Make sure you’re making the best use of the folks closest to your assets, the property and apartment managers.
In our last article we talked about how we apply focus to our acquisitions process. It’s the only way we can quickly look at A LOT of deals to find the gems. In today’s article we continue on the theme of acquisitions. Before we ever put in an offer, we always have in-depth conversations with our apartment manager.
We believe the most important part of your operation starts with your onsite team and the support system behind them. That team will make or break your business plan. At Wildhorn they are viewed as a part of our team, not simply a third party vendor. We want to highlight how and why we specifically engage with our apartment managers and broader property management team as we look at new deals.
Share your business plan and seek out criticism
I recently had a conversation with a colleague asking me for my thoughts on a deal and gauging our interest in partnering or participating with him on that deal. We had seen this deal via our broker relationships, and wanted to understand more about his plan, expected returns, etc. I also asked him who was going to be his management company. He said he didn’t know, and had a list of about four groups he was considering. To us, that is a huge mistake. We want strong buy-in from our property management team and experienced on the ground apartment managers before we’ll consider making an offer. The first thing we share with them is our business plan. We tell them our plans for the exterior additions and the amenities. We show them our renovation plans and associated rent premiums we’re expecting. We open the kimono and are transparent. And we invite them to push back, to change things and most importantly to buy in. Are we too aggressive on our rent bumps? Are we projecting the right number of renovations for this asset? Will adding a certain amenity appeal to our demographic?
Walk the property with your apartment manager
A few weeks ago when we toured 13 deals in a week, our property management team came along with us on 7 of them. It’s important to get their buy in on the business plan and spreadsheet, but it’s another thing entirely to have them on site with you, sharing ideas, war stories and talking through specifics. At one property we recently toured with an apartment manager, we ended up in a long conversation about the planned interior renovations—and what exactly would need to be upgraded in different unit types. Some units had an old-style pony wall/bar in the kitchen, but others did not. By seeing these units and the layouts together and in person, we got aligned on which units we’d want to knock out the pony wall and which we wouldn’t need do. Those decisions obviously influenced our underwriting on that deal, and more importantly got us aligned with our management company about what was possible (and achievable) at this asset.
Leverage their resources
By design, we’re a small team. We stay lean so we aren’t forced to turn into a fee-based shop, where we do deals just to generate a fee to make payroll. The downside of being small is that we don’t have endless resources and hours to throw at deals. But you know who does? Our property management team. By necessity they employ a lot of people—it’s a people intensive business. So when we get serious about a deal, its easy for us to work with them, ask for a little help here and there and they’ll likely have someone who can help us out. The same can be said for third party reports and competitive analysis. Most (good) teams will have access to subscription services where they can pull reports on areas, specific deals, etc. This is great intel to have, and a great way to maximize the value of a service you pay for.
Leverage your apartment manager’s on the ground expertise
In addition to just leveraging man power and resources, the most valuable thing you can leverage is your property manager’s expertise. They have a team full of employees that do management for a living. They will likely have intimate knowledge of a deal, or a submarket, that can help inform your acquisition process. Three recent examples come to mind for us where leveraging their expertise has given us a competitive advantage.
- We are looking at a deal right now almost exclusively because our management team has hands on knowledge of that deal. Our current area manager used to be the onsite manager at this deal, and then the regional manager. She maintains an excellent relationship with the current owners. She knows where all the bodies are buried and exactly what has (and hasn’t) been done. She also knows this area and cares about the asset, so we’re getting the best information possible.
- We are looking at another deal where our management company is currently managing the asset for a different owner. We can feel 100% confident that the numbers we’re seeing onsite would stay intact, because everything about the onsite team would stay the same since they are already there. It has removed a lot of guess work about what our operating expenses would be, and allowed us to have a very frank conversation with the team about what our plan would be if we purchased it.
- There’s a third potential deal we’re investigating where the property manager manages two assets right across the street from the subject property. They obviously know this asset well as they track it and shop it on a weekly basis. They know the sub-market well. They know the other competitors. And, given the concentration of deals they manage in the area there’s the possibility we can get some efficiencies on certain line items that could be shared across multiple assets they manage.
We view our property and apartment managers as strategic members of our team. And we include them in conversations about all of our potential deals. We also make it clear that their buy in is required, because one we agree on a business plan and take over operations this is how they will be measured. Have any other ways that you work with your on site management team to deliver maximum value to your business? I’d love to hear what you’re up to.