Responsible multifamily real estate investors understand that multiple factors are at play to increase the value of an underperforming asset. Calculations of replacement value, cash flow and yield all directly impact the potential return. At Zevulon, we believe another powerful element is key to maximizing an asset’s value: skillful property management.
A knowledgeable and experienced property management team can have a significant impact on the success of repositioning and stabilization efforts, occupancy rates, rental rates and the asset’s performance. When paired with a hands-on investment team, the duo can dramatically enhance the return on investment over the life of ownership.
Showing investment partners that a fully integrated team owns and operates the property gives them peace of mind and bolsters confidence in the execution of the asset’s repositioning thesis, according to a recent article in Multi Housing News.
Identify Immediate Areas of Improvement
Property management plays an important role during the pre-acquisition due diligence process by working alongside the investment team to develop a comprehensive value-add business plan before the transaction is finalized.
Property managers (PMs) can help:
- Put a finer point on estimates for construction and renovation
- Get preliminary pricing from their trusted vendors
- Audit existing lease terms and rent rolls
- Review financials to spot potential errors, inconsistencies or unusual changes
- Review collections and delinquencies
- Walk the property and document “current state,” such as furniture inventory and unit conditions
PMs should also serve as another set of eyes and ears to proactively identify potential problem areas that need to be addressed first, such as outstanding maintenance issues or safety concerns like loose railings or light fixtures. Calculating immediate capital expenditures needs, such as renovations, new appliances, repainting, and common area upgrades is essential for the investment package, so investors understand the full financial picture.
Surfacing Local Market Knowledge
Property managers can also bring specific local market knowledge and industry insights to the table, such as how much of a premium renters in that area would place on renovated bathrooms or stainless steel appliances. They can provide guidance on price elasticity and the upper limits on rent increases.
An experienced PM team will be open and confident in expressing any concerns they might have about the repositioning strategy or business plan. Empowering them to share constructive criticism and creating a safe space for them to be candid, even when their opinions are contradictory, is an important part of the collaboration.
Creating Stronger Vendor Relationships
Property managers have deep and trusted relationships with vendors they regularly turn to for emergency response like burst pipes or fire; electrical; HVAC; drywall and paint; carpeting and flooring; landscaping; pool cleaning and maintenance; and other essential services. This benefits the investment team by providing a direct line to contractors that are pre-vetted.
The PM should provide guidance on price negotiations, service commitments, quality and reliability. Their insights can help shape operating budgets and serve as another layer of checks and balances on the assumptions in the business plan, capital expenditures, target hold period and exit strategy.
Mitigating Risk
Regardless of an investor’s intended repositioning strategy, hold period or exit plan, the property management team plays an important role in minimizing investment risk. A proactive team helps reduce unpleasant surprises and unexpected costs, and should be treated as true partners in the venture.
Zevulon Capital is proud to work with RADCO Residential, a division of The RADCO Companies, as its property management partner. Like Zevulon, RADCO is focused on superior results and performance. The company has acquired and invested in more than 30,000 units across 15 markets in the past decade, and is a respected leader in third-party management.
To learn more about Zevulon Capital and our investment strategy, please visit zevcap.com.