Year-End Demand Dip Not Good For REITS

Things aren’t looking so great for property fundamentals at some of the largest US apartment REITs. In most markets, rising layoffs and the stagnant economy led to a reduced demand for multifamily units in most markets across the country, found Bank of America in its most recent property manager survey.
The locally based firm polled more than 2,800 property and leasing managers at communities in 13 of the largest multifamily markets in the country to find trends in market conditions. The survey indices are measured on a scale in which a score below 50 means conditions are poor or have gotten worse, while a score above 50 indicates positive or improving trends.

In November, demand indicators such as traffic and leasing levels were some of the worst so far this year. Of those polled, 59% said traffic and leasing activity was below expectations for what was normal at this time of year, up 5% from last year. Conversely, 8.6% said they exceeded expectations. BofA’s traffic index declined 2.5 points from October to 27.8, marking the lowest score year to date. Meanwhile, the monthly traffic and leasing index fell from 31 in October to 28.6 in November. In fact, San Francisco was the only market in which survey participants saw increased traffic, though this city is still showing signs of growing weakness.

Reduced traffic led many landlords to reduce rents and offer more concessions, but that still didn’t help bump up occupancy, according to those polled. The rent index fell from 43.4 in October to 35.3 in November, while the occupancy index dropped 5.4 points over the month to 33.2. This survey was also the first month in which the rental index hit the 30s, with 59% of participants reporting flat rates month-to-month, and 35% saying they reduced rates in November, up from 29% the prior month.

Rent index scores declined across 10 major markets, compared to eight in October, while Atlanta, Charlotte and Houston held steady with scores of 50. Markets that were once strong, such as Seattle and San Francisco, exhibited performance similar to weaker markets such as Las Vegas and Orange County, CA.

“The weak results from November were similar to October regarding occupancy, and recent comments from management on conference calls indicated that there is an increasing propensity to double up or share smaller apartments,” comments Dustin Pizzo, an analyst with BofA.

As concessions become the norm, landlords are being more aggressive. More than half of property managers said they increased the amount of concessions they are offering over the prior month. The incentive index fell nearly 10 points to 25.5, marking the fifth month in a row below 50. Scores were in the teens in Atlanta, Los Angeles, Seattle and Phoenix, while Dallas was the only city that was able to hold steady on or reduce incentives. “Managers will continue to struggle with finding a balance between rental rates and occupancy,” says Pizzo.

One of the biggest factors weighing heavily on apartments is the competition from the single-family overhang.

Whereas construction of rental apartments is minimal—about 67% of those polled said there is none or only a little competition from new multifamily projects—the excess supply in the for-sale market is proving to be a formidable force. Roughly 60% of survey participants said these units pose some or significant competition. The single-family competition index rose 4.9 points to 43.1 in November.

For the next four to six months, BofA is cautious on apartment REITs, since the negative factors seem to outweigh the positives given the weak economy, rising unemployment and uncertainty over the future. The firm favors companies with “niche defensive plays,” such as Essex Property Trust, and “healthy balance sheets and limited near-term development risk,” as is the case with Equity Residential.

Are we listening to our customers?

I'd like to comment on a recent Twitter discussion in regards to removing the leasing staff and relying on call centers. As many of you know, who follow my Tweets, Blogs, etc. you know I am completely against call centers. This is not based solely on my personal opinion, rather hundreds of thousands of actual resident questionnaires, feedback, actual experience, etc.

We unfortunately live in a society where poor customer service and lack of personal interaction is the norm and accepted. I do understand the goal of Management is to cut costs, but this shouldn't be at the expense of excellent customer service and personal interaction.

I recently learned of a Management company who has eliminated all membership specialists and solely relies on call centers to lease apartments. This baffles me, as we are leasing the customer a home, not an item you pick up at the grocery store or Target. Again, this is someones home. So when a potential community member shows up at this leasing office, they are not greeted by a friendly smile, but technology and are sent, without a membership specialist, to view their potential apartment home. This drastic measurement will result in a loss of control by the management company, communication concerns and if a management companies call center is across the country or, at a higher cost savings, in a third world country, the accent will impede a mutual understanding of the product. Not to mention the lack of knowledge and high turn over with each call center.

I recently contacted this Management Companies Communities via their call center answering service. To no surprise, the call center staff was uneducated on the community, aside from the very basic details; price, size, location, etc. The call center staff had no idea on local amenities of the community and a lack of amenities of the site altogether and eventually told me they were a call center located out of state, but could get me in contact with someone who had more knowledge of the community. Guess what? The customer at this point, would be on to the next community who could offer "better" personalized service.

