I’ve spent much of the past two weeks talking with apartment industry executives about the COVID-19 crisis. Experiences and strategies differ somewhat by firm, but there’s one best practice – one recurring thread – I hear again and again. Outside of managing the health issues amidst an epidemic, there’s one clear strategic rule the best owners and operators live by in any downturn.
That advice, on first hearing, seems obnoxiously simple and maybe even inconsiderate. We’re in the midst of an epidemic paralyzing the global economy with speed and destruction we haven’t seen in our lifetimes. Entire industries are shutting down, millions of people are losing their jobs and the federal government just approved a $2 trillion stimulus. Many renters don’t know if they’ll be able to afford rent, and many property managers don’t know how much rent they can afford not to collect.
The opposite of panic is to strategize. To have a plan. There’s a lesson from the 1918 Spanish Flu that none of us had ever heard until a week ago – and now many of us have heard countless times since then. The story, in brief, was a tale of two cities that ranked among the nation’s largest at the time.
St. Louis took dramatic actions early on – closing down schools, theaters, sporting events and other public gatherings.
Philadelphia, by comparison, kept the city open and refused to cancel a big parade that would draw 200,000 people.
The result: More than 12,000 people died in Philadelphia from the 1918 epidemic over the next six weeks. In St. Louis, about 700 died.
History’s cautionary lesson is helpful not only for today’s policymakers, but also business leaders – including those in the rental housing business. In times of crisis, the best leaders move fastest in identifying a problem, building a strategy and taking action. Weaker leaders struggle to take any decisive action at all. After all, indecision is a close relative of panic.
Thankfully, the stakes are smaller for apartment leaders. Government decisions in the COVID-19 crisis impact whether people live or die. Business decisions only impact whether companies survive. In talking with apartment executives, I was impressed how quickly and decisively many are moving.
First, they protected their residents by moving quickly to accommodate social distancing. They closed down amenity spaces and limited maintenance requests, while doubling down on sanitation. They activated communication channels with their residents and their teams to ensure both awareness and engagement.
Second, they moved quickly to protect their employees and their businesses. They moved to nearly all virtual leasing and online payments, while outsourcing and pushing offsite functions like call centers, IT, accounting and training. They empowered their on-site teams with technology to engage residents online.
The first two steps are critical tactical moves. The third step is strategic and more long lasting. What is our operational strategy going forward? Many operators are still in this phase. To be fair, there are many unknowns that impact goals. How long will social distancing practices remain in place? How much rent goes unpaid in April and May? When will laid-off renters get their stimulus checks and expanded unemployment payments? How many more jobs will be lost, and when will the economy ramp back up?
The challenge for apartment leaders is to keep focus on your operational strategy no matter how each plays out. Here are eight practical, strategic operations tips some of them have shared with us:
- Do you want a higher occupancy rate or a higher rent roll value? Unless you’re a short-term holder and believe the market will turn up again before your rent roll turns over, you probably want to protect occupancy.
- Protecting occupancy means a high focus on resident engagement. Tools like Active Building and Modern Message make it easy to engage residents without in-person interactions. Host virtual social events, contests, scavenger hunts, photo contests and surveys. Encourage two-way conversations that engage residents over one-way email blasts meant only to inform.
- Protecting occupancy also means limiting renewal pricing increases. Based on audience surveys we did in a webcast last week, most operators plan to follow NMHC’s guidance to keep renewal pricing flat – which helps with retention too. Encouraging longer lease terms is also a win-win, reducing your future exposure and giving the renter a longer-term price guarantee.
- Now probably isn’t the time to panic-spend a ton of advertising dollars, given the limited pool of new lease demand. Use this time to spruce up content on your property website – high-res photos, virtual tours, 3D floorplans, complete amenity listings – and SEO/SEM to drive traffic to your site. The return on that investment extends not only through the down cycle, but benefits you in a high-demand market too.
- Don’t be a lemming. One of the most destructive panic moves from the 2008-2009 recession was to tether your rents to those of peers. This one mistake alone can strip millions of dollars from your property value. Rent cuts may become necessary, but do it when you have high exposure issues on a particular floorplan. Give rent comps a backseat. Internal dynamics, combined with your strategy, should always be the #1 driver of price. This is why revenue management is more critical than ever in a downturn, and why adoption exploded during the last recession.
- Don’t dial down those screenings thresholds. It’s tempting to buy occupancy through reduced screening, but this is another huge trap. Risk management jumps to the forefront in a downturn, particularly one where delinquent renters can’t be evicted. While most eviction bans today are limited to around 90 days, you can expect some municipalities will extend those further. It’s paramount to ensure new renters are not only capable of paying the rent, but are willing to do so. Modern AI Screening can do that.
- Stay on top of the trends in your portfolio and in the market around you, so you can best focus on your time. When things get crazy, a lot of people stop making time to review data. This is akin to driving a car somewhere you’ve never been without GPS navigation. Making time to review the trends help you identify where to best focus your efforts.
- For team members who have more time on their hands now, find ways to engage them that better equip them for when conditions improve. For example, encourage leasing agents to help guide improved content for property websites and provide new online training opportunities.
No matter what strategy you choose, stay disciplined. Keep your strategic goals in place as much as possible, and adjust your tactical efforts as the storm plays out. Many apartment investments involve complex waterfalls these days – which means lots of voices. That’s a challenge. But more than anything, your partners desire confidence. A strong, clear strategy inspires confidence. No strategy will allow you to escape a downturn unscathed, but you’ll get through it in better shape than the pack.