Critical Metrics to Consider for Your Budget Prep

It’s budget season and Units Magazine has a well-timed article about which metrics are important to focus on during your budget prep:

To be a successful operator, one must often focus attention on organizational data beyond the traditional metrics of physical occupancy, exposure and revenue growth. “By the Numbers: Calculating Critical Metrics” session panelists at NAA’s Apartmentalize discussed big data in property management operations and how operators should leverage data to be proactive instead of reactive.

Jared Miller, COO at property management company Red Peak, stressed using data to look forward and to use the market to define the KPIs that matter to your organization.

“When you do your budgets, you look at numbers through July, so you’re comparing to that data,” Miller says. “But we need to focus and shift our mindset to a year-over-year perspective. Focus on what will really move the needle. The market impacts what KPIs you should look at. If the market is strong, you might not look at occupancy. The critical thing is to measure what matters and what is actionable.”

Panelists agreed that operators should redefine the metrics they use to make decisions. Instead of focusing on physical occupancy, operators should focus on closing ratio, revenue per unit and year-over-year metrics. If operators can look at their performance over an extended period and set a goal based on improving performance over the same period during the next year, they will make impactful improvements.

Richard George, NOI Coach, says the “Measure, React, Measure” concept should be a recurring theme. “Do something different tomorrow based on what you measured today,” he says.

Operators should use data to track unexpected revenue drivers such as customer retention as well as employee engagement. While this data isn’t readily stored in a property management system, Clio Barker, President and CFO for The Associated Management Company, says operators should pull these metrics from third-party sources such as Yelp, Apartment Ratings and Google Reviews.

“[It costs] between $1,000 and $5,000 to turn a unit,” Barker says. “We know that the resident makes the decision to renew on the day they move in. So, the process of transferring that prospect to the resident and the handoff from the leasing team to the maintenance team is critical. We can learn how we did by checking third-party review sites.”

Key Takeaways from NAA’s Income & Expense Survey

The National Apartment Association recently published the results of their 2018 Income & Expense Survey, and offered some key takeaways in an Executive Summary:

  • Operating expenses increased by 2.1 percent, the slowest rate of growth since 2013.
  • Net Operating Income (NOI) grew by 5.8 percent, up 2 percentage points over 2016, impressive amid slowing rent growth.
  • Increases in payroll expenses were in line with wage growth in other private sector industries, averaging 2.4 percent.
  • The number of market-rent garden-style units per full-time employee increased for the third consecutive year to 44.3. The challenges of an ongoing labor shortage within the industry likely kept some communities understaffed throughout the year. Increased pressures on wages can be expected in 2018 and should be evident in next year’s survey results.
  • Once again, property taxes were responsible for the largest increase in expenses, up 5.3 percent year-over-year. The average property tax bill was $1,833 per unit and represented one-third of expenses. Fifteen years ago, property taxes comprised less than one-quarter of operating outlays. Contesting assessed values has become commonplace for many owners feeling the squeeze from skyrocketing taxes.

Click here to read the full Executive Summary and click here to order a copy of the survey results, which provide breakdowns for each metro market.

Tips for Conducting a Price Review

Multifamily Insider has a nice “how-to” for conducting pricing reviews with your team. From the article:

Weekly or bi-weekly pricing review calls are a great forum to learn more information on why a property is or isn’t leasing. But sometimes when helping teams the answer isn’t as simple as just “the price”. You may be surprised what may arise as part of these regular communications. Here are three lessons learned from leading these pricing review calls: 

1. Managing the Fear is Very Important:

One of the main reasons for having a pricing call is to help the operations team understand your revenue management system’s pricing recommendations. Additionally, these calls assist in soliciting important feedback from the sites. …

2. Over-Amenitizing

Amenities are often initially established with a piecemeal approach. On the pricing calls, we look at pricing holistically. While all of those amenities may have made sense when determining the values one by one, stacking them together may out-price most of your demand…

3. Listen for Subtle Cues

Let’s add psychologist to the list of revenue manager qualities, because the phrase, “tell me more about that”, should be a common request as one sleuths out the implications of seemingly innocuous comments heard on pricing calls.

