It is no surprise that when the market slows down, multifamily operators typically compensate with cost-cutting measures to bolster their margins. On its surface, this is a good plan. But while cutting back and finding efficiencies can help companies stay profitable, the belt tightening may ultimately hurt owners both in the short and long run.
For example, these cuts often come at the expense of customer service and staffing. These sacrifices usually reduce resident retention and hamper property performance leading to retention and occupancy challenges. Instead, multifamily owners should focus their attention on boosting revenue and maintaining occupancy and retention. Operational models that optimize revenue are proving more effective, and resilient to economic factors, than reactionary downsizing and consolidation of resident services. And multifamily owners are learning, now more than ever, that offering flexibility is one of the best ways to diversify a listing and tap into new revenue streams.
Flex your lease
Short term rentals have always commanded a premium over traditional long-term lease models. In terms of NOI impact, driving revenue growth is easier and more effective than saving on expenses. Upside revenue can be increased through variable-stay programs by as much as 40 percent, via furnished apartments available for flexible stays. Flex living management models average a 10 percent NOI uplift, creating greater asset value for the owner.
Flexibility applies not only to the length of stay. Flex living also means that workers can find compatible, quality homes for the length of any project or assignment. It allows them to bring their families or pets with them. More flexible options empower any work-from-home professional to untether and travel. And a well-executed living experience builds brand loyalty, increasing the likelihood that a renter will seek out the same operator at their next destination.
Variable stay options also help to mitigate operational risk by diversifying a community’s renter profile. The flexibility to attract not only traditional renters, but also business travelers, vacationers, and digital nomads, expands a community’s reach and erases dependency on any particular renter demographic.
Considering lifetime value
Renewals have long been primary NOI drivers in multifamily, but resident retention has yet to be optimized. The industry has been content to essentially offer four walls and a lease, and increasing centralization efforts are further retracting resident services and detracting from the personalization of the renter experience. However, renters have grown more sophisticated and are now looking for services from their communities beyond just a place to sleep. They want and expect a dynamic experience, and with occupancy rates currently slipping, it has become a renter’s market.
Operators must forge connections with residents. Whether that’s through attentive customer service or better events and programming, those connections create compelling reasons for residents to renew. Knowing every renter’s name, knowing their dog’s name, and curating original events that bring people together effectively drive retention. Creating authentic experiences and building a sense of community make residents want to stay.
The concept of customer lifetime value, common for years in other industries, is finally gaining traction in multifamily. In my experience, while the consolidation of high-level operations makes sense, the centralization of customer-facing functions frequently backfires. Any process that interacts directly with the customer needs to be kept in person and on site. When a resident is upset or has an issue, they want to talk with somebody in charge. The last thing they want is to pick up a phone and get put on hold or passed off to a call center (don’t even get me started about chatbots). When it’s time for a resident to renew, they are going to remember whether the team solved an issue for them or pushed them off to someone else.
Ideas gleaned from the hospitality industry are infiltrating multifamily, including the flex living experience. Building consistency between the guest and resident experience, whether the stay is three days or three months, is essential. So is establishing service standards throughout a portfolio. A primary issue with 12-month leases is the resident doesn’t have enough touch points with any particular brand, whereas in hospitality an increased number of touch points starts to build brand loyalty. As more multifamily communities expand beyond traditional 12-month leases to offer short-term rentals or flexible stay models, brand recognition and fidelity will become a distinct competitive advantage.
Most multifamily owners anticipate the deceleration of unfurnished rents and occupancy, particularly on the heels of unprecedented rent growth. It is when new supply enters the market during such downturns that they become concerned, and may overreact. As more multifamily owners deploy innovative, revenue-driving management models in lieu of cost-cutting compromises, the industry can begin to escape the confines of traditional leases. This will help combat the evolving economic headwinds that many multifamily operators are facing today. Reducing expenses can help some operators survive a downturn, but only by accommodating the unmet demands of the modern renter can they grow their businesses and increase the value of their properties.
Disclaimer: The opinions in this article are solely those of the author and do not represent the official position of Propmodo or its editorial team. We value diverse perspectives and aim to encourage open discussions. The information presented here is the author’s own and does not reflect our stance on the subject.