For multifamily owners and developers, achieving lease-up quickly and responsibly is both a goal and a challenge amid the current heavy competition. Attracting and retaining the renters they’re targeting, generating positive word-of-mouth, and also protecting themselves against renter fraud and default all are on the checklist. Working with vendors such as TheGuarantors can lighten the load. In a recent webinar titled “Fast-Track Your Lease-Up: Standing Out in Competitive Markets,” TheGuarantors’ Jesse Schmidt, SVP of Sales, sounded out three of the company’s partners on what they’re seeing. You’ll hear from Angel Guzman, Managing Director at The Corcoran Group; Jason Hill, Marketing Director at The Domain Companies; and Jillian Fikkert, VP of Sales and Marketing at Buckingham Companies. An edited transcript appears below.
Jesse Schmidt: The apartment sector is seeing another record number of deliveries in 2024. We know this puts competitive pressure on owners of older properties; what are some of the challenges that owners and operators are facing?
Angel Guzman: In a hotter market where transactions come much easier, renters are more than willing to take a move into a property and sign a lease in a property that is not yet completed. What we're seeing now is, because costs are so high, renters are looking for true value. And the only way to really put out true value is to have a completed product. So, we're getting a lot of pushback now from some of our new properties that have been on the market but are not yet completed. Renters are now going, unfortunately, to some of the older properties that have been completed and lived in with finished amenities.
Jesse Schmidt: That's a very good point. Pre-leasing in certain markets and certain years was very common. With most new developments, people were willing to envision what some of the amenities or some of the apartments would look like. But with the sheer volume of supply that's been on the market right now, renters can be a little bit more selective. Is that similar to what you've been seeing, Jason?
Jason Hill: The threshold minimums for rent stabilization have really impacted the way that we are marketing or developing units and the impact of the unit mix qualification standards have yielded a different set of challenges. The new market differentiators have really changed the landscape for entry-level renters.
Jillian Fikkert: From a marketing perspective, it's so important to be able to provide that vision ahead of time. Through the lease-up process, we need to be able to use the resources that we have with video to dive in unit-by-unit and portray what these spaces are truly going to look like, so that we get that buy-in early in the process and they feel comfortable with committing to your product over someone else's. Then it's leaning into what you're truly offering to your new residents in terms of technology.
Jesse Schmidt: Lease-up velocity has slowed over the past 24 months: on average, we’ve been seeing about four fewer leases per month for new developments. And the outlook for 2024 is also challenging. What are you seeing as far as this year’s outlook in your portfolios? Where are the opportunities in a somewhat slower leasing market, given all of the new supply that's been delivered?
Jason Hill: It's important to be able to optimize your leasing strategy with targeted marketing campaigns, flexible lease terms, and value additives to attract and retain. Additionally, it's important to capitalize on emerging trends and remote work preferences and tailor your offering to enhance competitiveness.
Jesse Schmidt: Obviously, the remote working wave is still here. And a lot of people value those types of layouts that might allow two individuals to work from home at the same time. But are there other things that you're seeing as far as unit mix or layouts that have been effective?
Jason Hill: A diverse unit mix is obviously going to work in your favor. Sometimes creating oversize units can cause other issues in terms of velocity or transacting, but approaching it from the perspective of how you program the amenities, how you design the building, and the use in the unit as well as out will help you to have a higher retention rate.
Jesse Schmidt: That's true. You definitely want the type of renters that can see themselves living in the property for a few years. It's very difficult if you're having a more than 50% or 60% turnover rate and essentially have a new lease-up every year. Generating referrals from your own residents is really the best way to retain people long-term. Jillian, what have you been seeing as far as opportunities in this market and what is your outlook for 2024?
Jillian Fikkert: It's not always just a set-it-and-forget-it type of situation. I think we all know that at this point. It’s really about diversifying your mix and being flexible throughout the entire leasing process, being able to push and pull those levers appropriately to drive the traffic at the right times. What’s also important is to nurture that throughout the process. We know that oftentimes, when people are looking at a new build, they are looking very far out and they're not ready to pull the trigger right away, so being able to have those touchpoints consistently and leaning into your partners to be able to do that efficiently truly sets you apart.
Angel Guzman: I'm somewhat optimistic, only because we've been through a cycle like this before. The absorption will always come with concessions. In the last year and a half to two years, concessions have been pulled back. And now the concessions are starting to creep up again because they need to absorb units. I think that 2024 will be a strong year, but the absorption will have to come with more concessions. Renters have tighter budgets, so we're going to have to find the bottom of the market and then move upward from there. But I think we will absorb units in New York City for sure.
Jesse Schmidt: Yes, I have definitely seen with a lot of our partners that concessions have crept back in. And not just in new developments, but also in some of the older properties that may have not paid any sort of concessions in over two years, if not longer. It's definitely a delicate balance. A lot of the owners that we speak to have set aside budgets for this. But in many cases, they're having to exceed those and are trying to identify other ways, in addition to concessions, that they can continue to attract the best residents and win them over.
