InterFace Panel: Multifamily Managers Brace for Increases in Labor Costs

by Taylor Williams

By Taylor Williams

The multifamily management industry has been beset by labor shortages for years, which has in turn prompted the rise of numerous technological platforms designed to streamline, automate and simplify daily work. But the business of running apartment communities carries an inherent and irrevocable human element, and the cost of acquiring and maintaining that service is about to go up.

As an industry, multifamily management is hardly alone on this front. Businesses in countless sectors across the country are deadlocked in labor battles. While overall unemployment remains low at 3.7 percent, at 62.4 percent, the labor force participation rate remains about 100 basis points below its pre-pandemic mark, according to data from the Federal Reserve.

In addition, according to the Society for Human Resource Management, resignations hit record highs in 2021, with some 4 million Americans quitting their jobs every month. With much of the labor supply in flux and potentially looking to shift careers, the advantage shifts to deep-pocketed, well-capitalized employers who can not only offer higher salaries, but also greater workplace flexibility.

As such, multifamily management firms will likely be competing for talent among one another in 2023, as well as sparring with recruiters from completely unrelated industries. This holds equally true for management groups that own their properties and those that work exclusively as third-party operators. And it’s all occurring against the larger backdrop of inflation-fueled cost increases for repairs and maintenance, as well as rising property taxes.

At the 11th annual InterFace Multifamily Texas conference, a quartet of seasoned multifamily managers dove deeper into just how severe the spike in labor costs might be while also analyzing broader cost structures and revenue expectations for the coming quarters. The event took place at the Dallas Renaissance Hotel and was hosted by InterFace Conference Group and Texas Real Estate Business, both of which are divisions of Atlanta-based publisher France Media.

April Royal, vice president of operations at Atlanta-based Capstone Real Estate Services, was the first panelist to speak to the industry’s pressing need for qualified labor. Royal said that her firm has been tinkering with best staffing practices for the past two years, including leaning more about AI platforms, in order to deliver a better resident living experience.

Royal also suggested that shelling out extra dollars for top-notch employees is something the industry absolutely must embrace.

“We have several larger communities in which we’ve put two strong managers in place, and people wonder how we can afford to do that,” she said. “But if you have two different skill sets — one that’s administratively strong at managing capital expenditures — and one that’s skilled at managing people and can make an impact in the tech space — we’ve seen that system perform very well.”

Royal conceded that Capstone’s developer clients were reluctant to adopt that approach, given its heavy salary requirement. But due to the limited amount of qualified staff available, apartment owners and managers can reasonably expect to see stronger renewal rates by investing in premier on-the-ground talent. Yet it’s not entirely clear what exactly that talent is currently worth, Royal added.

“Affordability is something we’ve been studying all year, and the reality is that you have to make about $23 per hour to be able to afford a unit at one of our communities,” she said. “So we are rightsizing our salaries in current time. We want to be known as a company that’s known for not having any employees under $20 per hour, so we’re trying to figure out what skill sets are needed to match that level of pay.”

Part of that “rightsizing” process involves crunching the numbers among existing salaries of managers on a market-by-market basis and finding a median number. Royal said that creating this type of boundary for wage growth is an important step in managing the movement of that line item, but that it’s merely one part of a larger process.

Moderator Ed Wolff, chief revenue office of LeaseLock, which provides digital tools and solutions for multifamily leasing agencies, was the next to weigh in on labor challenges in the current environment. He reiterated the frustrations of competing with both fellow management agencies as well as wholly unrelated industries in the ongoing war for labor.

“Literally every one of our customers and prospects has identified staffing as the biggest challenge of 2022,” said Wolff. “They can’t attract the right people, and they can’t retain the people they do attract. In some cases on the operations side, we’re competing over 50 cents an hour, and now those people can go work at Chick-fil-A and earn $20 an hour. Solving that problem on an aggregate level is an enormous challenge.”

Another wrinkle in the labor situation that has emerged in recent years lies in the demand for workplace flexibility. While much of the daily work of multifamily managers has shifted to digital mediums, the on-the-ground element simply can’t be done away with overnight. And with any in-person job requirement comes limited or nonexistent flexibility in terms of when and where an employee works — another detriment to the industry, as Royal noted.

“Our industry has historically been a 9-to-5 business, and people just aren’t willing to work 9-to-5 schedules anymore,” she said. “We tried to work with that via a four-day work week, and we’re still trying to get creative and work within that. But at some properties, we’ve had to close the management offices on Saturdays, Sundays and Mondays, which boosted morale in some cases, but also required us to shift and redefine client expectations.”

Panelist Tana Blair, regional vice president at Dallas-based Highmark Residential, said that her company is attempting to preempt the labor shortage by investing in algorithms and platforms that allow the firm to better manage the flow of leads. And while a heavier reliance on technology has helped Highmark reduce its level of resident turnover, the company is still projecting hefty payroll increases among existing employees in 2023.

“We have employees that have been with us for 20-plus years, since we were known as Milestone Management,” she said. “They’re very good at what they do, and we want to hold on to them. So when they’ve gotten other offers, we’ve responded by offering pay increases mid-year. While we normally budget 3 to 5 percent in annual salary increases, we’re now looking at about 7 percent.”

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