Property Repositioning

I am the asset manager for a new multifamily acquisition within my company. It's 136 units in a strong market. Prior ownership pretty much ran the property in to the ground, filling it with unqalified tenants, that presently do not meet income or qualification standards, leaving us with a big cleanup job. Our first order of business is to restaff the property, evict the as needed (I expect to bring the property down to 60% occupancy), do some renovations and release the property.

I'm in search of suggestions for financially motivating our new property manager to effectively accomplish the evicton and retenanting process aside from the standard salary and leasing bonus structure.

Any ideas???

Thanks!!

Since this ia my area o expertise, I have one suggestion: Pay your property manager what they are worth. Personally, I am internally motivated and telling me you'll give me X dollars extra if I do my job is insulting. Pay me what I am worth from the beginning and I will do whatever is needed to get the property operations in line with company standards and goals. Period.

In many cases, the method in which executives compensate their onsite team is at odds with their vision of
exceptional customer service (The only long term solution for asset repositioning).

Property Managers (PM) and Regional Managers (RM) receive bonuses based on increasing NOI (revenue - expenses). This seems
logical enough if one assumes both revenue and expenses will be of equal focus. This notion is further validated when one considers the endless possibilities to achieve revenue increases - exceptional customer service, pristine grounds, etc. But, most people do not think in terms of possibilities, we think in terms of the here-and-now. And what we'll always be able to do now is cut, cut, cut expenses until we hit our bonuses. While expense control is a fundamental part of revenue management, it isn't a sustainable revenue growth strategy.

You can't increase revenue by simply cutting expenses anymore than you can increase your intelligence by surrounding yourself with idiots.

So how do you get the PM and RM to focus on revenue gains through value add?

Simple: tie 51% of everyone's bonuses to customer satisfaction scores. Not just PMs, but everyone - RMs, Facilities, Accounting, Sr. Staff...

Imagine a company that focused on adding customer value to increase revenue - RMs that are dedicated to follow up on a customer complaint within 2 hours, not 2 weeks. PMs that focused on keeping a smudge-free window, not the cost of a bottle of Windex. Sr staff increasing NOI through value add, not by cutting expenses to unachievable lows.

If you want to reposition an asset, focus on value-add, not addition by subtraction.

- JV
@jasonvelazquez
Velocitygeni.us

The folks who have not been doing their jobs are the subsidy inspectors, which ever government agency that may be. You are saying the property has been filled with at least 40% over income or otherwise unqualified tenants? So who found out about this? Is there money due back recouped to the Feds? Or State? You need an audit team first and a new manager second. No self respecting property manager is going to undick a situation like that for even an increased compensation. You need a "nobody is at fault here until this mess is straight team". You surely don't want the incoming new property manager in there throwing people out. You want an audit team, then a hatchet person, and THEN bring in a new manager to start fresh. The previous owner/manager could/should be in for some fines on this. I have enough PM experience to tell you I would not touch a manager job on this until the smell has gone away.

I agree with Mindy. You're going to need an experienced, successful property manager for this job. Maybe even someone looking to eventually be promoted to a regional manager.You will need to pay someone like this top dollar for the size of the property.

They will expect a salary, bonuses and possbily insurance. I would put a package together based on what you can afford and the caliber of property manager you are looking for.

I would keep bonuses to a minimum and increase the base salary. I prefer a stable income. I negotiated my current job with no bonuses, just salary. I have taken the same type of property from 58% occupancy plus 75% move-outs the first year to 100% with a waiting list and unbelievable rates.

Where is the property? I am looking for another challenge in the Sacramento area.

At my last project, which was a 66 unit tax credit affordable property for seniors 55+; I inherited the following:

1) Bedbug treatment nearing completion for an infestation that affected the entire property.
2) 17 vacant units, some were very heavy turns.
3) $13000 in delinquencies.
4) $100k+ in unpaid invoices, including vital utilities.
5) An upcoming REAC and local housing authority audit.

And the list goes on.... This property was new in 1971 and rehabbed in 2008(?).

My results were:

1) Completed bedbug treatment, and despite new infestations brought in by new residents; the problem was identified and brought under control quickly.
2) Despite a spike in vacancies; I oversaw the completion of more than 30 unit turns; occupancy was brought up to 97%. Some vacancies were through eviction to resolve the delinquency issue.
3) Brought delinquency down to less than $1000.
4) Secured the assistance of the owner to resolve the unpaid bills and renegotiated relationships with vendors and contractors, or established new ones in order to SAVE the property approximately $40k annually going forward by doing some things a little differently as had been accepted as status quo in the past. I also established a comprehensive preventive maintenance plan which included a semiannnual 100% pest control treatment to quickly resolve any kind of future infestation.
5) Brought in the compliance officer to do a 100% audit of all files before the audits which resulted in minor findings.

