I toyed with a “New year’s resolution” post, to welcome the new year, but as 2020 gets underway there’s something that we at D2 are really excited about. As multifamily housing operations specialists, we’re constantly looking for ways to eke out just a little more net operating income (NOI) for our clients. Can we get a few dollars more rent or reduce expenses by a few bucks? It’s a never-ending challenge, and anyone who’s been doing this for a few years knows how hard it is to keep finding those dollars.
But rather than the few bucks in expense savings, right now we’re preoccupied with the few hundred dollars a month that - for almost all multifamily communities - are just sitting there waiting to be plucked. Sounds too good to be true, doesn’t it? There simply can’t be a simple way to generate better NOI or we would have already done it, right?
After more than 20 years in the industry working with operators who manage more than 1.3 million units, we can tell you that if you are running multifamily properties you are probably sitting on at least a couple of hundred dollars a month (and maybe thousands) in incremental revenue.
The culprit? Drum roll, please…incomplete and/or inaccurate unit amenity configurations!
How Can This Be?
This may sound too good to be true, but when you think about what’s entailed in setting up amenities correctly, you quickly realize the potential for human error. Here are a few examples of things that go wrong all of the time:
- Not tagging features of value. You could place a small value on corner units, for example, but surprisingly people often overlook this opportunity. Another example: although streaming has made southern exposures less desirable (they used to be highly desirable in order to access Dish or Directtv), one or more exposures may be preferable for morning or afternoon sun
- Fumble finger community setup errors. Since many initial community configurations in PMSs are done manually, it’s easy for the odd balcony, ceiling fan or kitchen finish to be missing from a unit or two (or more)
- Poor amenity governance. In almost every amenity audit we’ve done (and we’ve done hundreds), we find amenities missing that can only be described as someone in the past making a change that doesn’t make sense today. They probably had a good intention (or maybe they were intentionally trying to lower a price without affecting other homes), but without explicit good governance - e.g. requiring pricing and revenue management approval for any changes - the change went into effect. The result is inconsistent amenities, e.g. a view on the 3rd floor that is lower in value than the same view on the 2nd floor
- Poor square footage amenities. Even when we find relatively few issues with traditional unit amenities, we frequently find opportunities with various square footages within a bedroom/bathroom count. In one example, we saw 575- and 550-square foot 1 bedrooms at the same rent, despite the rent per square foot being north of $2. Not surprisingly, the former had much higher exposure than the latter thus proving the market favored the larger homes when there was no price differential. Even a $25 upcharge was worth hundreds of dollars a month for just that single change
- Intentional, but inappropriate, site behaviors. All too frequently, we see arbitrary negative amenities, usually called things like “value adjustment” or “loss leader” assigned to one or more units. If there is something about the unit that warrants a negative amenity, then it should be described as such and applied to similar units. If it was just a quick “cheat” to lower the price, then there’s additional revenue available in removing it. If it was put there due to the unit becoming a long-standing vacant, we highly recommend implementing a long-standing vacant protocol instead
You’ll notice I’ve avoided talking about this as a new year’s resolution, but I predict that amenities are going to be BIG for multifamily revenue management in 2020. We have completed hundreds of amenity audits and have never failed to deliver at least thousands of dollars in untapped revenue.
We’ll be writing a lot more about amenities in the coming weeks - subscribe to our blog to make sure you don’t miss anything - I can all but guarantee that your properties’ performance will be better off for doing so!