3 Strategies to Fill Your Long-Standing Vacant Apartments

Vacancy loss is the bane of all multifamily housing operators. Once an apartment is empty, that revenue opportunity is lost forever. So it’s not surprising that all sorts of methods (and madness) have evolved to deal with units that have been vacant for a long while—the so-called “long-standing vacant” (LSV).

Over the past 10 years, multifamily housing (MFH) has seen rapid adoption of automated pricing and revenue management (PRM) systems. By now, I’m guessing more than half of professionally managed multifamily units are priced using some form of automated PRM system.

Yet, there are still many business practices that affect optimizing revenue for all MFH operators, whether on an automated system or not. Among the most critical of those is dealing with LSVs.

The most important revenue management concept is that we manage “demand streams” and not just individual units. So we look at the supply and demand of studios, 1 BRs, 2BRs, etc. and set separate strategies for each based on the underlying statistics. Where individual units have noticeable differences, we deal with those differences by assigning unit amenity values—both positive and negative.

In this context, the most important RM principle relevant to LSVs is this:

It doesn’t matter whether one unit is vacant 52 weeks in a row or 52 units are vacant one week each consecutively. It’s the same cash flow!

Apartments are not bananas that rot or spring clothing lines that go out of fashion. We don’t have to reduce a price just because a unit has sat vacant. That doesn’t mean we don’t do anything. Obviously something is causing the unit to be an LSV. But instead of automatically prescribing the solution of lowering price, we should first diagnose the cause—and then apply the appropriate prescription.

I have been looking at the challenge of LSVs for more than 15 years and recommend the following protocol each time an operator encounters an LSV:

1. GOYA

The first thing to do with an LSV is GOYA—a simple acronym for “get off your ass.” Get up and walk the LSV.

a. If it’s not sparkle ready, then do whatever is needed to fix up the unit.

b. If the tour path has an issue, then either alter the tour path or otherwise fix up whatever is wrong with the tour path.

c. If there’s something about the unit that is different (and worse) than other units in the floorplan (e.g. location, amount of light, specific unit feature, etc.), then apply the appropriate negative amenity. This will reduce the price; but it will do so because of a specific observation about the unit rather than a knee-jerk response to lower the price just because it’s an LSV.

2. Review history of the unit

If GOYA doesn’t reveal the cause, then look at the history of the unit. If there’s been a series of leases and cancellations, it’s possible that the unit hasn’t really been “on the market” for very many days—it’s just been vacant a long while because it was off the market a large proportion of the time. In this case, don’t change anything. Just remind the leasing staff it hasn’t been available much and show/lease it normally.

3. Mini-model the unit

If all else fails, mini-model the unit. Give the leasing staff $200 to go to Pier One, Crate & Barrel or Bed, Bath and Beyond and let them shop to spruce up the unit—particularly the kitchen and bathrooms. Consider promoting that whoever leases the apartment gets to keep the mini-model package. I don’t know whether it’s the homier feel, the excitement for the leasing staff or some combination of both, but this tactic is remarkably effective for moving LSVs—inexpensively and without damaging the rent roll.

Lastly, I’d like to give a word (or more) on another practice I’ve seen for moving LSVs—the “extra” leasing bonus. While it can work, I’m not a fan of it for a couple of reasons:

a. If we’re going to give an economic incentive, it’s generally a better idea to choose one that benefits the customer.

b. It can create a false incentive. I once ran into a company that had essentially institutionalized the practice to the point that everyone knew an extra bonus would be given on any aged vacant greater than 30 days. Guess how many times units in the 21-29 days vacant were leased? Agents were savvy—they leased other units until the unit in question hit 30 days and then they would get the bonus. Perniciously, management saw that units leased quickly once a bonus was applied and thus thought the tactic was validated by those statistics.

So if you do ever use the “extra” bonus, use it sparingly so it is a surprise and not likely to distort leasing behaviors in undesirable ways. But I prefer simply not to use the tactic as the 3-step protocol above almost always works.