Did I mention that 6 months after I was initially hired, the owner fired the company that brought me in and brought in a new company that kept me in place?

Hello Jami,

Option 1:
The property will need a total revamp. With that being said, stimulating the staff will take major innovation on a new avenue of bringing the property back into good standing.If the property manager is good at what they do, they will be eager to take on a new task by managing a new initiative with or without the perks but a $250 -$1000 bonus at a successful turn around is always a good incentive.

Option 2:
I think you should release the property now. I have an all cash buyer looking to purchase a property like the one you have posted. If you would like to relinquish the property as is and allow my client and staff to do the dirty work, please contact me at [email protected] to discuss further details and/or options....

It is pretty easy Jami; if your property is within the greater Sacramento area; bring me in as property manager and give me the support and tools I need to do the job. I completely repositioned a property that was highly troubled when I arrived and I did it within 9 months. I admit the process is not easy, nor is it for the faint of heart. Some of the decisions that needed to be made were not made without consulting with those above me.

I'm with Johnny on this. In 5 years, I've learned a LOT about turning a property. It's not easy, and there need to be NO illusions. You don't have to know a property to know how to do the job.

Hi Jami,

You are right; we all need to get past the traditional salary plus bonus structures in our industry. Recently we have explored additional avenues in which it seems to be working. For example, many sales representatives in other industry actually don’t receive much of a salary but a strong commission with minimal salary per month. Why couldn’t this work in our industry? Of course the incentive structure has to be reasonable and achievable for it to be attractive and fair.

For example, hire a community manager with a small base salary, with an achievable incentive program that could range their earnings above the current market salary benchmark. See samples below.

A typical onsite Manager for 136 units makes around $40,000 to $45,000 a year in a good market. Some markets can make as low as $35,000. But for this example we can use the strong markets benchmark of $40-45k. If you offer the community manager a base salary of $20,000 a year, with incentives of additional $30,000 a year, than the manager can make up to $10,000 above the market by simply performing to standards you have established for the community.

Based Salary $20,000 Yearly
Leasing Incentive $10,000.00 Yearly
Financial Incentive $20,000.00 Yearly

The leasing incentive can be established by creating a month to month leasing plan, of which you breakdown the annual incentive amount ($10k) to a monthly amount ($833.33). The monthly amount can be earned by meeting that current months leasing goals detailed in the plan. Each month that they reach the leasing goals, each month that manager receives the incentive.

Same thing with the financial incentive, you create a budget for the year and use the same steps as the leasing incentive with the financial. Each month they meet their budget, they receive their monthly incentive.

This will not only forces to the manager to meet their goals, but will motivate them to do better each month so they can eared that additional $10k a year.

Hope this helps.

Sincerely,
Pedro

Your suggestions are all well and good, Pedro; but what if the property is maintaining a high 98% occupancy? The manager is clearly spending his time and resources more wisely and concentrating on retention rather than capturing new leases; and those he loses are for reasons he cannot predict, prevent or control. These reasons can include, but are certainly not limited to:

1) Loss of income.
2) Change in household size to such a point that they exceed occupancy guidelines.
3) Change in employment location such as to make commuting a burden (this includes extended military deployments or transfers).
4) In the case of senior housing; residents often develop situations where they can no longer live independently (in this case offer to allow a live in caregiver as a reasonable accommodation); or worse, death.


If the manager is maintaining the high occupancy, it is clearly indicative that he is able to replace the residents he is losing so as to minimize loss to vacancy and understands that it is far more effective to concentrate on resident retention. We all know that it can cost as much as 7 times more to turn and market a vacant unit than it does to offer services and programs that make it so that residents are more willing to stay for a longer term.

I would change the 'leasing incentive' to an 'occupancy incentive' and tie it to maintaining a minimum occupancy level on a quarterly basis.

I would increase the financial incentive to include a percentage of each dollar saved to the bottom line. In my case; I was able to save about $40,000 by changing how a couple of line items were handled and renegotiating contracts with some service vendors:

