HOUSTON — While it’s not an ideal time to be a multifamily property owner in Houston, it is a good time to be working on behalf of one.
With their clients sitting on excess supply, apartment locators — middlemen who match tenant preferences to properties — are being increasingly called upon to deliver tenants. Locators work on commission, typically earning about 20 percent of the first month’s rent for their services. But in Houston’s soft market, that figure is rapidly rising.
Ricardo Rivas, chief investment officer at Allied Orion Group and one of several panelists who spoke at the InterFace Houston Multifamily conference on March 28, noted that while locators are costly, the services they provide in a down market are crucial.
“They [locators] are our best friends right now,” Rivas said to 175 industry professionals who gathered at the Royal Sonesta Hotel. “We reach out to them, we throw them parties and we give them big incentives to bring tenants over.”
Todd Marix, a senior managing partner in HFF’s Houston office who spoke on an earlier panel, addressed the rising operating costs that landlords are facing. In his view, fees paid to apartment locators are quietly doing major damage to property owners’ net operating income (NOI).
“Concessions are the most visible measurement of weakness,” Marix said. “What gets lost in the discussion, in terms of the threat to NOI, is locator percentages, especially when that rate goes from flat to a certain percentage, and then that percentage goes from 75 to 100 and so on.”
The excess supply has also heightened demand for experienced property managers, another group commanding higher pay. Because tenants have ample options, they most likely won’t renew their leases if they aren’t satisfied with the customer service their property manager provides. Managers with track records of keeping tenants happy and in place are fielding more lucrative job offers.
Competition among landlords for experienced managers is a byproduct of these soft market conditions, according to Jenifer Paneral, regional vice president at property management firm Pinnacle.
“Keeping people happy on the site is really important,” she said. “We’re seeing a lot of competition for great employees. That’s one of our biggest challenges — to keep talented people in place and not get into a bidding war on salary.”
The competition for managers and leasing agents is particularly stiff for newly developed, Class A properties in lease-up. But without quality people at these positions, Paneral said, tenant retention is much harder to come by.
Minimizing the amount of time that a unit is vacant is crucial to limiting costs, Paneral added, particularly for companies with large portfolios.
“If we reduce vacancy by even one day in our 10,000-unit Houston portfolio,our monthly revenue increases by $333,333, with average rents at $1,000 per month,” Paneral said.
Rivas and Marix both noted that as more units have come on line, the pressure to staff them with quality managers has increased. Not only has this situation led to pay raises for managers, but also for groundskeepers and maintenance workers, cutting further into landlords’ profits.
“It’s almost like expansion in pro sports,” Marix said. “When you expand, you dilute the product, and the talent level isn’t quite what it was when you started. It’s a real challenge to get good on-site folks, almost like payroll warfare.”