Help Renewing Residents Face Sticker Shock
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By Paul Bergeron |

February 22, 2022 |

Updated March 4, 2022

6 minutes

By establishing strong, personal resident relationships, these difficult conversations can go more smoothly.

For many apartment communities, one unfortunate result from the past two years’ pandemic is that resident relations have increasingly become more transactional than relational, according to apartment management consultant Lisa Trosien.

Residents are tending to be more cautious about personal engagement because of health and safety reasons. Onsite staff, in some cases have, too. Some apartment operators have even gone fully remote, eliminating their onsite offices entirely.

For 2022, this comes at an inopportune time as residents and onsite staff, needing to discuss leasing renewals, are facing some of the toughest financial conversations they’ve encountered with their current set of residents.

A recent informal nationwide survey of 25 leading apartment companies by Trosien found that information about these increases—as high as 40% in some instances—has been conducted through email.

“Every one of them said they communicated it via email; that’s hardly the best way to build strong relationships with your customers,” Trosien says.

Rhetorically, Trosien asks: “If you’re a resident, do you want to be informed by your apartment community—one that says it provides outstanding customer service—that your rent is going up by more than one-third from what you are currently paying? Is this really the great customer service you say you are providing?

“These increases we’re seeing are hefty. And we’re going into an election year. And rent control is a hot topic. Many management companies should re-evaluate their method for communicating a rental increase or at least be doing a better job of humanizing their communication with their residents.

“We’ve strayed from relational and have really headed toward being more transactional during COVID-19—not that we were all that great at relational before. We just need to take a look at the entire scope of customer service we are providing.”

Consistent Outreach Softens the Message

Some apartment companies are doing a good and consistent job of communicating with their residents, creating personal relationships that are strong enough that they can convey this type of news via email.

Rebecca Smith, CALP, WPM Real Estate Management, said, “Maybe I’m an outlier here, but I honestly don’t mind the email approach. As a resident, if the management company has delivered on great service and added value, then an increase is expected and I’d rather not spend 15 minutes speaking about it. And if I’m that resident or the property manager, by doing my research, I’d realize the increase is likely in line with what else is out in the market. Besides, who wants the hassle of moving?”

Jessica Carter, Vice President, Nurture Boss, said that cost-of-living increases are in the news and people are hearing about them everywhere. “But sometimes your residents aren’t thinking about how it would affect them, they are focused on making ends meet and living their lives status quo, so getting that news about a rent hike could still be a shock.

“So, whether it be emails, texts, calls, letters, etc., it’s critically important to keep outreach to residents consistent and personalized throughout the residents’ lifetime at a community. It starts with move-in, and also applies to other marker moments such as power outages or policy changes at the property as well as every day moments like holidays, birthdays, etc.

“This way, when you do have scenarios like rent increases come up, residents aren’t feeling like they are hearing from their community out of the blue. If there is open communication and efforts made to build a relationship, difficult updates like this can always go more smoothly. By establishing that type of communication relationship, the resident will feel more like one of one and not one of many.”

Even still, Judy Bellack, Chief Consutant, Judith Lawrence Associates, said that “no matter how that message is delivered, massive increases are a shock to the system. Perhaps the industry needs to rethink this dynamic on the front end. Especially if the only time the resident is contacted is when there’s an increase/lease renewal.”

Some apartment companies are finding success doing a “warm call” 90 days before the lease is up to discuss the renewal. The community’s staff then calls again once that renewal notice has been sent.

Renewals Are at Record-High Frequency

Inflation in what Americans classify as “shelter” has reached its highest level in 13 years, driven by rising wages, moves by owners to recoup losses and the injection of a record monthly $2.9 billion in government housing subsidies, Financial Review reported.

Owners’ equivalent rent—which measures mortgage and related costs—rose 0.4 % in December and 3.8% for the year. It was the fourth consecutive monthly increase and the highest annual figure since April 2007, according to the Bureau of Labor Statistics’ report issued in January.

RealPage economist Jay Parsons said he suspects the industry will see large renewal increases through at least the first half of 2022 as discounted leases come up for renewal and operators work through loss-to-lease. Renewal rates will likely moderate into the summer and fall as higher-priced leases signed during the peak growth expire.

Parsons in January said that so far, when apartment communities raise renewal rents closer to market level, renters are choosing to renew at record-high frequency.

“Why is that?” he asked. “Remember that renewals have generally grown much slower than new lease rents in this cycle. On average, an existing renter pays about 10 percent to 11 percent below market right now.

“More apartment and single-family rental operators are starting to push up renewal prices, but generally are keeping rates discounted relative to new lease rates. True new lease rent growth [trade out] in December was 16 percent, compared to 9 percent on renewals. So, there’s still an incentive to stay in place. The renewal offer may look expensive until you shop around and realize you’ve still got a bargain.”

It’s Usually Cheaper to ‘Stay Put’

Parsons said that there’s not a lot of availability anywhere for apartments, single-family rentals and for-sale homes– and at all price points. “Everything is expensive,” he said. “Usually, the best and cheapest deal is to stay put.”

He said that renewal increases are highest in Class A and B apartments (10% to 11%) and cheaper in the less-expensive Class C (6%), which is below the Consumer Price Index. Retention rates are actually highest in Class C (63% as of December), but are increasing in every product class.

“While the numbers are higher, this is the normal pattern: Class C workforce housing operators tend to increase rents at the lowest pace and see the highest retention,” he said.
Parsons pointed out that market-rate renters have more money than ever.

“Wages are way up in this group, so affordability isn’t typically an issue,” he said. “Renters are paying the rent, too. Although even pre-COVID, Class C renters were more likely than A/B to miss a rent payment, so that could factor into pricing. Remember that most property managers aren’t offering renewals to non-paying renters, so non-payment isn’t a factor in these numbers.”

High retention is not correlated with revenue performance, Parsons said.

“In a high-demand environment, operators can usually backfill departing renters at a higher rate,” he said. “But when you factor in turnover costs, particularly in Class C where the nominal rent increase may not cover rising turn costs; and leasing risk, even if that risk is lower today, plus policy risk and public relations risk, many operators still prefer to play it safe on retention by offering discounted rates on renewal.”

 

Paul Bergeron is a freelance contributor.