In recent studies, 64% of all North American call centers deem it a "major struggle" to find quality applicants for call center agent positions. This stat should give us a little insight to the person(s) your customer is speaking with. I completely understand in these economic times, Management Companies need to do everything possible to increase ROI as well as Operating Income.

Recently a management company contacted me to research their communities and help them cut costs in an effort to increase ROI. One particular community, like many others, had a Membership Specialist team of 5. Each of their Membership Specialists were paid roughly $8 per hour as well as a commission on each lease. We reduced the Membership team to 2, college educated, higher paid individuals making $13/hour with a renegotiated commission package. This increased the Management Companies annual ROI, which I can privately share, as well as Leasing Average from 23% of leases to 72% of leases. As a marketing consultant my job is solely to help management companies maximize ROI by making sense of their sales, marketing and training programs. To this day, nobody has been able to convince me a call center is a good idea.

The data proves our customers aren't drawn towards communities who utilize call centers. While our customers are avid "Texters" this is merely a pre-leasing information gathering affair, in an effort to gather all the pertinent data, then make a personalized leasing decision. An excellent sales team not only understands their community but has a passion for their community, which a call center just can't provide and management companies not seeing this are clearly "missing the boat". I pose this question to all of us in the Multi-Family Industry... Are we "Really" listening to what our customers want?

Social Computing Changing the Face of Marketing

Whether or not your company embraces social computing, rest assured that a large percentage of your consumer base, (particularly those under the age of 30), already has.  Chances are, they're already out there blogging, commenting, trading opinions, reviews, troubleshooting hints, and offering advice about your products or services.  They have no interest in your marketing messages, press releases, or static Web site.  What they are interested in is each other...  and they expect you to listen.

Here's a little secret: Companies succeeding in the Enterprise 2.0 marketplace aren't devising ways to control their branding message; instead, they've ceded control to the consumer and are listening to the conversations taking place around their products and services.  By using social networking tools, big businesses are paying closer attention and reacting-not as corporate monoliths via press releases, but as individuals, with faces, personal profiles, opinions, and stories to tell.  And these enterprise organizations are assessing the feedback and actually using it to improve their products, service and customer relationships.  Are you?

Green Apartment Communities

The key to living greener isn't making radical changes in your lifestyle, its being wiser with what you use or consume.  While living at an apartment community there are many things we can do to help us live better. 

 

·      Recycling

·      Using energy star appliances

·      Using  water-saving showerheads

·      Replace indoor lights with compact fluorescents or LEDs

·      Bringing  your own utensils to work; less plastic for landfills

·      Programmed thermostats

·      Using recycled paper

·      Using air purifiers and filters

·      Shopping for products that are locally grown

·      Try to cut down on the number of times you use your dishwasher

·      Use curtains and shades to keep the heat in during the winter

 

By making small changes in how we live our lives we can make a big difference.  By unplugging appliances you’re not using, taking a bag to the shops rather than using plastic bags, and switching our light bulbs to low energy we can be much more environmentally friendly and conserve energy.

 

Every year more than one hundred million trees are destroyed and three million cars’ worth of energy is consumed all in the name of producing, distributing, and disposing of direct mail solicitations.  The good news is that a growing number of companies are starting to turn their attention to the problem.  

 

 

·      Maximize our website

·      Using recycled promotional products

·      Making pdfs and downloads more user-friendly

·      Evaluate printed materials lifecycle impact

·      Printing less

·      Use cradle-to-cradle material choices

·      Using other green vendors, such as shippers and printers

 

The best green marketing techniques focus on avoiding waste and following common principles of efficiency,  simplicity, and creative ways to do more with less.

Apartment Internet Marketing

Over the past few years owners, developers, and managers have focused time and energy on improving their use of technology.  Apartment residents are looking for more efficient and high quality in everything from the latest computer software to utility bills and cable television services. 

Apartment Internet Marketing Conference is the premier conference on Internet marketing and online transactions for the multifamily industry.  The attendees network with the best and brightest in the industry and take part in practical learning sessions focused on using online technology to get more leads and signed leases. 

The Internet will continue to lead the multifamily industry as it does our daily activities at work and at home.  A large portion feels that the Internet is the single most important way to generate leads.  According to the conference attendees, Internet marketing, pricing, and lead management will be top priority for most apartment communities in 2008, followed by the automation of resident requests and payments.   

Are your apartment communities heading in the right direction?