Using low- or no-cost best practices, apartment managers can reduce turnover and improve NOI without expanding their budgets.
Attention to retention among apartment managers has increased as the rental pool has gotten smaller, as competitive housing such as condos and single-family homes has become more prevalent, as units are sitting vacant longer and as concessions have grown. Because of leasing challenges and the rapidly rising costs of move-outs, owners and managers have become more and more focused on how each team member can personally “close the back door” to protect cash flow, net operating income (NOI) and asset value. Resident retention has a significant impact on NOI, so increased attention by every team member can have a significant influence on their property’s performance. This attention is critical because NOI and increasing asset value are the reasons investors acquire multifamily assets.
Turnover presents a tremendous challenge for the apartment industry. According to NAA’s Annual Income and Expenses survey, the average turnover rate over the past six years ranges from 55 percent to 62 percent. For many industries, having to replace this volume of customers annually would make it nearly impossible to keep the doors open. Service and manufacturing businesses alike rely on repeat business.
In the multifamily industry, repeat business equates to lease renewals. Each member of the property team, including office and maintenance associates, personally impacts resident retention on a daily basis. Using low- or no-cost best practices, apartment managers can reduce turnover and improve NOI without expanding their budgets.
Party Poopers
An Internet search for resident retention ideas often results in suggestions such as sending residents a birthday card, providing a community newsletter, throwing pizza parties and delivering any number of trinkets as a way of expressing gratitude to the resident for choosing that community. Surveys of millions of residents, however, show there is no data to support that these tactics reduce turnover.
The data does provide clear focal points that often cost nothing to property management companies and have a direct impact on a resident’s decision to renew their lease – and therefore protect NOI and asset value. The renewal process begins at move-in and continues through each resident call and e-mail, each work order that is completed and each personal interaction between a resident and a team member throughout the life of the residency.
‘Look Right’ Inspection
Following up after every move-in is critical toward ensuring that the resident’s new home is clean and that everything is functioning properly. According to the SatisFacts Insite Index, 26 percent of new residents experience a non-working fixture or appliance. First impressions are lasting, and if residents discover their stove or bathroom lights are not working, they immediately begin questioning their decision to make the community their home. In fact, new residents who have an outstanding maintenance issue are one-quarter less likely to renew their lease compared with longer-term residents with issues.
Maintenance teams can personally impact this first impression by implementing what apartment industry consultant and member of the Apartment All Stars Bill Nye refers to as the “look right” inspection process. The process requires the maintenance team member to enter the front door and follow the wall to the right, checking every fixture, outlet, bulb, appliance, window, screen, window covering, lock, latch, door, countertop, etc. Eventually the tech ends up back at the front door with a thorough inspection completed so deficiencies can be remedied immediately.
While this procedure may add time to the inspection process, it safeguards against new residents walking into problems, causing them to wish they had moved elsewhere. It also reduces the amount of additional work the maintenance team will have to come back for after the inevitable service requests.
Work-Order Satisfaction
It is critical to follow up on every completed work order to ensure it has been completed to the resident’s satisfaction. A SatisFacts correlation analysis reveals that this practice has the second greatest impact on renewal likelihood.
According to the 2009 SatisFacts Index, only 80 percent of residents’ service requests are completed properly and to the residents’ satisfaction the first time, and 26 percent of residents report a maintenance problem still exists. While some outstanding maintenance issues may be attributed to requests not having been completed properly the first time, some issues may be ones that the resident has not reported. They may be minor issues such as a loose handle on a cupboard or a screen door that no longer slides open easily. Such issues are a daily irritant to the residents, but not severe enough today (in the resident’s mind) to warrant a formal service request.
Regardless of the type of outstanding maintenance problem, part of the luxury of living in an apartment community is knowing that someone else is responsible for taking care of the home maintenance. When that luxury becomes a liability, the resident’s perception of value diminishes. They then begin to wonder if they might have better service (and maintenance) down the road at a competing community—and then they get their renewal letter.
By following up on every completed work order, office staff members can ensure the request was completed to the resident’s expectations and also ask, “Is there anything else we can take care of for you?” This question will often prompt the resident to remember some of those “little things” that bother them. While the metric is up seven points from the prior year, the current reality is that only 41 percent of residents receive any kind of follow-up. This means nearly 60 percent of residents may potentially be stewing about the perceived “bad job” that was done or the “poor condition” of a home for which they are paying their hard-earned money to live in. With each follow-up effort, value is enhanced when residents feel confident that their maintenance issues will be resolved effectively and efficiently.
Same-Day Response
Nobody wants to have to work hard to be a customer. There is nothing more frustrating than when a resident has to continually contact the management because the onsite staff is not responding to calls and e-mails. To avoid that problem, establish a standard that all residents receive a same-day response to any call or e-mail.
The previously noted SatisFacts correlation analysis identified “Prompt response to calls and e-mails” as the topic that has the greatest impact on renewal likelihood. The issue is not when the manager is responsive, it’s when the manager is not. The last thing any owner needs is for residents to leave because the staff is not responding. While many property management companies already place this as a priority, the SatisFacts Insite Index for the Move-In, Work Order and Pre-Renewal feedback modules clearly shows a negative trend of perceived responsiveness after the initial move-in experience. (See “Delayed Response Is a Dealbreaker.”)
This common sentiment is summarized best in this quote from a SatisFacts Annual Resident Satisfaction Survey: “The staff has not been trained in customer service. Only in sales. Once you sign a lease they are unresponsive and indifferent to their customers.”
The office staff can personally change that perception by ensuring they respond to all resident calls and e-mails on the same day they are received. Even if the resident has asked a question and the answer isn’t available yet, team members create enormous goodwill when they return the call or e-mail to say, “I just wanted to let you know we are still looking into your concern, and we’ll give you a call as soon as we have an answer. I didn’t want you to feel that we’ve forgotten about you!”
Retention > Leasing
Because of the significant impact that reducing costly turnover can have on NOI and asset value, it is critical for property owners and managers to support a focus on service delivery and communication and make retention at least as important as leasing. Individual team members create the resident experience, and their commitment to service basics throughout the entire resident life cycle has a direct impact on the financial solvency of not only their own property, but the entire company.
The good news is that as each team member implements basic follow-up and response-oriented strategies as a daily standard, turnover will be reduced and owners will see bottom-line proof that NOI is being protected and asset value maximized.
Jen Piccotti is Vice President of Consulting Services for SatisFacts. She has more than a decade of resident loyalty and process efficiency experience and has been in the multifamily housing industry since 2000. Doug Miller is Founder and President of SatisFacts and has worked in the multifamily housing industry for more than 20 years. Contact the authors at jpiccotti@satisfacts.com or dmiller@satisfacts.com.