The Challenges of Managing Apartment Buildings

Today, a good location, well-maintained units, attractive common areas and the right amenities are no longer enough to keep occupancy rates high and the property value of an apartment building up. Instead, success in commercial real estate investing can often hinge on smart property management, which can ensure that a seemingly profitable investment doesn’t instead turn into a negative cash-flow mistake.

To provide expanded property management services to our multifamily clients, we joined forces with Carassone Property Management of New York to form Northeast Carassone Management, Inc. With offices in Hartford, CT, and Fishkill, NY, the combined Northeast Carassone team brings considerable experience in the management and operation of multifamily assets throughout Central and Southwestern Connecticut, Westchester County (NY) and the Lower Hudson Valley. Our property and leasing managers have decades of experience with major apartment investors and regional owners and operators, with the resources to offer top quality management and maintenance of investment real estate assets.

Investors must face the decision whether to hire an outside property management company or self-manage the property. However, proper property management is no easy task. This decision must take into account the size of the property, the investor’s own individual interests, time-management skills and how they value their time.

A small investment property of five units or less can often be managed by an investor who is handy, enjoys dealing directly with tenants and has the time to embrace this management role; there is no denying the property management is a job that takes a commitment and certain skills. However, because the cost of hiring a professional property manager cannot be spread over a great enough number of units, the investor could pay a much higher price per unit than for a larger building where economies of scale can be realized. In addition, smaller buildings require fewer tenant issues and maintenance responsibilities.

On the other hand, an investor with larger properties or is looking to continue to build a portfolio and is more interested in examining potential assets would more likely to be interested in hiring an outside management company. Another consideration is the location of the investment properties. If the investment portfolio is generally located in a specific area, but has one or two properties in other locations, it may make more sense to contract out the management of these properties because the travel time involved in overseeing the buildings may not be worth it.

Maximizing Value
As is often the case, CCIM has done a fine job addressing these issues in its article, “Maximize Apartment Value Through Strategic Management”. When looking to maximize the value of a multifamily property, a management company must remain focused on:
• Effective Gross Income (“EGI”) by maintaining high occupancy while moving rents to market
• Disciplined operating expenses with strict payroll and contract services
• Net Operating Income (“NOI”) growth through efficient and market-driven property management

Multifamily property fundamentals differ greatly from those of other commercial properties. In markets without rent control, for example, apartment leases typically run for 12 months, and rents are raised as often and as high as the market will bear. In addition, tenant improvement allowances are virtually nonexistent; units are leased “as is” — clean, carpeted, freshly painted and ready for immediate move in.

Leasing apartments is a relatively simple process, with no intermediaries, no complicated terms and no negotiations. If a potential tenant walks away, another most likely won’t.

However, apartment properties comprise large numbers of individual households, and annual turnover is typically 50% to 75% or even higher. As a result, leasing is a continuous process, and providing excellent customer service is critical to securing renewals. From an investment perspective, speed is of the essence — the faster apartments are leased, the higher the cash flow of the property. This process alone can exhaust any extra time an investor has to manage or build a portfolio, no matter the size of the property.

With offices in New York, Connecticut and Massachusetts, our investment sales teams and property managers are well positioned to support investors looking at commercial properties in the Northeast market. If you’re a property owner or an investor in the mid-market segment and want to discuss how we can help you meet your investment goals or better manage your properties, please give us a call.