Secrets for Managing Renewals
Renewals are as much art as science, especially in a changing market. Managing residents’ expectations is a key part of the process.
If the market is really in the past-peak rent-growth stage, as Sandi Dumas, Director of Operations at Cardinal Management Group, said at Maximize in Austin, renewals will take on even greater importance in the coming years.
Dumas says one way apartment operators can get ahead of a declining market is by proactively offering lease extensions with no rent increases.
“We have found success where we negotiate on lease term rather than rate, especially in softer markets,” she says.
Extending lease terms is one strategy to weather a declining market. Knowing what to look for when the market is slipping and how to react will determine how well apartment managers weather the storm. If renewal increases are still possible, properly selling those is vital.
Daniel Amaral, Senior Director of Pricing and Revenue Management for Irvine Company Apartment Communities, looks at recent community performance to see signs of slippage in the market or softening in retention. “We want to shift the focus forward and address the upcoming expiration profile,” he says.
One sign of trouble is when a community’s pricing becomes inverted, meaning that new leases are less expensive than renewals.
That situation can cause executives or operational teams to re-evaluate their renewal strategy, weighing whether to increase or decrease current rates, offer concessions or change lease terms.
“Reconsider your new leasing strategy by putting more focused attention on your renewals. In softening markets, you want to increase renewal retention rates above the 50 percent industry standard,” says Trachelle Spencer, Director of Revenue Management for 18 Capital Group.
Because existing residents could be accustomed to getting yearly rent “nudges,” Amaral says they might not object to a slight increase.
“If renewals are their only remaining revenue engine, maybe go for it and push it a little bit,” he says. “Early in the recession, we know the markets are inverted before the press starts talking about it so we can ask for increases.”
When you are underpriced compared to your market and you have the ability to increase renewal rents, Spencer says that it does not hurt to experiment in these cases. If residents are taking rent increases, use BI to determine the residents’ threshold. If you are successfully receiving $30 increases push for a little extra like $35 or $40 a month on renewals. “You see where that breaking point is and dial it back,” she says.
Regardless of the market, residents will often question why their rents are moving up. In these cases, Spencer says she is not opposed pulling out pricing report to show the prices of similar apartments or inviting residents to shop competitors.
Dumas takes a similar approach. “We encourage residents to shop the market and we train the team members to use reports and quote competitors’ pricing,” she says.
But apartment firms should also try to reward loyalty. At an asset in Denver that was undergoing renovation, Dumas says Greystar put residents who were considering renewal at the top of the list of those whose apartments where hardwood floors would be installed.
“We look at the individual customer and cater to what is an incentive to them,” Dumas says.
Want more information on how to manage rent increases?
Join us at next year’s Maximize at the Omni La Costa Resort & Spa outside San Diego from October 1-3.