 

ADA Changes Affect Fitness Centers & Trends in Fitness: Episode 5 of Not a Complex Podcast

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This episode of Not a Complex podcast features an interview with Josh Owen of Prosource Fitness. We talk about new ADA requirements that will impact apartment communities’ fitness centers, and we also discuss what’s hot in fitness equipment these days.

Another highlight of this episode is the return of PTAA’s very own Carrie Langley and Rachel Garavito to talk about upcoming events at PTAA.

Subscribe via: iTunesStitcher

Show Notes:

PTAA Upcoming Events Page

January Leasing Appreciation Dinner Meeting featuring keynote speaker Alex Jackiw

Prosource Fitness

TRX Systems & Other Fitness Accessories

Jacobs Ladder Fitness System

Josh Owen

 

 

Package-gate

A front page story in the 10/21/15 issue of the Wall Street Journal highlights the increasing challenge that property managers face in handling package deliveries for their residents:

The biggest landlords in the U.S. are being crushed under a mountain of packages, leading one large apartment operator to stop accepting deliveries and others to experiment with ways to minimize the clutter.

The moves are at the center of two colliding trends: an increase in apartment living and a surge in online shopping. The result is a rising tide of packages with no good place to go…

Camden Property Trust, the 14th-largest U.S. apartment operator by number of units, stopped accepting parcels at all of its 169 properties nationwide this year. Executives said the Houston-based landlord, which has roughly 59,000 units in 10 states and the District of Columbia, had received almost a million packages in 2014, and the rate was increasing by 50% a year.

Each package results in about 10 minutes of lost productivity, Camden executives estimated. At a rate of $20 an hour for employee wages, that amounts to about $3.3 million a year, they said.

“Ultimately, this was going to eat our lunch,” said Keith Oden,president of Camden. He refers to the situation as “package-gate.”

Camden’s approach to the issue of package handling is probably the most extreme, but others are sure to follow if they don’t experience too much of a backlash.

We’d love to hear from our members about this issue. Are you dealing with an increasing number of package deliveries and, if so, how is it impacting your operation? How do you handle package deliveries on your properties?

Negotiating Tax and Insurance Rates Can Significantly Impact NOI

MultiFamily Executive has an easily digestible post about negotiating with tax assessors and insurance companies and how it can positively impact your NOI:

The county assessor tends to measure property valuations at higher levels, while the owner, obviously, wants the opposite. It’s a timeless dance. But through diligent preparation, and the ability to come to a fair compromise, owners can save hundreds of thousands of dollars on a typical 100-unit property…

Typically, the assessor will need to be educated about what the property actually looks like, and its condition, or else the owner will get a very general valuation that doesn’t speak to the property’s individual strengths and weaknesses. By maintaining a thorough inventory on the property and documenting the cost necessary to put it in appropriate shape as valued by the assessor, an owner stands a good chance of lowering their property taxes…

The same negotiation skills need to be applied to insurance, as well. Owners can easily become over-insured, resulting in higher premiums, if they don’t pay attention to the coverage.

By providing solid evidence that these insurance standards are flawed, generally by speaking with architects and contractors, you can get your evaluation down, thus dropping the insurance premium, which can add more than $35,000 in overall value to a typical 100-unit community.

 

Some NC Cities Urging Apartment Companies to Move Away from Pine Straw

From NAA’s Operations Insights:

The Wilmington Fire Department (WFD) has petitioned for certain apartments to limit the use of pine straw, but has stopped short of calling for an outright ban. Instead, Battalion Chief Sammy Flowers is hoping to convince apartment owners and managers to select another landscaping material. He states, “We’d rather have community buy-in.” At the very least. the fire department wants new apartment developments and existing communities to agree to limit the use of pine straw. In the past 13 years, there have been 32 fires involving pine straw that have damaged multifamily housing throughout Wilmington, WFD statistics show.  

Apartment owners and managers use pine straw because it is cheaper. If a given apartment community was going to spend $10,000 on mulch, it could probably pay $8,000 for pine straw, states Frank Hendrickson, owner of Coastal Lawn and Design. Pine trees, meanwhile, are particularly abundant in southeastern North Carolina.  Cindy Harrison, president of the Wilmington Apartment Association, notes that apartment management staff can take advantage of pine trees by raking up the needles that fall year-round to use as landscaping. She adds, “We do try to use what nature’s already given us.  I would say a lot of the apartment communities do use pine straw.”