By Dorothy Jackman
Can sound management and smart operations increase the economic value of a student-housing development? Certainly developers can build sought-after properties with market-leading amenities that drive rental rates, but without a strong property management company, they’re dead in the water.
Not only must the management company set a rent structure at the highest level the property can command, collect rent on time and process late fees, but more importantly it must be responsive to resident needs and reduce overall operating expenses.
To that point, one of the biggest mistakes property managers can make is treating student residents poorly because “they are just students.” Nothing causes a property to gain the bad reputation as a “place to hang out, but not to live,” faster than a lack of responsiveness to problems in the units. Managers must also realize that parents, often the financing source for the residents, want to feel confident that they are leaving their children in capable and responsible hands.
Responsiveness goes hand-in-hand with resident retention and is an important way to control operating costs. It’s far less expensive to re-sign current residents that it is to turn units and recruit new students.
The Retention Game
What are some of the best ways to succeed in resident retention? Property managers may want to consider the following:
- Fish when the fish are biting. The best time to get residents to renew their leases is when they are in lease-signing mode. Management should begin sending renewal agreements in September, right after students move in.
- Peer pressure. Renewal parties tied to social gatherings like pool parties or volleyball tournaments are a great way to get students to re-sign en masse. They also reinforce the property’s reputation as a social destination.
- Offer incentives. Incentives tied to early renewal deadlines might include free carpet cleaning or a fresh coat of paint.
- Factor in mom and dad. Ideally, renewal notices should be mailed home in time for the holiday semester break. They’ll spark the conversation between parents and students and offer a convenient and easy solution that prevents parents from having to invest time in another apartment search.
By the Bed or by the Unit
Management teams can also drive profits through the structure and term of the lease. Debate over by-the-bed or by-the-unit leases is the “chicken or the egg” argument of the student housing industry. With pros and cons to both, one must consider the bedroom configuration of the property and competitive offerings. As a general rule, 12-month by-the-unit leases (August to August), backed by parental guarantees, are preferred. This structure reduces costs associated with recruiting new residents and staggering unit turnover throughout the year.
On the other hand, owners can command a significantly higher rent for by-the-bed all-inclusive leases. Additionally, the convenience and minimal risk of cutting one all-encompassing check for rent, utilities and furniture, appeals to parents who may be financing the lease. This structure tends to be most successful in four-bedroom, four-bath properties that target freshman and sophomores. But with the higher rent comes a more management-intensive, and thus costly, operation.
To complicate the leasing structure even further, property managers must decide between 12-month and semester-long leases. For some properties that market themselves as an off-campus alternative to dorm living (with double occupancy/single bedrooms and shared baths), semester-long leases are a must because their target audience won’t support a 12-month alternative. In these markets, property managers do well to reach out to community organizations like summer camps, soccer leagues and church camps to lease the property during the summer down times.
On the contrary, in markets that will bear a 12-month lease, property managers can achieve significant cost savings by converting properties to annual leases ending July 31. One such property in North Carolina, in close proximity to campus, improved their net operating income by nearly 35 percent in the first year of conversion. The property was leased by a mix of students and conventional residents with terms staggered throughout the year. When it was purchased, the new owner allowed the conventional residents’ leases to expire and converted to an all-inclusive, 12-month model with terms ending July 31. As a result, the property became 100 percent student occupied and the owner was able to boost the rent significantly.
The good news is that even during challenging economic times, sound and creative property management can yield powerful results. And that’s a bottom line most developers are happy to live with.
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Dorothy Jackman is a senior director of the national multi-housing group and an associate vice president of investments for Marcus & Millichap. She can be reached at djackman@marcusmillichap.com.