Stat to Watch: Smooth Operators
Apartment firms boost operating income despite losing potential revenues.
More than 2,600 professional rental communities comprising about 699,000 units across the country have been successful at raising net operating income (NOI) over the past three years. But the total capture of gross potential rents at those communities decreased slightly in 2007. Those are the latest figures according to the “2008 Survey of Operating Income and Expenses in Rental Apartment Properties,” conducted by Los Angeles-based CEL & Associates and sponsored by the National Apartment Association (NAA).
NAA’s survey of 3,691 properties revealed that garden apartments that were individually metered for utilities (the survey’s largest respondent demographic at 2,611 communities) drove average NOI to $6,011 per unit last year, compared to $5,644 per unit in 2006 and $5,098 in 2005.
NOI as a portion of gross potential rent among individually metered garden apartments dropped slightly to 56.6 percent, compared to 56.9 percent in 2006. Salaries were the largest line item cutting into NOI, accounting for an average of $1,071 per unit against the bottom line last year. Taxes also impacted operating income, with an average of $1,012 levied per unit in 2007. At 2.6 percent of gross potential rent, losses to concessions were highest in the individually metered garden apartment sector, compared to 2.2 percent in the individually metered mid-rises and high-rises; master-metered garden apartment; and master-metered mid-rise and high-rise product categories.
In an executive summary of the survey, CEL & Associates president and CEO Christopher Lee writes that NOI losses against gross potential rent reflect uncertainties in the economy, but otherwise positive operating fundamentals illustrate a healthy industry.
“During a time of rental housing supply/demand imbalance in many markets, the turmoil created by the collapse of the subprime loan industry, anemic job growth, and rising energy and day-to-day living expenses, the apartment industry has responded in a proactive and professional manner,” he wrote. “Within the apartment industry, the experience, knowledge, and dedication to on-site personnel are paying big dividends for residents and owners alike.”?Chris Wood
Down Spiral
Confidence in apartment sales, credit, and occupancies declines.
Apartment sales are abysmal, according to the fall survey on apartment market conditions, released by the Washington, D.C.-based National Multi Housing Council (NMHC).
The survey’s Sales Volume Index declined to five, the lowest on record. That’s no surprise, with 90 percent of respondents saying sales are worse today than they were three months ago—prior to the Wall Street meltdown. No respondents indicated sales were better. This is the 12th consecutive quarter the index has been under 50, which indicates that conditions are declining.
The results are spot-on, says David Frieze, director of multifamily acquisitions for Northland Investment Corp., an apartment owner in Newton, Mass. “Sales volume is barely existent,” he says.
It’s little wonder, considering the equity and debt markets. Among the other indices, the Equity Financing Index fell to four, the lowest result on record, while the Debt Financing Index also declined to four—another record. And 93 percent of respondents said financing conditions have worsened compared to three months earlier.
Even the industry’s one bright spot—occupancies—hit a rough patch. The Market Tightness Index, which measures changes in occupancy rates and/or rents, dropped to 24 from 40 last quarter. This was the fifth consecutive quarter in which the index fell below 50. Translation: The recession is now hurting apartments. “The last of the real estate sectors is being dragged into the recession,” says Doug Bibby, NMHC’s president.
Berkshire Property Advisors CEO Frank Apeseche, an apartment owner based in Boston, says conditions have been poor for about six months. “The rental growth people were expecting to receive when they bought two years ago was starting to slow down,” Apeseche says.
Frieze has seen some fall-off, but he doesn’t think things are that bad. “We’ve seen some softness,” he says. “Our rents are stabilized, and there has been a very slight dip in occupancy.” —Les Shaver
Dropped Calls
The industry is not converting phone opportunities into leads.
In the third quarter of 2008, a mere 21 percent of calls from qualified apartment seekers were converted to appointments, according to Call-Source, a call tracking, performance evaluation, and training firm, in its quarterly Telephone Performance Analysis (TPA) Industry Report Card.
The survey also indicated that 10,862 appointment-setting opportunities were missed and 2,123 fewer leases were written as a result. The survey estimated that total lease revenue lost by these communities as a result of the unreturned calls was $29.3 million.
Jeff Adler, former chief property operations officer at AIMCO and now president and CEO of The Sanctuary Group in Englewood, Colo., saw between 35 percent and 40 percent of qualified leads at the Denver-based REIT turn into appointments. “It’s possible that an unmanaged process could be 21 percent,” he says.
There are many reasons a potential renter may decide not to come in after talking to a customer service representative or leasing agent. “They really didn’t understand the price point; they hear a description of the property and decide it’s not for them; they don’t like the person on the phone, and they find an excuse not to make an appointment,” Adler suggests.
The quarterly TPA report provides a snapshot of how effectively leasing professionals are answering and following through on telephone leads. CallSource does similar reports for the automotive industry. CallSource says the findings in the report card are based on a review of 55,461 calls for more than 990 communities nationwide. Industry professionals with more than 150 years of collective experience in multifamily ownership, management, and leasing reviewed the tapes. —Les Shaver