How big a role do measurements play in selecting a property management partner?
As streams of data and analytics flow from proptech and fintech into the multifamily housing industry, owners are evaluating several different factors in selecting property management partners, including key performance indicators (KPIs).
Industry sources divining the most important indicators can compare potential for revenue growth, delinquency rates, leasing conversions, along with the always popular profit and loss statements. Zamir Kazi, CEO, ZMR Capital, a real estate investment firm based in Tampa, Fla., prefers the classic predictors
of success.
“Rents, occupancy, income growth projections, expenses and turn times should be in-line with or favorable to similar vintage properties within a given submarket,” he says. “We look at forecasts and capabilities, especially compared against our projections when selecting a management partner. We also look at scale in a market, in-place talent, teammate retention, vendor partnerships and pricing.”
Beyond the Numbers
Matching a property with a manager can extend beyond the obvious numbers. “KPIs are among the data we analyze, and they are clearly important,” says Marc DeLuca, CEO, Eastern Regional President, KBS, a REIT based in Newport Beach, Calif. “We also assemble our own proprietary data. Management teams are required to match their level of service to the quality of the property they are managing.”
On the other side of the fence, property management companies strive to keep their portfolios polished and inviting. “When owners approach us, they’re looking to see what buildings are in our current management portfolio, what types of multifamily assets our agents have experience with and how this experience aligns with their building or portfolio,” says Calynne Oyolokor, SVP, FirstService Residential Multifamily Rental Division, based in New York City. “These clients are also looking to see how we manage collections, how we can support [resident] retention, marketing to prospect[s] and the depth of our compliance support, as well as the training and re-education programs we offer to building staff.”
Industry Changes
The rental housing industry is currently going through a time of great change, as short-term rentals have been muscling into buildings that mostly housed units with one-year leases. A market for apartments that function more like hotels has emerged as digital nomads flit from property to property.
Owner-operators are building brand awareness through loyalty programs designed to keep transient residents coming back, even if they change cities. After years of pandemic induced shutdowns, programming live events is making a comeback. Airbnb and other digital space-sharing platforms are partnering up with building owners in select markets to change the concept of how multifamily is marketed and rented. Entire buildings are being designed to cater to a new cross-generational and highly mobile group of residents. The concept of corporate rentals continues to evolve.
The Power of Geography
Looking at emerging trends is a solid strategy, but some owners are more interested in matching up corporate cultures. “We look for a property management company that's aligned with our values,” says Jay Glickman, Chief Acquisition Officer, Vero Sade, a commercial developer based in Houston. The firm is putting an emphasis on short-term rentals and enters deals with no interest in running the property. They also prefer working with local talent.
“Somebody that has a proven track record within a market that we're entering into and scale, are both important components,” says Glickman. “We want to deliver an elevated community experience, something that's different than a lot of traditional owner-operators. We need to find the right property management company that can deliver the same type of elevated experience that we expect in our communities.”
Property management companies realize the power of knowing a market and use their local expertise as a marketing tool. “Every building we manage has its own unique personality, often shaped by the surrounding community,” says Anthony Rossi Sr., Chairman of Chicago-based RMK Management Corp. “Our team enjoys infusing that local flavor into the activities we plan to engage residents often tapping a popular local restaurant, bakery or shop to partner with for a resident gathering.”
Track Record Limits
There are limits to the geographic appeal, especially as operations scale out to a regional level. Having an existing track record with a management firm also is no guarantee of new contracts. “While past experience with a management company can translate to new business within a geographical area, it doesn’t necessarily apply from region to region,” says DeLuca. “When it comes to property management, there is no single fit for the whole country.”
Working with an existing partner can streamline things on the accounting side. “Because you are already familiar with their operational and accounting capabilities, you understand what they charge back to the property, their reimbursement schedule, what their reporting capabilities and turnaround times are, and the level of talent they attract and retain,” says Kazi. “There are other considerations that may not be explicitly outlined in a PMA that certain groups will be willing to do. One example is submitting replacement reserve draws on behalf of an owner.”
How the Numbers Work
Vero Sade pays out their management companies as a percentage of total revenue, which includes ancillary income from vending machines, late fees and everything in between. They consider a 95% leased metric as stabilized occupancy. Their partners are typically solicited through an RFP process.
ZMR Capital typically pays out 2.75% to 3% of gross collections figured as rental plus ancillary income per month combined with a per unit minimum of $25 per unit per month. They don’t use a formal RFP regimen but will ask for budgets supported by the candidate’s operating assumptions.
Important factors include the ability to scale in a market, the reimbursement schedule and reporting capabilities. “They also have to be approved by the lender,” says Kazi. “One of the most important factors is who will be the regional manager of the property, ideally with a cap on how big their portfolio is. This is a lynchpin position for management groups.”
COVID Stress Test
The pandemic put every property management company in the country to the test, whether they were ready or not. Kazi looks back on the experience as a barometer showing how firms perform in times of crisis. “The best groups were able to adjust and comply with CDC guidelines while still collecting rents at a high percentage, optimize virtual leasing and generally keep operating in a primarily remote capacity,” he says.
“The stronger management groups pivot and innovate and are willing to go above and beyond to provide great customer service to and on behalf of property owners. The pandemic helped highlight the groups that were less willing or able.”
Run It Themselves
Some owner-operators prefer to keep all the operations in one shop, including property management. “We see two primary benefits to having our own operating platform,” says Mike Gomes, CEO, Cortland, an owner-operator based in Atlanta. “As a vertically integrated company, we pride ourselves on being able to control nearly every touchpoint and aspect of the resident experience.”
Kazi sees an upside to keeping the management in-house if the owner has the bandwidth needed to perform the extra duties. “If they have the capability for onsite operations, accounting, back-end support of IT, procurement and legal, then they can benefit from receiving the management fee,” he says.
The extra responsibility comes with its own rewards. “They have more immediate control and quick access to data, full discretion on what overhead expenses are allocated and billed back to the property, which oftentimes is tough to distinguish and may be profit centers for third-party management groups,” says Kazi.
The counterpoint to running things themselves often comes down to the biggest KPI of them all. “The decision for an owner to self-manage versus partner with a third-party manager is typically related to cost,” says Oyolokor. “While self-management will eliminate a line item on their expense sheet, these owners often spend more in the long-term on building maintenance, compliance and marketing efforts, especially in cities like New York where the web of local laws and multifamily regulations is quite complex, and competition to attract suitable [residents] is high.
The Best Guess
KPI, geography, scale, resilience and successfully meshing corporate cultures all fall under the microscope when owner-operators pick a community management partner. But is there one factor that outweighs all the others? The renewed interest in providing residents with an experience beyond renting an apartment is a driving force in the industry. Finding partners willing to go one step beyond may be crucial. The line between management and event planning continues to move.
“We're a very hospitality-focused brand with programming and we furnish a short-term rental product,” says Glickman. “It's not your average multifamily owner operation. We have fitness classes three to five times a week and the coffee shop-bar concept installed in our clubhouse. We have events around our pool area. We want to make sure that our property management company that we're partnered with believes in our brand and multifamily community concepts.”
Scott Sowers is a frequent contributor to units.