Multi-Housing News - June 2009 - (Page 11)

strategy Multi-housing executives discuss today’s challenges—and tomorrow’s opportunities What’s Next By Christopher Hosford, Contributing Editor We’ve also managed lease expirations very carefully. Our expirations typically run about 20 percent in the first quarter, 28 percent in the second, about 32 percent in the third quarter, and 20 percent in the fourth, so we know that when someone shows up looking for an apartment in the summer, that’s when the expirations will occur. What has been your response to the recession? We’ve reset our occupancy targets based on what’s going on in the individual submarkets. Yes, we’ve targeted 96.5 percent in a healthy economy, but if a particular market is 93.5 percent, we don’t hold to our norm because that would cause us to disproportionately reduce rents. However, I’ve asked our operation executives to set occupancy targets slightly higher than the local market. We also are watching closing ratios very closely, which in our experience is about 30 percent. If the closing ratio drops to 20 percent in a changing market, that means our rents are too high, and we’ll bring them down. During more robust or steady times, these factors aren’t as big an issue, but today you want to ensure that your properties are making changes quickly, to stay in touch with the market. The apartment industry is coming up with a number of creative ways to do business despite adverse market conditions. Multi-Housing News asked four leaders to assess best practices, as well as the opportunities that lie ahead. Leo Horey, executive vice president AvalonBay Communities AvalonBay Communities is a leading REIT and property management company with communities located in high barrier-to-entry markets in Northern and Southern Calif., the Northeast, Mid-Atlantic, Midwest and Pacific Northwest. The Alexandria, Va.-based company manages more than 50,000 units. What, if anything, did AvalonBay do to set itself up for the economic downturn? We have a bias toward high occupancy. If the market shifts, you can’t keep it artificially high, but we entered the downturn with high occupancies of about 96.5 percent. We also tried to keep our percentage of furnished apartment homes around 3 percent, instead of the high single digits we had during the last downturn, which didn’t work out very well for us. This has protected us as executives started cutting back on contract workers and consultants who typically take these units. We also went into the downturn with a low number of month-to-month leases, perhaps 3 percent to 4 percent. Of course those residents can give you notice and move out, but they pay us a fee for this flexibility, and we haven’t suffered from unexpected move-outs. What’s your focus during a soft market? The fundamentals. You have to listen to your residents and provide them with the best service you can. That’s more important in a soft market than a strong one, because these days are less forgiving. Keeping your residents happy in any market is basic, of course, but if you consistently apply that concept, it seems to help a lot in reducing turnover. How are your communities coping with residents in financial difficulties? You have to be flexible in today’s market, and work with your residents within fair housing guidelines. We might suggest they consider one of our other more moderately priced properties, or that they go from a two-bedroom to a one-bedroom unit so they don’t breach their contract. More than ever it’s important to demonstrate that you care. In Mesa, Ariz., we just finished a program where we offered five units with one year zero rent to returning injured veterans. So, one, we’re doing something really good, and two, if you’re in a market where you’re going to run a vacancy, why not put that vacancy to good use? That’s a pretty creative way to deal with low occupancy. What else have you done? In Northwest Arkansas, the market is extremely soft and we had trouble leasing up our 392-unit community there. But that’s where Wal-Mart is located, and you couldn’t get a hotel room there during the week. So we figured we’d offer to business travelers one- and two-bedroom fully furnished turnkey units, complete with cable TV and Internet. You can rent one of our two-bedroom apartments like this for $2,000 a month. It’s been widely accepted, and we’re now 94 percent occupied there. We know that you can’t be as creative in every market, but you have to look for the opportunities. Michael Kaplan, CEO Kaplan Management Co. Kaplan Management owns, manages and develops communities in Ark.; the Dallas/Forth Worth area; Houston; Mesa, Ariz.; Santa Fe, N.M.; and Austin, Texas. The company, currently managing about 4,700 units, is based in Houston. www.multi-housingnews.com | June 2009 11 http://www.multi-housingnews.com

Table of Contents for the Digital Edition of Multi-Housing News - June 2009

Multi-Housing News - June 2009
Contents
From the Editor
Executive Insight: Acquisition Strategy
Investment: Construction Conundrum
Property Management: Tech Tools
Strategy: Property Management
Case Study: TOD
Technology: Resident Payments
Turning Over Apartments

Multi-Housing News - June 2009