Small Changes, Big Impact
For Bruce Ward, president of Phoenix-based Alliance Residential Co., a third-party management firm which oversees more than 25,000 units, increasing a property’s rent roll begins at the front door. “We look for properties that don’t necessarily have a lot of deferred maintenance, but where we can make relatively affordable improvement to really change the curb appeal,” Ward says. “Things like new signage, new paint, and using a variety of colors can make a dramatic improvement.” Once Alliance has gussied up the exterior of a property, it will move inside and target features that are important to residents, such as kitchens, baths and floors. “We can redo appliances and doors, too. Those are the things that really touch the customer, and we can get additional rent for that,” Ward says.
By investing from $3,000 to $6,000 per unit after acquisition, Ward says Alliance has been able to realize returns of 15 percent to 20 percent on an annualized basis. The firm typically aims for an investment horizon timeline of five to seven years, he says. Finally, Alliance will implement property management software and tools to gain operational efficiencies and save money. “We strive to be on the cutting edge as far as Web-based accounting and real-time leasing and traffic information go,” Ward says. “We try to have all the instruments in place that you need to fly the plane.”
Think Service
Operational upgrades and services, such as preventative maintenance calls for your residents, can also increase a property’s value once you make a purchase by reducing both undesired turnover and the number of days your new apartments sit empty. At Denver-based AIMCO, owner and operator of 240,000 units nationally, the first step the firm takes after acquiring a property is letting residents know it appreciates them. “Our No. 1 priority is to make sure our residents understand that they are our most important asset. That’s where we focus first,” says Mike Fortinberry, AIMCO’s vice president of resident services.
For instance, AIMCO schedules regular monthly service visits for its renters. “We’ll do whatever they need, from replacing a light bulb to helping move the couch,” Fortinberry says. Not only does that make residents feel like they’re getting individual attention, it lets AIMCO address small issues before they become big, and hence, more costly. “We can be more proactive in identifying problems that the resident otherwise may not have mentioned to us,” Fortinberry says. “That way, we can fix it now, instead of waiting for it to be more expensive down the road.”
And they can hold on to their residents. According to AIMCO’s 2005 annual report, occupancy across its portfolio stood at 94.6 percent, while it increased its rents by 3.5 percent. Although its funds from operations declined during the year, it pointed to its long-term investment strategy of improving operations overall. It spent more than $229 million, improving or redeveloping more than 2,000 units. This year, that value-added investment seems to be paying off. During the second quarter of 2006, the company’s net income rose $7.5 million from a year earlier to $35.1 million, a fact it attributed to improved property operations, as well as higher gains on sales of its properties. During a conference call with Wall Street analysts, chief executive Terry Considine summed up that performance in simple language: “Business is good,” Considine said. “Boosted by rising markets, AIMCO had a solid second quarter.”
And rent was boosted again as well, by an average of $26 dollars per unit, or another 3.4 percent.
Now that’s value you can see.
–Joe Bousquin is a freelance writer in Newcastle, Calif.
