When To Walk Away from a Client
By Les Shaver
This is the second article in NOI Disaster Plan, our series exploring alternative ways to improve apartment operational performance with the end goal of maintaining profitability in all economic climates.
To get ahead some property managers must know when to walk away.
Flat rental markets can provide fertile ground for pricing wars between owners and management companies during the selection process.
“With flat rents, everybody is throwing out one company and bringing in another,” says Bob Kettler, Chief Executive Officer and owner of Kettler. “There is a lot of transition. Everyone is selling against each other.”
Management companies such as WinnResidential have used this time during the past year to take a harder look at its clients.
“We made a conscious decision to focus on tactical growth and to position the resources of the organization to best serve our clients. Our priority is quality performance, not quantity of units,” Patrick M. Appleby, President of WinnResidential, says. “We evaluate new business opportunities based on whether we believe we can deliver sustained success for the client, as well as our own margin.”
If something does not fit, Appleby turns down the opportunity.
“The test is whether the operational and economic factors will produce mutually beneficial outcomes,” he says. “Using that formula, we have reduced the number of properties in our portfolio over the past year and aligned our key resources to best serve our clients and to pursue new strategic opportunities.”
Dennis Treadaway, President and CEO of FPI Management, says that last year, for the first time in his career, he fired clients who became “inefficient” for his company to manage.
“[Some owners] become so active in the management process that it becomes management of the client and not the management of the property,” Treadaway says. “It is not effective for property management companies to operate in that environment. With remorse, I will move away from an account because it doesn’t fit our efficiencies.”
Other times, it just becomes impossible to keep a company as a client if you want to avoid liability. “Additionally, they can provide direction that is inconsistent with fair housing practices and employment practices, creating a risk adverse environment for the property manager,” Treadaway says.
Treadaway, who manages more than 100,000 units, is emphatic when he says finding a compatible client is not dependent on the size of their portfolio. Additionally, he relies on what he calls “organics,” or new business, to offset operating expense increases in areas, such as labor or overhead.
“As overhead goes up and rents soften, there is no room to increase margins if organics don’t come in like we think they would,” he says.
Still firing a client is far from commonplace. One long-time manager says he has only dismissed two clients. “There were two reasons: not paying bills and verbal abuse of our employees,” he says.
The NOI Disaster Plan Series: Steps to Take When Revenues Tumble