The multifamily sector remains depressed, and in this renters' market, it's not just cut-rate pricing that counts: delivering high-caliber service remains a key strategy for top managers such as Pinnacle Realty Management Co.
“Our company likes to take a page from the hospitality industry —with people as though you've only got them for 24 hours,” says Stan Harrelson, president and CEO of Seattle-based Pinnacle. That mentality is essential so potential tenants will choose to rent from Pinnacle — and choose to stay when it's time to renew, he adds.
Service has always been a focal point at Pinnacle, but it is getting even more emphasis in today's competitive market. Pinnacle offers extra touches at its properties such as allowing residents free use of tools or videos, as well as stepping in to facilitate services ranging from cable hook-ups to dry cleaning delivery.
Ranked No. 3 on the National Multi Housing Council's (NMHC) annual listing of apartment managers, Pinnacle manages a 42-state apartment portfolio with properties ranging from Class-A to low-income housing. At the beginning of 2003, the company had a management interest in 115,001 apartments, compared with 113,546 in 2002.
“There is no doubt that it is a brutal marketplace, and clients are affected in different ways,” Harrelson says. Apartment vacancy rates continued to rise in the first quarter. Vacancies for rental apartments reached 10.8% — the highest level in almost 10 years, according to the NMHC.
The goodis that new construction appears to be waning. Multifamily completions in the investor-grade apartment sector declined to 19,869 units in the first quarter of 2003 — a 15% drop compared with the same period in 2002, according to New York-based Reis Inc.
The bad news is that despite the reducedactivity, the market is still struggling to fill the newly constructed units that have come on line in the last year. Absorption in the first quarter of 2003 was a negative 24,064 units, according to Reis.
Despite pockets of higher vacancies in its portfolio, Pinnacle has managed to keep its vacancy rate below 10%. In fact, the company has even managed to excel in some struggling markets, such as Atlanta. Although Atlanta's apartment vacancy rate has climbed above 10%, Pinnacle has maintained a vacancy rate of 4% in its metro-area properties.
“We do a very good job of having the right people in the properties, and then making sure the service aspect of our business is first and foremost,” Harrelson says.
Pinnacle, for example, is particularly adept at managing assets that have a “value added or turnaround component” to them, says Brian Ward, executive director at Olympic Investors. Pinnacle manages nine apartment complexes around the country for the Seattle-based company, including the newly purchased Las Brisas luxury apartment complex in Phoenix.
Occupancy at the 274-unit property has risen from 82% at the time of purchase in December to 92%. The increase can be credited to property upgrades, as well as the level of service that Pinnacle provides, Ward notes.
Aside from wooing tenants, the biggest challenge for Pinnacle is helping their third-party clients face reality. Third-party managers tend to be “the messenger” when it comes to delivering the real-world impact of the economy on operations atproperties, Harrelson says.
Unfortunately, the message is not one that owners are eager to hear with rampant discounts and rising operating expenses. For clients with highly leveraged fixed-rate debt and heavy prepayment penalties the strain can be too much. “Wherever possible we are trying to assist clients in financially re-engineering their properties to hedge against the current market conditions,” Harrelson says.
Some properties have no choice but to offer concessions and discounted rent. “Wherever possible we try not to offer cash incentives, but upgrade incentives,” Harrelson says. Rather than offering rent discounts, Pinnacle offers perks that also add value to the unit such as ceiling fans, microwave ovens and custom closet shelving. “You've spent the money, but it isn't necessarily gone.”