Where have all my renter’s went? They were here just a while ago. My multifamily property looks at it’s best. Management is doing all the right things. Heck, we even painted the sign and checked to make sure the phone was plugged in. Now what? First, be ready for their return. Don’t become so complacent that you leave units off-line for extended periods without review. This only causes more harm in the long run as shuttered units develop additional problems (complacency begets complacency). The biggest factor in timing a measurable increase in traffic will correlate with jobs. Jobs jobs jobs.
Assuming your potential customer’s are not completely avoiding your multifamily asset because of poor presentation, mis-management or missing windows; where are they? At the moment they are home with Mom or doubling up with that high school friend to save money. Most are looking for jobs. Many are under-employed maintaining part-time work while waiting for the jobs market to strengthen. I know of one couple that divorced but still live together because it was the most cost-effective thing they could do to maintain their lifestyle during this recession.
In-migration may be taking a break during the recession but so has construction. The level of residential construction has slowed so much that as demand begins to pick up the tide will eventually turn; first to normalized historic occupancy, then surpassing this level until such time as construction activity makes significant strides. The question is how long will it take to burn off the current “excess” inventory that has created the massive shadow rental market from single family. My estimate is no time soon. When people begin to “unpack” from doubling up, multifamily vacancy will decrease and rent growth will return but only moderately. For that to happen we need consistent GDP growth above three percent (3%) and job growth of 100,000 jobs per month. These are nominal growth rates that would lead to greater stabilization and not exponential increases.
When things get this tight the rental market becomes a zero sum game. Since there are more multifamily units than people to rent them it’s like a round of musical chairs with too many chairs; even when everyone gets a seat there are still seats remaining empty. As there is an excess in capacity (at the moment) your customer’s have more alternatives than just about anytime in the past ten years. Many of your potential customers are shopping- and shopping hard. Can you answer the following questions with a few minutes notice?
- Do you know your competition? What multifamily properties, specifically, is your asset competing against?
- Are your concessions competitive or better than competitive multifamily properties? There are no awards for second place.
- What is your cost per square foot compared to competing properties of a similar age and with similar amenities?
- Have your reviewed your advertising venues and response rates? Do you have a website tie-in to your local advertising?
If you can afford to do so, continue with cosmetic upgrades even with the currently disproportionate vacancy. You will be better prepared to absorb new tenants and not be in hurry-up mode to accommodate them. Use a checklist format for reviewing ready units. Consider adding an accent wall in the living room (a single wall painted in an offset color to the rest of the apartment), upgrading light fixtures and plumbing fixtures if they are dated.
Prepare to be competitive while controlling costs. Growing revenue while controlling costs has the most direct positive impact on Net Operating Income (NOI). Growing NOI is growing asset value.