Angel Guzman: Agreed. It's a delicate balance. You want to absorb units but at the same time, you have to think about the clients, meaning the developer clients, long-term. What is the renewal process going to look like in year two? We try to have a good median, whether we're doing 13, 16, 18-month leases, that puts us back in a more favorable time of year. And maybe the net effective rent is a little bit higher for the renter, but they may enjoy the building a little bit more in 18 months, and there might be a better shot of renewing them after that time. So, there are different ways. Also, having great community engagement and great property management teams onsite is integral. Those buildings that we are transacting in, specifically the ones that have great management teams and maybe amenity programing teams onsite, always do very well and retention is always very strong.
Jesse Schmidt: Jillian, with all of the inventory that you have in new development, are you allowing residents to lease two, three, four months out in advance if that is better for their situation? Or, similar to Angel, are you offering different types of lease terms; 17, 18-month to then reset in a better leasing season? Is that something you've seen more often?
Jillian Fikkert: Yes, I think that being more flexible overall is something that, as property managers and owners, we've definitely had to be in determining what makes sense for each of those markets individually. One thing I want to go back to that Angel and Jason both really touched on is that when you look at reputation management data and surveys that we get back, value and sense of community are really the drivers of why someone wants to live with you. And that value piece is so hard because value means something different to everyone. And it's not just the dollar signs. People are strapped right now in terms of groceries and expenses; it’s top of mind for a lot of people. But they will also weigh what's important to them. So, it's important to tap into this and get an understanding of it in each market.
Jesse Schmidt: Inflationary pressures have not gone away. On average right now, renters are spending about 30% of their income on the rent, which means they really have to like where they're living and really have to like the community that they're part of. And so those things are incredibly important and obviously validated by the surveys, as you were mentioning.
Jason Hill: Arming the leasing teams is giving them the closing tools that they can use for each person to create value in the mind of each renter. Each renter will be specific and unique, so this means having the tools necessary to customize and provide that person what they need in terms of what they’re looking for. What is also important is having a follow-up process for 30 or 60 days after they move in or make a purchase: “Are you enjoying your experience? What do you like about the building? What can we be doing better?” And this means understanding those reviews not only from an internal perspective, but from a forward-facing, Google review perspective. Some of the most successful buildings have nearly 100 or more five-point. That brand voice is being communicated through those Google reviews.
Jesse Schmidt: Getting feedback and getting those Google reviews is more important now than ever. Obviously, everyone is Googling the properties that they're looking at online, and I've seen some properties that have pretty terrible reviews and some that have pretty incredible ones. And I know, from speaking with a lot of those owners, that the properties that have 4.8, 4.9, 5.0 Google review ratings are in a much better position occupancy-wise than those that don’t.
Jillian, what are some of your best practices for identifying and targeting the class or classes of renters that you want to attract for your properties?
Jillian Fikkert: A lot of this needs to be based on fact, not feeling, and having an understanding of who you're able to market to, who your consumer is in that market, and driving that messaging to them. We've really leaned into geofencing in a lot of these places to be able to really track that and get the right people. When you're looking at that segment of the population that you're driving to, you need to be targeted and you need to be strategic.
Jesse Schmidt: Angel, anything you wanted to add?
Angel Guzman: I think it really starts from the pre-development phase and understanding who you are trying to attract to your property and then building out units and amenities to match. In New York City, we're a little bit hamstrung because the affordable New York threshold is pretty high at $3,041. But if we go into, for instance, Jersey City, we're building some really nice-sized studios. We're not overbuilding; we’re not planning to build 600-square-foot studios. We're building units people can actually live in and afford, but our developer client can still do well from a price-per-square-foot standpoint. So, we are doing different things from the very early stages of the pre-development phases, with unit mix and then from unit mix to building out the amenity package as well.
Jesse Schmidt: Jason, I know you've brought product to market recently in Utah and New Orleans and Mott Haven in New York, a lot of different types of markets. What have you done to attract the type of renters that you're looking for?
Jason Hill: In addition to demographics, it's also psychographic analysis to understand preferences, needs, and behaviors of our audience groups, what makes them tick, how they make decisions, how they prioritize, etc. Again, you’re creating value for each person or tenant, so you have to ask the right questions. This means training your teams wisely and ensuring they have the knowledge they need. Communication-selling comes in a few different forms and fashions. Hand-in-hand with marketing efforts is understanding what you're going to be doing, explaining the campaign strategy to your sales teams, arming those sales teams with the information that's needed, and understanding what questions need to be asked. Those tools that we have, the technology and the boots on the ground, are just as important to develop a clear picture of what's happening from onset to when the actual office opens.
Jesse Schmidt: Jillian, you mentioned on a prior call that you get so many people who sign up for the property prior to the start of leasing and you try to prioritize those leads that are coming in to not suck up too much of the onsite team's time. Have you implemented some process or technology to help make that more efficient?
