What’s Keeping Local Property Managers Up at Night?
If you missed the June Florida Multifamily Power Hour, led by Katie Wrenn, President of the Florida Apartment Association, and Elizabeth Francisco, President and founder of ResMan, you can catch up here with Elizabeth’s recap of the interactive webinar.
Participants voted on discussion topics before the webinar, focusing on their current concerns, then broke into groups to touch base with their peers and learn about new strategies.
Join us for July’s Florida Power Hour
- Navigating Aged Receivables
- Common Area Considerations
- I Missed My Numbers…Now What?
NAVIGATING AGED RECEIVABLES
Delinquencies: The majority of the group members are seeing collections close to prior year. However, there are concerns about the rising number of residents with compounding delinquent balances that could result in skips or evictions once the eviction bans are lifted.
Collections varied across region and asset class. One participant reported that Class A resident delinquency is at 8-10%, while another participant stated that their Class C properties are struggling the most with 18-20% delinquency. The participants overwhelmingly shared concerns that once the CARES Act unemployment stimulus expires on July 31, they could experience a significant drop in revenue needed to maintain their assets.
Communication: Consistent and ongoing communication with residents has contributed greatly to collection efforts, allowing owners to work with renters through this crisis. With that said, there was also consensus and concern that a number of residents delinquent on rent are not communicating back. Participants reported that they are getting push-back from residents who are saying “sorry, we can’t pay you, but we know you can’t evict us.” These residents do not understand that the eviction moratorium is not a release of financial obligation but rather a delay in consequences.
Because they realize the residents were qualified and good renters before the pandemic, participants prefer to talk with and work with their residents through this time. One participant was hopeful that 3-day notices would be a wake-up call for non-responsive residents.
Evictions and Eviction Bans: While rent collections have been stable for some properties, property managers are concerned about what will happen when eviction bans are lifted on August 1. Concerns stem from the 2,672 evictions that are already pending in Florida, which will cause delays in processing for months. One participant shared her frustration around losing the ability to evict renters who are causing harm to the community or are a threat to other renters. Furthermore, renters who cannot pay and who cannot be evicted will cause financial strain on the apartment community, which has a budget built on occupancy and rent revenue to pay their mortgages, common area utilities and maintenance of the physical asset.
The Protecting Renters from Evictions and Fees Act that extends the eviction moratorium for federally backed mortgages (FHA, Freddie Mac, Fannie Mae, VA, HUD, USDA) for another year just passed in the Senate, but hasn’t yet passed in the House. Should the legislation pass without a stimulus extension for citizens impacted by COVID, there would be an extensive financial strain on the property owners, some of whom may fall into foreclosure.
All agreed that because it costs more to evict than to work with current residents, if residents are communicating and have legitimate reasons they cannot pay, managers will work with them via payment plans, lease extensions, or rolling up balances to a lease renewal.
Rent Reductions, Concessions and Payment Plans: At this point, a relatively low percentage of residents are requesting payment plans. Some properties are requiring residents to sign an addendum as part of payment plans and allowing them to apply a portion of the security deposit towards rental charges. However, some participants report that renters are hesitant to sign any contract extensions, including lease extensions and payment plan addendums.
One note of caution: From my experience, if property managers are authorizing payment plans on an asset that could be part of a transaction later in the year or into 2021, they should make sure to have solid reporting around those plans, as they will inflate your net operating income (NOI) until they are all paid off.
Filling vacancies: Managers are concerned about the backlog of vacant units that will occur if evictions are allowed. They voiced concern about challenges renters may have with regards to their credit and rental history post COVID-19. One stated that as a result of the last recession, property management companies across the country have re-evaluated the approval criteria, resulting in risk-based scoring versus straight-up FICO scores.
Recommended Resource: Katie Wrenn, Director of Training and Development for WRH Realty Services and the current FAA President stated, “We have had to be more creative than ever before with helping residents get assistance from local/state agencies in addition to the government stimulus.”
Several of the participants have gone the extra step to connect renters in need with local and state programs as well as working with Apartment Life, a nonprofit that connects residents with local charities and social services. The following two resources were provided:
COMMON AREA CONSIDERATIONS (RE: COVID-19)
The majority of property managers reported that their common areas are open with restrictions, protocols and PPE, as recommended by the CDC. Renters for the most part seem to understand the need for precautions and are willing to comply. Everyone agreed that Class A renters have been more challenging and have been demanding unrestricted use of the common area amenities.
Opening Leasing Offices: 75% of webinar attendees responded to a poll that their amenities are reopened with restrictions. Those offices that are not open yet are working phased, property-by-property reopening plans per each state’s protocols.
