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Fighting Rising Labor Costs

outsourcing services
January 2020

Creative benefits and bonuses, technology and outsourcing are helping companies offset soaring workforce expenses.

The rising tide of today's sizzling job market has finally caught up to rental housing operators. Expenses for salaries and personnel increased 5.4 percent at apartment firms this year, according to the NAA’s 2019 Survey of Operating Income & Expenses, the highest jump in the sector in 15 years.

“It’s crazy,” says Jim Sullivan, Managing Partner at Washington, D.C.-based Fore Property, which has developed, built and managed more than 25,000 apartment homes in 40 markets nationwide. “With the unemployment rate as low as it is, it’s really hard to find good, quality people and keep them. Companies are paying higher and higher salaries, so employees just keep bouncing around.”

Across the sector, apartment operators report that the tight job market is forcing them to constantly review their compensation package against competitors; get creative with benefits and bonuses; and turn to technology and third-party outsourcing to get the job of property operations done at more communities with fewer people. It’s also bringing into focus the areas where companies can differentiate themselves with first-class, in-house customer service, and what’s better left to automation and outsourcing to third-party vendors.

“This is the new normal, at least for now,” says Kristen Magni, Vice President of Talent and Culture at Greenbelt, Md.-based third-party management firm Bozzuto Management Group, which operates more than 76,000 apartment homes. “As an industry, we’re in a really tight spot, and there are going to continue to be positions that are very challenging to recruit for.”

Here is how Bozzuto and five other firms are trying to meet the challenge.

Double Digit Increases in The Bay Area

It’s been a banner year for employees at San Bruno, Calif.-based 2B Living Property Management, a third-party manager of 1,300 units at 140 properties in the San Francisco Bay Area. While the unemployment rate hovered between 3.5 percent and 3.8 percent for most of 2019 nationally, in San Mateo County—the heart of the Bay Area—unemployment was at just 1.8 percent in October.

That scorching employment environment resulted in 2B Living, which has expanded by more than 100 percent during the past two years and was ranked as one of the fastest-growing companies in the Bay Area alongside tech standouts such as Pinterest, Uber and Lyft, giving its employees raises of 10 to 15 percent this year.

“This is an employee’s market,” says Vince Korta, 2B Living’s Chief Operating Officer. “That’s even more of the case here, where we’re competing against the tech firms who pay higher rates than real estate companies can pay.”

To keep up in that environment, 2B Living is offering employees bonuses from any ancillary income streams generated for the firm. For instance, at properties with seismic retrofitting projects—a constant reality on the San Francisco Peninsula—property managers who act as a contractor liaison onsite share in the management fee associated with the job.

But the firm is also leveraging artificial intelligence-enabled technology, such as chatbots and a virtual leasing agent that responds, via natural language, to many of the inquiries about its residents’ apartment homes.

“A leasing team of four people, which is what we have right now, just can’t handle the traffic of lead generation that’s coming in,” Korta says. “So that technology acts as our first line of defense for lead response. It allows our leasing agents to be more focused on tours, and less on all of the 20-minute phone calls that every one of those leads generates.”

The firm has also turned, with some trepidation, to a third-party call center for its after-hours maintenance calls.

“I hemmed and hawed a lot on outsourcing the maintenance call center,” Korta says. “We have a fairly resident-centric approach, and if they’re talking to another human being that isn’t a part of 2B Living, we’re obviously going to lose some control. But in the end, it was the right decision for us.”

Part of that decision was the call center’s location in Texas, and not overseas. “We didn’t want them talking to someone in a foreign country, especially in an emergency situation, which could just make it more complicated in some ways,” Korta says.

But 2B Living has decided not to automate a key area that many apartment firms have been experimenting with: Touring of units themselves. While self-tours, enabled by the installation of smart locks at properties, have received a lot of attention in the industry, 2B Living has decided to keep them human for now, since it feels that’s an area where its leasing agents can differentiate the firm’s approach.

“We’re not ready to just put a lockbox on the door and let someone figure it out on their own, especially in this environment,” says Rishi Khosla, 2B Living’s Chief Marketing Officer. “We still think that’s an area where it’s highly valuable to have that human approach, perhaps even more so because we’re using automation and AI in other areas.”

Finding Bodies for the ‘Touch Points’ That Count

Indeed, many operators say that while automation, AI and third-party outsourcing can help lighten in-house employees’ loads in administrative areas, it’s the touch points with residents and prospective residents that are most important to ensure today’s rental housing labor crunch doesn’t negatively impact a company’s brand.

Just look at the example of Bozzuto Management Group, which has been named the nation’s top management firm for online reputation for five years running by J Turner Research. Despite the fact that the company manages more than 76,000 units, prospective residents and residents who call in for leasing information or to log a service request talk to an in-house Bozzuto employee every time.

“We do not have any call centers,” Bozzuto’s Magni says. “We’ve tossed it around, but that’s not a model we’ve moved to yet. We do get a lot of phone calls, but all of those calls are handled by our site teams.”

The reason why is because the firm sees each one of those phone calls as an opportunity to differentiate its brand from a service perspective.

“That call is an opportunity to convert somebody who is thinking about coming in for a tour,” Magni says. “It’s an important conversation that should take place with a subject matter expert, somebody who knows the vibe of the building, knows the neighborhood and can speak to what it’s like to live in that community.”