1) I was able to get funding for a one time capital expenditure that allowed me to:
- Change all locksets to the SmartKey system. This virtually eliminated the need to physically change the locksets at unit turn, unless there was a damaged cylinder. With the Smartkey system, a lock change only took 30 seconds and did not require anything more than a provided tool, a working key, and a new precut key (which I recycled and randomized the old keys for future use).
- Invested in window covering film to reflect outdoor heat and maintain indoor heat for windows in the path of the sun.
-Invest in new landscaping that did not require as much water, and could thrive in the cold winters as well.
2) I was able to renegotiate contracts with service vendors. A few examples include:
-Landscaper for seasonal billing (meaning a higher cost in the summer months, and a lower cost in the winter months; these amounts were averaged and we used the average for a monthly cost).
-Pest control to include a 100% semiannual treatment with a local exterminator for less cost than the national name brand; we were able to quickly identify and treat any future infestation before it became a problem for the entire property.
-Elevator maintenance was put on a 3 year contract that included all parts and service for repairs that cost less than all the service calls for the prior 12 months combined.
-Office communication; I terminated the local phone company and went cable for office phone lines (main line phone, fax, security monitoring, fire monitoring, and emergency line for the elevator); they also took over office internet and provided free wireless access to the entire property.
-Trash collection; I renegotiated the contract to include a quarterly roll off bin for residents to use when disposing of large items, went to a 3 year contract and got a free month for about 40% savings monthly.


In order for the site manager to be successful; you need to give him the authority to review and renegotiate contracts. You also need to work with him to make sure he understands the budget line by line. Make him accountable to explain unfavorable variances.

A lot of great points here. It sounds simple but you in more or less words you have to:

1. Get better residents
2. Get better employees (managers/leasing agents/maintenance)
3. Get better vendors

All are independent of each other yet all work and live together very smoothly at any well-functioning property.

I agree with getting better residents; some of the hardest decisions I had to make at the property I repositioned involved seeking lease termination for problem residents. Some of the problems had nothing to do with rent payments.

I had one with mental health issues that interfered with everyone's quiet enjoyment rights when she went off her medications; including an incident where she attempted to spray mace in my face for no reason.

I had another resident that was in denial about her mental health, calling it medical. She was clearly bipolar and I had to transcribe nearly 2 hours' worth of voicemail messages for the attorney.

I had a couple of residents who violated the crime and drug free addendum on property (one was a domestic violence situation, and the other was a narcotics possession/sale case while on property).

I had a destruction of property case; right after my supervisor and I visited his unit to do an inspection; he actually beat down both smoke detectors.

I had numerous noise cases.

I had a couple of hoarding issues that affected the effectiveness of the very expensive bedbug treatment as the exterminator could not complete the treatment of their units.

A number of my cases would be prime for 'World's Worst Tenants'....

I had no problem with seeking lease termination on most of these and all the ones that were behind on their rent.

Yep, better residents starts with better screening if not before that with marketing.

The problem is that most of these residents I had to evict were there when I arrived and we all know we cannot screen for mental health issues. The mental health residents were ones I processed their applications for; the remaining residents were there before I was hired.

I will say that I received a regional award for the work I did to reposition one of the properties I was at.

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Pedro Maysonet wrote: Based Salary $20,000 Yearly
Leasing Incentive $10,000.00 Yearly
Financial Incentive $20,000.00 Yearly

I hope the example you give does not become an acceptable norm in our industry. If someone who is used to a salary in the ballpark of 40-45K would be offered a package such as this and have to also inherit serious issues which need to be turned around like described as above, you will most likely get a relatively inexperienced Manager who will not be as effective in successfully turning over a problem property such as that and thus not be able to obtain those incentives. You will get what you pay for. And a Manager with a proven track record and used to a higher salary will no doubt have bills to pay and no one can feel good about taking a position that will not pay the basic bills. Unless you are going to put a package together that covers a suitable roof over their head with utilities paid or an allowance that would cover those expenses as well, don't expect to find a Manager that will do well and actually stick around long enough to get the job done. Save yourself the frustration and pay a good, experienced Manager what they're worth and stop dangling incentives in hopes for the best outcome. Take care of them and they will take care of you for the long haul.

I personally am against incentives because I've witnessed how damaging they can be. Over the last 20 years in my area, I've watched these large corporations come in and change how communities are ran and have done what you've described above with lower pay with incentives. The industry was impacted in multiple ways. One, good and hard-working Managers all disappeared because goals became unreasonable and they couldn't survive on their lowered base salaries. They started cutting expenses (in the way that Jason V described above) and then ended up reducing the quality of the property to meet those goals. And the worst part is that they had ulterior motives to fill vacancies to earn those incentives and began making poor judgments about who they rented to and now these properties are filled with problem tenants. It is so bad in my area that these communities run by these large corporations have become the SLUM of the town and no one wants to work for them and good renters won't rent there. Incentives blur good judgment and everything becomes all about money. Not about creating a great community.

I personally enjoy working for an employer that allows me the liberty to keep a unit vacant as long as it takes to rent to the right person rather than fill it with one that is downright risky. Having incentives in place will not allow this liberty to be effective. Especially if a Manager cannot pay her bills on the base salary. With the salary you are suggesting, that would barely cover housing expenses alone.