| Last Updated ( 01/11/2010 04:12 ) | |
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| The Emergence Of A New Asset Class – The Student Housing Industry: Part 2 |
 Kirk Preiss, president and CFOThe Preiss Company In the apartment industry, economic occupancy is the key to financial performance. A 10% drop in occupancy can have drastic effects on the value and profitability of an apartment. In conventional apartments, families and professionals will come and go as their life situations change. Successful conventional apartments may have less than 10% of their residents move out and move outs are spread out over the year. Student housing apartments will experience 60 to 70% move outs every year with almost all of it occurring in May and July. Without significant marketing intensity all year, a student apartment could see a 60 or 70% drop in occupancy which would be disastrous. If a purpose-built student apartment is not pre-leased by the end of August, they face a full year of low occupancy since leasing opportunities drops off dramatically after school starts. For this reason, student housing pre-leasing is a year-round activity. In August, at move in, you must start working renewals and referrals. The goal is to get residents to sign up for another year (a year in advance) and to have them talk their friends into pre-leasing for next year. By January, our pre-leasing is in full swing and the goal is to be at least 70% pre-leased (for August) by April in most markets. In this environment, it is necessary to track rent daily and market conditions weekly with promotional events, incentives, concessions, and prices changing in real time as we adjust to the market and the competition. Leases require co-signers and are done individually (by the bed). The best leasing agents are often part time students since they are often closer in thinking to our current and future residents. The most effective marketing is word of mouth. Positive and negative buzz can spread through the student community like a wildfire with the aid of today’s blogs, twitters, and network housing forums. Today’s echo boomers are plugged in. They know the best professors, best restaurants, best places to live, and they are constantly updating their choices. Student housing marketing requires daily targeted distribution of flyers, Craig’s list entries, phone texting, twittering, and MBWA (Marketing by walking around and mingling). Most of the key marketing tools for student housing are low cost and people intensive as opposed to the conventional methods of radio, newspaper, and apartment finder that are high cost and less people intensive. The key to lease up is to create and sustain “the buzz” on campus. We often partner with the favorite bar to offer food and drink specials for residents. To drive new traffic you need to target groups like fraternities, sororities, athletic teams, international students, student interns, and clubs/associations like Americore. Staying connected with these groups requires close relationships with university and local government officials and administrators. Partnerships and alliances with the university, local government, local merchants, and vendors are much more important to student housing than conventional housing. Your staff needs to reach out and partner with the university, local government, and local merchants. The university can make a big difference in your success. They control the housing requirements (for example all freshmen and sophomores must live on campus at some schools). The university may have a mission to increase or to decrease enrollment. They may have a university bus system that may or may not get out to your apartments to shuttle residents. They have sports teams, university life groups, fraternities and sororities that can be encouraged to use your housing and they determine how actively you can market on campus. Local merchants will often give free pizza, drinks, discounts, etc. to your residents, as well as advertising your apartments to their customers. Your staff also needs to work with the local police and government to make sure that there is a partnership relationship. Many of our sites provide free housing for “courtesy officers” who help us maintain a safe environment for our student residents. Leasing and marketing are proactive. You cannot afford to sit and wait for students to answer your ads as they do in conventional property management. In urban areas we set up “lemonade stands” on hot days to bring future residents off the street. We advertise free topless carwashes for future residents if they will come by and tour our apartments. Topless means that we will wash the car except the top of the car. We have resident surveys to determine demographics, resident satisfaction and also drive renewals and referrals by asking them on the survey if they have friends to refer. We reach out to sports coaches to have their teams live with us. We work with community colleges to provide housing for their “bridge” students etc. We must also be creative in our offerings. We offer all inclusive packages that include everything from utilities and furniture to valet trash pickup. Green is also important. Along with all this, we have an extensive set of tools for tracking and determining the effectiveness of all of our marketing efforts. We track leads, leases, pricing… Everything we can track we will. Operations – Intense day to day workload and then there are the “Turns” Student housing operations are characterized by two major differences over conventional apartments: the daily operational workload and the significant work spikes that occur in May and July each year called the “turn”. Like Disney World, litter is constantly being generated at these sites and it is critical to keep the site spotless. That means a groundskeeper must start early every morning on the sight cleaning cigarette butts and wrappers. Every staff member is constantly on alert for picking up trash as well. As you might guess, there are some mini spikes in this operation after home football games and big wins. Also, as mentioned earlier, leasing and marketing activities are occurring daily, our concierge desk is busy giving out pool sticks, ping pong paddles and balls, basketballs, volleyballs, sunscreen, band