The country’s top management firm is also being deliberate when it comes to self-guided tours. “There may be an opportunity, if someone wants to come back on their own and revisit the apartment, where that can be done with a self-guided tour,” Magni says. “But our approach is really hitting those human touchpoints that are predictive of a lease being signed. We feel if those touchpoints are executed on in an exceptional way, the lease will come.”

For Magni and Bozzuto, automation and third-party outsourcing is best applied to “back of the house, redundant and administrative tasks that are really taking people away from the work of attending to the customer.”

That might initially include scheduling tours, or logging service requests, while the actual functions themselves are still handled by Bozzuto staff. The firm turns to third-party vendors for groundskeeping, common area cleaning and specialty maintenance tickets, such as HVAC system repair. But even in the challenging area of maintenance technicians, it tries to keep most functions in-house.

“Over the years, we’ve tried to minimize our dependency on contingent staffing,” Magni says. “We don’t have a silver bullet that somehow digs up maintenance people that nobody else knew existed, but we do work really hard to create an inclusive work culture where people feel embraced.”

Using Tech to Help Employees Do More

Des Moines, Iowa-based BH Management, an operator of 90,000 units across 305 properties, is leveraging smart home technology across its portfolio to help maintenance teams access apartments more easily, and a maintenance management platform that allows staff to see the details of a service request and gather tools and supplies without making a reconnaissance trip to the apartment first.

And, like other firms, it’s experimenting with self-guided tours, dependent on prospect demand. “We do recognize that people want to tour on their own time,” says Brandy Daniel, Vice President of Business Intelligence Systems. “But, at a certain point in the process, they also want to ask questions.”

Daniel says BH is methodically assessing self-tours to ensure that when that time comes, its employees are there to respond and provide service. “Having a person available immediately is going to be key for us to do self tours right,” Daniel says. “But we’re only going to do it in a way that people feel comfortable, so we can help them when they want to be helped.”

Like other firms, BH is outsourcing after-hours call centers, and has been piloting using chat bots to lighten the load on its internal staff. It also contracts with third parties for turning vacant apartments in terms of painting and other maintenance, as well as onsite housekeeping, two tasks that aren’t resident-centric. At the same time, it’s very conscious of the areas where it can outsource, and which tasks are better left to its own employees.

“A big piece of that conversation that we always come back to is that this is a service industry,” Daniel says. “We want to make sure we’re giving our residents and prospects the best service we can, and think about how we are best able to do that. If it’s by adding a chat bot so guests in the office can get a little bit more attention from our staff, that’s great. But if it’s going to impact service in a negative way, that’s a big no for us.”

What to Outsource, What to Leave In-House

Focusing on which tasks it can do best in-house, and which ones are better left to third-party experts, is also a guiding principle at Greensboro, N.C.-based Bell Partners, which operators more than 55,000 units.

Chief Operating Officer Cindy Clare says the firm recently decided to outsource its revenue management process, which helps determine the rents at its units, to a third-party firm that specializes in the technology. But there’s a big difference between that and its core property management duties.

“Obviously, when it comes to your marketing and your regional managers, we’re absolutely going to keep those in-house,” says Clare. “But where there may be better subject matter experts that you can use, like revenue management, that’s where we’ve gone back and outsourced. They’ve got multiple experts and can be more cost effective.”

Clare also notes that Bell uses third-party vendors to turn apartments, especially when it comes to painting, as well as for cleaning and groundskeeping. Doing so helps the firm ramp up and down with the natural ebb and flow of vacancies and new leases.

“We outsource painting because our turnovers are done in bulk, and we can’t hire enough people to get that done internally,” Clare says. “It is something that requires skill, but we feel it can be addressed better by someone who specializes in it. I think everyone in the industry continues to look for those things.”

Turning Outward for Payroll and HR

At Sky Properties, a manager of approximately 1,000 units in Los Angeles, Founder and CEO Kari Negri is turning to third-party vendors for her payroll and human resources needs both to save money and as risk management.

“When you look at payroll, workman’s comp, 401k and medical, that stuff is incredibly time consuming, and if you do it wrong, the penalties are huge,” Negri says. “We feel that’s going to save us a lot of money.”

Making Building Automation Pay Off

Other firms are leveraging the new wave of smart home technology that’s rapidly being deployed at apartment buildings to get more out of the staff they have or deploy fewer staff to buildings today.

“Where we typically had two concierge staff on duty, we’ve been leveraging smart locks and virtual key access to reduce our labor costs and have just one concierge instead,” says Danielle Calcagno, Director of Multifamily Rental Management for Dania Beach, Fla.-based FirstService Residential, which operates 15,000 units. “The concierge is no longer the person who’s relied upon to hand a key to the dog walker, housekeeper or nanny. Instead, the resident is really driving that experience and controlling things themselves.”

FirstService is also deploying technology on the maintenance side to cut the number of trips its maintenance techs make throughout the day by gathering data digitally. For example, the firm uses sensors at its pools that automatically monitor pH levels and alert staff when maintenance is required.

“It monitors the water quality wirelessly, and it’s affordable,” Calcagno says. “So it reduces the labor of having someone go out there to do the same thing.”