InterFace Panel: Technology Can Optimize Multifamily Lease Renewals
DALLAS — Multifamily development in the United States has been on a tear over the last five years, increasing competition for renters and making lease renewal rates a casualty of war.
According to an August report from rentcafe.com, American multifamily developers delivered about 318,000 new units in 2017, more than double the deliveries from five years earlier. New multifamily construction between 2014 and 2016 averaged about 275,000 new units per year. That’s more than double the yearly average of 136,000 units per year that were delivered during the down years of 2011 through 2013.
In addition, according to the National Apartment Association (NAA), the U.S. will need to add about 4.6 million new units by 2030 to keep up with demand. In most urban markets, this pace of development has either led to concessions or discounts on rent.
This problem is compounded by the fact that in high-growth markets, renters usually have access to newer, competing multifamily product within a few miles. So long as they’re willing to move, renters can in theory receive new rounds of concessions from year to year.
To recoup income lost from concessions, as well as to post strong occupancies if a property is put on the market, multifamily managers and leasing agents have gotten smarter and more ruthless in their efforts to keep renters in place. Increasingly, this means relying on technology to secure lease renewals.
This is according to multifamily professionals that spoke at the InterFace Multifamily Texas conference on Sept. 26. The panelists were quick to assert that technology is critical to leasing efforts in today’s market.
“The multifamily industry used to measure itself largely based on physical occupancy,” said panelist David Marcinkowksi, partner at Madera Residential. “Today there are so many so many variables for apartments for which decisions have to be made that no single person can juggle all those balls and consistently give good answers. That’s where artificial intelligence comes into the picture.”
About 250 people from across the state and country descended on the Westin Galleria hotel in Dallas to get the latest insights on what kinds of algorithms, platforms and formulas are being used to keep units occupied by the same people year in and year out. Hugh Cobb, partner at Alpha Barnes Real Estate Services, moderated the panel on leasing, management and operations.
Renter Expectations Rise
The panel concurred that renters of Class A product in major markets are increasingly coming to expect certain features and services — trash valet, package lockers — to be included in their living experience, without adding to base rents.
“More and more, we’re seeing that there’s no additional charge we can levee for core technology items,” said panelist Kevin Owens, senior vice president of operations for CF Real Estate Services, a regional multifamily management firm. “So we’re seeking new, different technology options that we can charge for to hit our returns.”
Owens cited nest thermostats, which employ advanced algorithms to self-regulate energy usage, as an example of a technological feature that has become more of an expectation than a luxury among Class A renters.
Renters also expect to find talented apartment managers and maintenance staff at their properties. Competition for these employees has heated up during this cycle as more projects have come on line.
Technology plays a part in this battle for talent as well. Owens noted that his firm has begun to monitor its ratings on employer-ranking site glassdoor.com, as well as to track its rate of internal promotions. The company has also developed a mentorship program for new hires. Simple software applications allow these metrics to be calculated and analyzed with accuracy.
Owners Face New Challenges
James Flick, director of revenue management at Camden Property Trust, a Houston-based REIT, said his firm has begun developing solutions in-house to address the issue of sluggish renewal rates.
The company has a program that determines how many new leases and renewals need to be executed at a property in a given week to keep up with pro-forma projections. The formula considers input factors such as how many scheduled visits a property has and how many guest cars are on site.
“With business intelligence, the goal is to get prescriptive and have data that tells you exactly what you need to do,” said Flick. “We use our technology to work with our marketing groups and to define very specific goals and needs for them.”
According to Flick, based on historical data, Camden’s properties generally add one lease for every 13 guest cars. But with all the new properties coming on line, the firm knows that ratio could be inaccurate, as well as variable by market.
“On the marketing side, there’s constant uncertainty with some of these new techniques,” said Flick. “Some of them have been very successful, but in these highly competitive markets, there have been some challenges due to all the new supply.”
Marketing For Success
In a renter’s market, multifamily owners and developers must target tenants from all demographic classes to maintain strong occupancies. As such, the use of apartment locators, social media promotion — and of course, discounts and concessions — have become central to the multifamily marketing gam.
But perfecting the models, finding the right message and optimizing its delivery require time and manpower. Until the industry gets a firm handle on how to best execute these tasks, it will face uncertainty, especially in terms of technology.
“We’re all still trying to cater to millennials with our amenity packages, but we’re also trying to determine how much technology is good technology,” said panelist Stacy Hunt, executive director at Greystar, which manages nearly 500,000 units in the U.S. and Europe. “We want to make sure that whatever technology we invest in that is sustainable and truly acceptable to residents to pay for.”
— Taylor Williams