aids etc., and the phones are constantly ringing with resident requests like an active country club. Many of our residents, and their parents, expect hotel-level services which are not considered in standard apartments (e.g. replacing light bulbs and air filters in units, resetting breaker switches, etc.). Our maintenance staff has a very important role in our marketing and leasing. The residents and their parents need to feel at home with our maintenance and security teams that are generally expected to be available on demand 24/7. Leases are more complicated and require more hand holding with the lessee. Parents must co-sign and lease liability is limited by the bed. The resident and their parents are only responsible for their individual monthly rent and for any damages to their individual room and their proportion of the common areas. Our maintenance staff is responsible for keeping our facilities clean and well lighted. They are constantly making sure that street lights and building lights are brightly shining at night. They also perform quarterly inspections of the units to ensure that filters are replaced and that the units are in good clean working condition. At the end of our school year season (July 31), we “turn” all of the non-renewing units and beds. This is between 60 and 70% of the beds and amounts to hundreds of transitions. We perform inspections on Aug 1. This is a one or two all-day marathon that requires all hands. Everyone is equipped with notepads and cameras. Next, we have trash out. This is also an all hands phase lasting for one or two days that culminates in piles of trash in and around the dumpsters. Once these activities are completed we have an army of painters, carpet cleaners, furniture movers, cleaners, and maintenance technicians to make the units look like new again for the new residents and their parents. This must be completed by August 15th so that we can begin the massive move – in process. Move in day is a mass of students, parents, moving vans, pickup trucks, and full dumpsters. It must be conducted with the precision and efficiency of a major military campaign. Move ins need to be planned and staggered if possible and the staff must be able to process the growing lines rapidly, giving out keys and welcome packages, getting last-minute signatures, collecting uncollected rent and deposits, and handling all questions and issues. This event will set the tone for the rest of the school year. If done well, it will produce happy residents, renewals, and referrals. If not done well, it will take a year to recover. One hotel industry rule that we have quickly learned is - Do not give out the keys to a unit before you have fully inspected it to make sure it is ready for the guests. Parking is always an issue as well. If friends, family, and interlopers are all free to use the parking spaces, then residents cannot find a place to park and they are often forced to walk long distances in the night to get to their apartment. This always causes complaints. If, on the other hand, towing is rigidly enforced, you find that there will be even larger complaints from those towed who all have good reasons like “my mother came to pick me up and take me to the hospital. She pulled up in front of my room and when we came back down her car was gone!!” Financials – Expense Ratios are over 50% Student housing costs more to operate than conventional apartments. This is evident from the intense hands on hotel-like operations that are required. Therefore, it is essential that all staff members understand the budgets and take ownership to constantly look for revenue generators and expense savings. Leasing by the bed brings 30% more revenue than leasing by the unit However, student housing expense ratios tend to be 10% higher than the industry. We are able to increase revenues through product differentiation by offering furniture packages, utility packages, unbundled offerings, VIP Parking, pets, premium units (e. g. granite counter tops and faux wood floors), premium locations (e.g. near the pool or near the bus stop), charge for early move ins (between Aug 1 and Aug 15), applications, and processing fees. All of these things add complexity and work for our staff. They must have systems for tracking and organizing these other sources of income. On the expense side, we track water and electricity utility usage and charge monthly for overages. Our maintenance staff also goes green (replacing shower heads and toilet flappers with water saving devices etc.). We were able to save water usage by 30% in some places using these measures. The echo boomers are concerned about the environment and are very receptive to implementing these conservation methods. Conventional apartments let their residents pay and worry about utilities themselves. It is not part of their job. For owners and investors of student apartments, it is often more difficult to get capital (debt and equity) and insurance because of the implied risk of this asset since, like a restaurant or hotel, its value is so dependant on how well it is operated. This asset class also has a thin market since it is purpose built and fits a single segment of the marketplace (students). Conclusion – Student Housing is not the same as Conventional Housing. You must have “the buzz”, the staff, and the right environment to be successful. In short, there are three things that will define the success of your student apartment. First, and most important, is the residents. Your apartment needs to have “the buzz” and like the old “Cheers” sitcom, be a place where “Everybody knows your name” and where all your friends live. Second, the staff must be a talented team of specialists that are empowered, take ownership, truly care about the residents and their parents, and are passionate about and dedicated to providing the best student living experience. For our staff, this cannot just be a JOB, it must be a lifestyle and their identity. Last, the apartment complex needs to provide a clean and safe environment to grow and connect and to establish lifetime memories and relationships. Our challenge is great, but the reward is greater.
— Kirk Preiss is president and CFO of The Preiss Company.
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