This represents a departure from the company’s past practices, when finishes and packages where pretty much the same in every AvalonBay apartment. But after careful examination, Blair realized that in many cases, AvalonBay was overbuilding for what its customer wanted. “They thoughtfully evaluated their strategy,” says Terwilliger of Trammell Crow. “A lot of people don’t reexamine the focus of what they’re building.”
This even extended to amenities, where Blair decided to pull back on the luxurious clubhouses and business centers AvalonBay had become accustomed to including. “Business centers had become a standard feature,” COO Naughton says. “Bryce challenged the company as to whether it should be a standard feature.”
Building the Pipeline While Blair may lead AvalonBay in these decisions, he likes to say he’s just one member of the team. Many of the company’s senior development officials work in the field, where Blair gives them tremendous freedom about what to build as long as they hit certain targets. “We may want 500 units in Southern California,” the CEO says. “It’s up to them if they build one 500-unit building or two 250-unit buildings. It’s up to them if they do it in a joint venture with the land seller, if they do it with leased land, [or] if it takes [them] five years to get approvals or they buy it retail.”
Such employees aren’t completely on their own—they must get approval from AvalonBay’s head of development and the company’s investment committee, which consists of Blair and other senior officers. If the committee approves it, the development official goes forward with the property. Later, the committee reviews the project again, reviewing any changes in pricing or yield before giving the final OK to begin construction. “The management investment committee serves an important control function, particularly in a public company,” Blair says.
At the same time, Blair appreciates the flexibility of the development process AvalonBay has embraced. “We have a very decentralized organization,” says Blair, who believes the approach improves employee retention rates. (The company’s senior officers average about 16 years with the company.) “We think that’s critically important in attracting and maintaining the quality of people that we have. People are happy with the balance between the freedom they have and the support they get.”
And it leads to success. By having developers on the ground in each community, AvalonBay can build properties that fit. “While other developers might envision cookie cutter, one- and two-bedroom garden apartments for a site, our local team’s insight might guide us to develop a mid-rise community with studios, lofts, and one-, two-, and three-bedrooms, knowing this product type would broaden its appeal to recent graduates and empty nesters in the area,” says Sam Fuller, executive vice president of development and construction for the company. “These local insights also guide the services and amenities we provide, ensuring the level and finishes meet the price-point in the market.”
Having these experienced developers familiar with local markets also provides many other advantages. It means AvalonBay has more than 15,000 apartment units in the pipeline and yields higher than industry averages. They know the markets, the development officials, and the good land. “The organization is the Builder of the Year,” Blair says. “It’s the people in the field that identify the opportunity and execute on it. That’s the reason we have one of the finest apartment portfolios in the business.”
Ask Bryce Blair what he’s concentrated on since taking over AvalonBay and the first two things you’ll hear are focusing on a limited number of markets and building a variety of products in those markets. But soon afterward, he’ll list a third, but equally important, goal: great customer service.
The concern for the customer was readily apparent in his biggest personnel shakeup since accepting his new CEO role. Early in his tenure, Blair reviewed the AvalonBay organizational structure and realized there were some extra layers of management personnel. He cut those layers, using the savings to hire more experienced property managers. “As opposed to having less experienced community managers and having layers of the organization telling him or her what to do, we have more experienced managers and less layers telling them what to do,” Blair says.
While he admits the decision was painful, customer surveys (another initiative Blair began at AvalonBay) have shown it was the right decision. “This is our fourth year of customer service surveys,” he says. “Each and every year we’ve improved.”