CDC Compliance Protocols Group Members are Following:
- PPE for leasing staff
- Sneeze guards at leasing agents’ desks
- Limiting the number of people allowed in the office at one time
- Enforcing social distancing
- Adjusting hours
- Realigning the offices, leasing practices and maintenance practices
- Enhanced cleaning protocols for amenities, common areas and high touch points.
Challenges of Implementing COVID-19 Protocols:
- New policies and procedures regarding opening the leasing office and common areas must not only account for CDC guidelines but also for both the state level and local municipalities.
- Additional expenses of purchasing new signage, PPE and cleaning supplies on top of revenues impacted by COVID-19.
- Getting associates in the habit of wearing masks.
A cautionary tale was shared: A staff birthday party with no masks and a team member with COVID resulted in having to shut down a leasing office.
Recommended Resource: An app called Amenity Boss allows residents to schedule use of an amenity and keeps gyms at 50% occupancy without monitoring. Amenity Boss was created as a response to COVID-19 but will be useful after, too. The app works well and is easy to set up. Contracts are month to month.
Recommended De-escalation Protocols: Due to the serious and stressful issues impacting families, including social, health and economic concerns, participants discussed the need for site-level de-escalation protocols for engaging with confrontational residents as a layer of COVID-19 reopening plans As tempers flare across the country, frontline staff could be caught in the middle.
Katie Wrenn reported good news: “My team has been amazing, taking care of residents and the properties. They’ve been true heroes with their willingness to be on the front lines and their positive attitudes.”
I MISSED MY NUMBERS…NOW WHAT?
This is not the first recession most group members have experienced. They expressed concern about how the current drop in revenue impacts forecasting for the back half of the year.
Operational Responses and Observations
- Some non revenue-generating support staff have been furloughed, while some properties have been able to avoid layoffs and continue hiring.
- Investors are taking more of a hands-on approach than they have previously, placing additional demands on the management team time.
- As residents re-evaluate the percentage of spend on rent, effective rents are expected to drop throughout the back half of the year and into 2021, causing investors to question the need for and cost of revenue management software.
- Participants indicated that they are seeing a spike in the number of renters giving notice to take advantage of low interest rates for home purchases.
- Participants shared that effective gross income per unit is down $75-100. Almost all are currently waiving ancillary fees, including late fees and month-to-month fees.
- Occupancy rates are holding strong; however, more and more renters are going month-to-month rather than make a long term commitment due to uncertainty about their future employment status.
- Many participants are going through an expense management exercise to look for additional savings:
- Evaluating existing contracts for ROI value
- Bringing maintenance in-house
- Watching staff overtime
- Creating new schedules to control payroll
- Adopting security deposit programs (surety bond to guarantee lease obligations)
- All participants are evaluating their online presence and overall digital experience for prospects and renters. Participants indicated interest in brainstorming with industry peers as they look at marketing strategy and spend for the rest of the year and their 2021 budgets. The July Florida Power Hour will be addressing this topic later this month.
- Companies are reevaluating their leadership to portfolio staffing models to reduce oversight expenses across the board
Things to Think About
- This is the time to be cautiously optimistic. Understanding risk throughout the rest of the year is key.
I recommend a modeling exercise I utilized during the last recession: As financial impacts started to surface in our assets, we needed to understand the overall risk for the assets, with the intent to take action today to protect the assets in the future. As part of the exercise, we modeled out three scenarios for expiring leases that reflected renewal captures of 25%, 35% and 45% and lower net new leasing volume that included concessions.
We implemented the 35% model immediately with specific milestones that would be indicators that we needed to drop down to the 25% or start to ramp up to the 45% model. I wasn’t looking to cut our way to profitably as it has a long term impact on rental income and the quality of the asset.
- Participants are looking to take a more aggressive approach to preleasing to get out in front of the skip and eviction curve. Buying occupancy today will stabilize the asset; however, being too aggressive could constrict revenue in the future when it is needed to re-invest in growth strategies.
Join us for July’s Florida Power Hour
For July’s Power Hour, survey participants submitted the following topics to discuss:
1) Adjusting your marketing strategy – With greater dependence on generating website traffic, should we be rethinking our marketing strategy and spend?
2) Evolution of leasing – As a result of shelter in place orders, many property managers have moved the bulk of their operation into an online environment, including most, if not all, leasing functions.
3) Employee engagement – Today’s frontline is facing resident engagement issues we have never seen. What steps can property managers take to protect staff?