Managing Lease Expirations
When it comes to lease expirations, the need to look more than 90 days out is crucial. Disregard for long-range lease expiration planning can result in a financially destructive situation for well-intended apartment property management teams.
While revenue management software is a valuable tool in this process, having your leasing staff address lease expiration on a regular basis eases the anxiety that can come from an unnecessary sense of urgency created to fill vacancies at any cost.
Historical leasing cycles changed in 2020 as a result of the pandemic. Our normal spring cycle was delayed by two to three months and it extended well into the fall, leaving the industry to question what leasing cycles will look like going forward.
Coming soon: These adjusted cycles will affect forecasting. Even more, they will make expirations from last year’s lease-ups more demanding.
Your 2020 actuals are both different and unique, and you can’t really use them for comparative basis in 2021. As for 2022, and it is too soon to know if it’s a safe assumption that you’ll be tracking back in line with 2018-2019 trends.
Right now, you cannot afford to have a “set-it-and-forget-about-it” lease management strategy. Once you have determined the approach most suitable for lease management at your communities, you need technology to help you to execute your plan and to ensure compliance by the site staff.
ResMan is here to help with that.
Our property management software was designed during the height of the Great Recession to help operators navigate down market and aid in long-term planning to create more predictable revenue flows and maintain occupancy. Our software worked for us when we needed it most, and ResMan can help achieve your financial goals today.
We started seeing in our customer base as 2020 progressed that there was an unusually high number of month-to-month leases at their properties, many of which were carried through into the new year. Traditional retention rates dropped from a lease term perspective; however, residents were staying in their apartment homes, and it was much because of uncertainty about health and safety, the economy, federal support programs and their own employment.
We are well into what is considered a seasonal leasing cycle without fully understanding what the emerging trends will on the backend. What will retention rates look like for 2021 as hold over month-to-months may be ready to make long-term decisions. How do you balance the leasing activity while not losing sight of the long-term impact to occupancy and rent growth?
How to Develop an Effective Lease Expiration Management Plan
The key to your asset’s financial stability and ability to make up lost margins could lie in your lease management plan.
We learned the hard way about the impact of not having a lease management plan during the 1990s – before revenue management was developed – when a lot of communities didn’t manage lease expirations well. I personally learned my lesson from a group of lease-up communities I was responsible for filling up. They were in lease-up, and back then, it was all about filling that property up! But there was not much thought beyond that in terms of how to maintain it as a stabilized community.
In one Dallas property, we had 200 leases expiring over an April to August period. The property also faced competition from a new development across the street. Assuming a 50 percent renewal rate, that could have and did result in just over 100 apartments that the site team had to lease and turn in three months. The property didn’t have the marketing budget we had during lease-up and faced increasing expenses compared to a brand-new community. That was really a wake-up call.
From that day forward we had a well-developed lease expiration management plan, and eventually a great set of features in the ResMan Platform to help you develop and manage your plan. A good lease expiration plan goes beyond tracking and reporting on lease expirations, it is proactive and positions the property, the specific unit types and the team for success.
Every time our team met about what we were doing, it wasn’t only about that day, it was about how what we do will affect things 30-60-90 days from now. And when they achieve their leasing goals through this hard work, you’ve got to reward them for it.
Having that kind of mindset put us at ease and helped us avoid lease expiration pile-up and instead drive ahead in an efficient and on a more predictable and profitable road ahead. Controlling how and when units are available in the market, provides you the opportunity to maximize the rent potential and creates organic sense of urgency for the leasing staff and prosects to lease the units. The last thing you want is to be forced into displaying an unusually high number of a particular unit type (such as one-bedroom apartments) on your community website and ILS listings. If you do, that’s a red flag for prospects about whether they want to lease with you.
Does revenue management help with this? Yes. But you can handle it without revenue management – it just takes more time and more work and the desire to learn.
This is the time to teach your staff about pricing. They shouldn’t just be blindly offering whatever the revenue management software says you should that day.