For years, the purpose-built rental industry has followed the same general practises. As building managers, developers and financiers, we tend to focus on the lease-up, the rental income, and the general operating expenses. As long as vacancies are low, the rent cheques keep turning up, and the costs stay manageable, we think we’re doing okay.
This ignores the real advances that have been made in other industries, thanks to technology and refined management approaches. By staying in the past, building managers, developers and financiers are leaving a lot of money on the table. The time has come to change that.
We need to view our buildings as more than just property. Last October, speakers at the Multifamily Asset Management Conference called for a change in mindset, replacing the phrase “property management” with “asset management.”
Rethinking our attitude
As a word, property describes something static. The building and the land it sits on doesn’t move. We attract tenants and passively accept their rent. We do the maintenance that is required, and we pay our utilities. Thus the property is managed. It doesn’t change, and so it doesn’t grow in value.
On the other hand, if we view our buildings as assets, we immediately put ourselves into a different mindset. Assets are not static. They change and, we hope, grow over time. Assets are things we use to leverage financing. Assets are things we invest in. In asset management, the top priority is to ensure that your building is more valuable in the years to come than it was at the moment you bought it.
Real estate does appreciate, depending on the location, but you do not need to leave your asset appreciation up to chance. By focusing on ways to improve your asset, by using the latest technology and software to discover innovative ways to lower or offload expenses, and by identifying the best business practises to follow and the best amenities you can offer to increase your revenue stream, you can realize a substantial return on your investment.
How new technology can help you
To improve the value of your asset, we start by looking at the new technologies that have appeared to help you manage data, and get your message out to the wider world. Every apartment building should have a website. Every apartment building should have a Facebook page.
These features can help you in two ways: they allow you to interact with your tenants, building a sense of community. They also allow you to offer such amenities as online rent payments, or a means to open up tracking tickets for maintenance issues, giving tenants a way to see that their concerns are being addressed. These online tools will also help support your marketing campaigns. You can sell your apartments online, offering virtual tours, and booking visits by prospective tenants. When you do this, it’s important to grab as much data as you can about your visitors, and about how they found out about your apartments, and how successful you were in turning them into tenants.
This is where the data management aspect comes in. By keeping track of all of your marketing efforts, as well as any initiative to improve your revenues or reduce your expenses, you will see which approaches work and which don’t, allowing you to focus your time on the techniques that generate the biggest returns.
More than just renters
We also look for innovative additional revenue streams. Some amenities allow you to boost your rent, while others provide another source of income. Some amenities work better than others, so it’s important to investigate what’s right for your assets. Demands that aren’t being met are an opportunity. Many property owners obtain revenues from their laundry services; how many sell rental insurance on their properties? Not enough. This is only because not enough landlords have though to do so. That’s leaving money on the table.
Some apartment buildings have a convenience store on the ground floor that is much appreciated by tenants needing to quickly grab a litre of milk, but how many apartment buildings have a coffee shop? Why not? This is especially valued by Millennials who are taking up an increasing segment of the rental market.
Fine-tuning your expenses
In terms of lower expenses, asset management asks you to go through your utilities and other operating costs with a fine-toothed comb. Can you find and manage the hidden costs of providing electricity? Look at multiple options. For instance, would it be better to accept a bundled electrical bill off a single meter for your entire building, dividing the cost per unit? Or would it be less expensive and more efficient to meter every unit, accepting an individual charge for each meter, but gaining a lower consumption rate?
These are just some examples to pursue, but the approach is as important as the individual examples given. The concept of looking for innovations, and then applying them through a set of metrics to measure success have been applied in other industries—such as hotels, airlines, big box retailers and self-storage companies to their considerable benefit. Effective marketing campaigns and improved amenities lead to faster lease-ups and lower tenant turnover. Finding efficiencies and increasing revenues makes your building more valuable, which gives you greater leverage when it comes to your financing. This can allow you to expand your portfolio.
It is a lot to think about, but fortunately there are consultants out there with experience in managing loads of data who can give you objective advice and the research to back it up. They are more than happy to help you make the most of your property, turning it from a static plot of land into a growing asset.
Derek Lobo is the CEO of Rock Advisors Inc., Brokerage, an Ontario-based commercial real estate company that focuses on the apartment sector. For more information call 905-331-5700 or email him at firstname.lastname@example.org.