Out to Put a Dent in the Multifamily Universe

Apartment Budgets: Concessions

Welcome back for another installment on the subject of apartment budgeting. This week we are going to discuss the line items called concessions – new and concessions – renewals. Before we get started I have to admit some surprise. I did not think this kind of subject matter would spur much in the way of conversation but it truly has. And, we have posted some record numbers in the way of page views and the on and offline conversation has been very upbeat in nature. I have to give all the credit to Carin – one of our accounting team members at Mills Properties.

Up to this point we have discussed the main driver of revenue – rent. And, we have taken the time to walk through the ever complicated world of loss to lease for both new and renewed leases. And, just last week we penned about the quasi robber baron – vacancy loss. Let’s continue in the vein of loss this week with a discussion on the art of concession use.

Apartment Concessions 

Concessions are defined as credits (dollars) given to offset rent, application fees, move in fees and/or any other revenue line item. They are generally given at the time of move-in to offset physical moving costs such as those associated with cross-country movers or cross town movers. Concessions are also used at the time of renewal as a way of offsetting the cost of a rent increase or the addition of an ancillary expense [Read: utility billing, renter's insurance, etc.]  to a new lease term.

They can be given up front or amortized across the life of the lease. They are also given during ‘oops’ moments. That is to suggest that if we drop the ball on the service side of things, we can give concessions as a way of saying sorry for the inconvenience. In short,  we can say they are used for marketing and with that comes any number of perspectives for and against the use of concessions.

That being said, we have left out a number of good points and as a result I am looking forward to the conversation.

Your, burning concessions off as fast as reasonably possible, multifamily maniac,

M

Apartment Budgets: Vacancy Loss

Back for another round of apartment budget discussions. Today we are talking about vacancy loss. Before we do, lets recap in the way of a list of line items we have penned about up to now.

Rental Income

Gross Potential Rent

Total Potential Rent

Loss to Lease

Loss to Lease – Move – Ins

Loss to Lease – Renewals

Total Effective Rent

Vacancy Loss

Let me introduce you to the biggest robber of revenue on the income side of the ledger – vacancy loss. It gets disguised under a number of line items, all seeming innocent in nature. Things like Down Units, Models, Offices and Fitness Centers (if housed in an apartment) get captured in Vacancy Loss. The line item as a total (Total Vacancy Loss) captures 100% of all physically vacant apartments in the way of a negative revenue number no matter the nature. And, it is driven by any number of stimulants.

Apartment Vacancy Drivers 

Vacancy is driven by the economy as much as it is by poor or sub par management. If the economy is stalled or sputtering along than vacancy tends to trend higher. If it is booming – think dot-com days – than vacancy is low. If job growth is anemic or trending net negative then vacancy trends higher. If jobs are growing on trees – the vacancy trends lower. If interest rates are low and lending standards are relaxed then vacancy suffers in the hands of home buyers. Interest rates rise and lending standard constrict then vacancy goes lower. Developers and builders take advantage of foreseen demographic trends, low-interest rates and relaxed construction lending standards to build tens of thousands new units and vacancy could suffer to the down side. They stall out for any reason and the inflow of new renters (demand) takes off and you yield to the upside.

Down Apartments 

Down units are a Big No in my book. To easy to lose track of. Put an apartment on a down unit status and the next thing you know you are spending 10k to get it back on-line. It gets cannibalized by the service team and left to rot by the management team. Just don’t do it. If it’s considered down – call it a tough turn. And, by all means do not let your service team pick it for parts and pieces.

Bad Management

Likely the biggest contributor to vacancy loss is bad management. From curb to commode, you can add to or take away from the loss to vacancy. From pricing to inventory turn time and ticket turn rates, you can give to or give back vacancy loss. And, from sales to renewal discussions – you can reap or spoil the line item.

Drawing it in

In summary, vacancy loss can wreck a budget inside of one months time. It can also boost your bottom line by many fold if managed well. It’s driven by any number of factors from macro to micro and everything in between. It can be a friend or an enemy.

What are your thoughts – would love to see them in the feedback section below. And, thank you in advance.

Your – fending off vacancy loss – multifamily maniac,

M