Jillian Fikkert: Yes, it's important to provide information about what the project looks like to the community and be able to answer a lot of those questions upfront so that it frees up the team’s time. A lot of times when you're in a new market, you can create that interest early on. But we really want our teams to be working the hot leads, the people who are dedicated to moving. So, to nurture ahead of time, providing information and freeing up teams to have those meaningful conversations about people's new homes is really a priority for us.
Jesse Schmidt: We’ve spoken to so many onsite teams and in the beginning, hundreds and hundreds of people might sign up on a lead form for a property, but the reality is that a large percentage of those are people who are generally interested but probably aren’t going to lease an apartment in the near future. So, prioritization and automating some of those tasks early on is incredibly important.
Another question I wanted to ask you all; first-time renters may not have an established track record or even a credit score here in the U.S., but they could definitely help grow the pool of potential renters in many different markets. How can you attract new renters while at the same time minimizing your risk on the back end?
Jason Hill: We've tried to strike a good balance and implemented different strategies to assess creditworthiness and mitigate potential challenges associated with first-time renters. In some cases, we've eliminated out-of-state guarantors and only went with a third-party vendor to mitigate risk or create a sense of urgency. That's for our own protection. With the concerns related to credit history or rental experience for new renters in the market, it's important to educate them on what that process looks like. In New York, it's very different to rent than any other place in the country.
Jesse Schmidt: We partner with Domain and our goal is really, in many cases, to help turn a ‘no’ into a ‘yes’. Upwards of 35% of consumers want to rent and can rent, but don’t meet traditional qualification standards. Whether they're freelance workers or students, there's someone who might require a traditional guarantor. The products we offer help mitigate the risk for the property owner but allow them to rent to a wider demographic of renters to hopefully speed up leasing velocity and get units filled with the types of tenants that they actually want. On the back end, we also screen for different types of fraud, which I know has been a concern in many portfolios. We are helping to weed out some of the bad actors, some of the people who probably wouldn’t be worth taking a risk on even if you had a guarantee. What we're trying to do is help fill those vacancies faster and help rent to more types of applicants that might have a non-traditional circumstance. And, it's been very effective, especially in new developments. Angel, what are some of the things you have done in your projects to help attract more of those types of renters?
Angel Guzman: I'll go back to 2019, when the rent laws changed in New York. That was a big one for the brokerage community because New York City is a very international place. We have renters coming from all over the world. And a lot of times those renters come in and they're looking to prepay the rent up front. And unfortunately, after the 2019 rent laws were passed, we couldn't do that so we needed another option. Bringing in a group like TheGuarantors to help mitigate risks for ownership and help guarantee the lease for the renter has been pretty influential in our business. Otherwise, we have to turn those renters away, unfortunately. Obviously, that's not something that we want to do. Our goal is always to lease the property up as quickly as possible, at the highest number possible. And you really can't do that if you don't have all the tools. We’ve been pitching to all of our developer clients that we need other options, and one of the big ones is TheGuarantors’ Rent Coverage; TG Pay has been a phenomenal success for us as well.
Jesse Schmidt: We're really happy to hear we've been able to help. Another growing concern, as I mentioned before, is fraud. With legislation changing in so many different markets, limiting what you can take to protect yourself as a property owner and preventing your ability to take prepaid rent, it's becoming more difficult to actually screen applicants, resulting in more fraud. The access to being able to create fraudulent documents or mask an identity is much more prevalent. Jillian, has that been something you have seen or are there tools that you've implemented to help prevent that while still leasing up your community at the pace that you're looking to be at?
Jillian Fikkert: Fraud is something that's at the top of all of our minds. People are much, much more sophisticated than they have ever been with creating those documents. We work at training our teams to be able to identify and work through that and work with our partners as well to get the best people in those homes. The other thing that is really important in this conversation is not only attracting new renters up front, but then once we have them, how can we help them build their credit with credit reporting or additional flexible ways to pay their rent? Oftentimes we know that if they have a good experience with us, they might not be going straight to purchasing a home after they leave a community with us. If we can set them up for success for their next apartment, which may be within our own ownership group, we can move them up to the next level or change locations. We really lean into how we can help people become more financially responsible through renting.
Jesse Schmidt: That’s a great point. There are so many more renters with the affordability crisis in buying a home. The mortgage rates are still so high and coming up with a down payment and paying almost double on your monthly mortgage does not seem like a very attractive route when you can rent and have flexibility and stay in the community that you know you enjoy. But you want to be able to give something back, so creating reward programs, helping people build credit to help them improve their ability to get a loan in the future or qualify for something that they're looking to do, is incredibly important. You mentioned flexible rent payments and I think that's definitely a smart option. As I mentioned, 30% of a renter’s income goes towards rent. Sometimes people might be a little strapped and need a more flexible solution to make sure their rent gets paid and that they don't go into default. These are all constructive and creative ways to deal with some of these challenges.