEB distributes the results internally through its Value Creation Dashboard. Morrison says they continually rank all of their assets using this algorithm and distribute the ranking to the entire team, helping everyone understand exactly where they rank and the reason for their standing.
“This prompts regional and property managers—those who significantly impact property level value—to act on this information in a more informed way,” she says.
Dominium also places importance on rank. Mahoney says monthly meetings are held to evaluate the entire portfolio, with each of the more than 20 regional managers reporting on their region, as well as predetermined benchmark items.
These include everything from income to controllable operating income, economic occupancy and capital expenditures for financial benchmarks as well as non-financial items—such as the average number of days to complete work orders, turn units, accounts receivable, etc. All of the financial categories are expressed in relation to operating budgets.
Each regional manager is then ranked against their peers on a monthly basis in each of those areas, with an average of all of their rankings comprising their overall score for that month.
“We feel this is a pretty fair measure because we pride ourselves on creating very realistic budgets for each of our properties, which should take market factors out of the equation because we are simply measuring against the budget,” Mahoney says. “As far as the non-financial items, we firmly believe that no matter where we are, or what the market is like, we can complete work orders in a timely manner, collect rents and turn units.”
Both Mahoney and Morrison agree that data consistency and timeliness is the key to effective benchmarking.
“I want to know how my assets compare to their peer group today so that improvements can be measured in real time,” Morrison says.
Adds Mahoney, “We want to make sure whatever data we use to benchmark something is readily available. We aren’t trying to create more work for our staff, but rather would prefer to use items everybody is already using, creating and tracking.”
Often overlooked, the information must also be meaningful.
“We track the number of residents who we have email addresses for, but don’t think that’s a very useful measure in judging a property’s performance,” Mahoney says.
The Ex Factor
For all of the internal processes in place, apartment management companies are still struggling with external benchmarking.
“Right now, we spend a lot of time collecting external data and measuring it,” Morrison says. “By the time that analysis happens, it is tough to understand how the market and property have since changed. But as with everything else in this industry, it’s baby steps. I’m confident we’ll get there eventually.”
Mahoney says Dominium’s internal benchmarking is also hindered by unrealistic budgets.
“Most of our competitors create ‘aspirational’ budgets—meaning they create a budget that reflects the best-case scenario for the property,” Mahoney says. “What we then see is that when a market moves, nobody believes in the budget that was set and they don’t feel that comparing performance to that budget gives them an accurate reflection of the performance of the site staff and regional manager.”
Amid such challenges, Morrison says it’s critical to use the benchmarked data correctly.
“The last thing you want to do is make bad decisions based on inaccurate data,” she says. “At MEB, we look for outliers in the data sets, and instead of ignoring those outliers, we focus on them, scrutinize them and try to understand them.”
Morrison says that process begins by asking what makes this property different from its peers. Often, the answer is obvious.
“We had a property that had a central cooling system that constantly sprouted leaks in the 100+ degree summers of Arizona,” Morrison says. “Clearly, turning the AC off for extended periods of time to deal with a leak in that environment didn’t help retention, rental rates, property reviews or expenses.”
In other cases, the true reason behind a property’s performance is hidden and the data requires further scrutinizing to determine the cause, Morrison says.
“Is it the leasing team, the rock-star property manager, resident satisfaction rates, property characteristics, the unit mix? Basically, we want to understand the property to learn from it and replicate those characteristics in our other communities.”
Off the Bench
The current state of benchmarking is a catch-22: The data set won’t improve until more apartment management companies conduct accurate internal benchmarking and share their results, yet many apartment management companies aren’t likely to do so until more data is available.
“There’s no shortage of benchmarking tools in our industry, but no single tool or combination of tools delivers a point of truth on how our apartment communities are performing against their closest competitors,” says Sue Ansel, President and Chief Executive Officer of Gables Residential. “Most often, we’re gathering the asking rents of our competitors and trying to compare them with our actual results, which is an inaccurate comparison. It’s no surprise asking rents differ from actual rents, and asking rents don’t account for renewals. We need a way to compare our achieved revenue with the achieved revenue of our competitors, like they do in the hotel industry.”
This challenge may in fact present an opportunity for enterprising firms in the multifamily housing space. “We believe that as more innovative technology firms start to play a larger role in the industry, we’ll have more reliable and robust external metrics that provide accurate industry benchmarking and overcome some of the core issues we currently face,” Morrison says.
In the meantime, Morrison’s company is part of the solution; working with one such business intelligence provider, Rentlytics, to monitor its KPIs and execute internal benchmarking in real-time.
“Their system is completely automated, so it has helped eliminate a lot of the manual process of aggregating and distributing data internally,” she says. “Of course, utilization of any outside program really depends on how effectively it is rolled out and implemented.
“We are really working hard to make sure we have effective training for each level of the organization, including executives, asset directors, onsite management teams, and the marketing support team. Our goal is to get everyone inside our organization making data-driven decisions.” Dominium also uses information from industry sources such as REIS and Real Capital Analytics, and examines IREM data annually.
“We also talk with many brokers, and are always looking at sharing data with other companies,” Mahoney says. “But whatever method we use, we seem to run into issues.”
Lauren Boston is NAA’s Staff Writer and Manager of Public Relations. She can be reached at [email protected] or 703-797-0678.
6 Data Attributes For Effective Benchmarking
1. Factual. The data used for benchmarking is either factual or it isn’t. When you analyze historical performance, you’re dealing with time periods that have passed, meaning that you can know both your’s and your competitors’ performances for a fact. Most multifamily benchmarks are estimates based on phone surveys. You should not have to estimate the past!
2. Transparent. If you’re going to use data to benchmark and reward performance, you need to know precisely which communities make up the comparison group, what data was used and how it was collected.
3. Relevant. If the communities being used are not direct and effective comparisons for the properties you are benchmarking, then the data is useless. You must be able to specify the types, locations and attributes of the comparison group you will use.
4. Detailed. To understand your performance, you have to look deeper than just average rents. You need to know the actual contribution of new and renewal rents as well as actual occupancies to the overall performance trend.
5. Verified. The benchmark must allow for a true “apples-to-apples” comparison, where all of the participants contribute the same data. It is critical that you compare your historic reality to the reality of the appropriate, relevant comparison group.
6. Unbiased. The data must be collected by a neutral party with no incentives other than the effective, accurate and transparent sharing of data. This is true for legal reasons as well as the effectiveness of the benchmarking data you use.
Source: Multifamily Data Exchange
NAA Survey of Income & Expenses
NAA’s annual Survey of Income & Expenses provides participants with a competitive edge for the year ahead. The survey of nearly 1 million apartments nationwide, conducted by Los Angeles-based CEL & Associates Inc., includes an executive summary, detailed data, reports and charts about rental apartment communities to help industry professionals keep an accurate eye on operating expenses in relation to their peers. For many members, the survey is a critical budgeting tool.
“We participate to share experiences and to see data from others on their experience,” says Diane Edwards, Sr. VP of Operations for Shelter Properties, Baltimore.
“[Sharing such information] is a win-win for all,” Rick Graf, President, Pinnacle says. “We find the information very valuable to assess how our portfolio is performing against this metric. We use the survey information to compare the performance of future acquisitions against overall performance metrics.”
To participate in the survey, contact Janet Gora at CEL & Associates at [email protected]. Survey participants receive a complimentary copy of the survey.