Third-party property management has evolved over the past few years, at least according to Ryan Hand, vice president of business development and client services at CA Ventures. “Not only have we seen new competitors enter the space, but we’ve also seen higher expectations when it comes to the level of service and capabilities a third-party manager must offer,” he says.
These new entrants can be categorized into two groups, according to Casey Petersen, chief operating officer at PeakMade Real Estate. “We’re seeing conventional multifamily fee managers who view student housing as a natural extension to their platform, and we’re seeing student housing owner-operators branch out into the third-party management space as a way to supplement their platforms and build scale,” he says. “We don’t think most groups anticipate how demanding and flexible student housing third-party management platforms need to be — many aren’t willing to invest the time, money or effort into building them out.”
The third-party operators that are going to stand out and succeed within the industry are those that are focused on the customer experience and that have the ability to anticipate industry trends and resident needs. “Owners and investors who have amassed scale are seeing an opportunity to collect management fees by bringing management in-house,” says Hand. “However, my advice to companies looking to start a management platform is to understand the people-management portion of the business inside and outside before taking the dive.”
For owners considering opening their own management arm, Jim Sholders, chief operating officer of Campus Life & Style (CLS), echoes the fact that doing so is not without risk. “Opening your own management services company can provide many benefits but it also has just as many pitfalls,” he says. “On the positive side, an owner-operator has complete control over the direction and priorities of their own management company. A property manager must prioritize resources, and it can be a benefit when you — the owner — have complete control of that.”
“On the flip side, student housing operations is a hard business,” he continues. “Often much harder than most realize. It inevitably takes more resources than anticipated and more fundamental knowledge than most possess. Finally, it usually takes a reasonable amount of scale before the organization can be profitable.”
As it pertains to new companies entering the space, Grant Collard, CEO of Redstone Residential, notes that these fluctuations often mirror the performance of the investment market. “When transaction volumes slow down, you see more owners entering the space, managing their own portfolios and sometimes offering services to third parties,” he says. “When transaction volumes are high, we see more of a trend towards utilizing third-party managers so that investment firms can focus on the highest and best use of their time — acquiring and developing real estate.”
Business recently spoke with a host of the industry’s top operators on their experience throughout the pandemic, the benefits of tapping a third-party operator and the road ahead as we move into the new academic year.
Operations and COVID-19
Undoubtedly the biggest challenge for property managers over the course of the past year was the COVID-19 pandemic. Operators had to keep track of everything from constantly fluctuating CDC guidelines and shifting university plans, to concerned phone calls from worried parents and residents, and the increased burden of keeping on-site teams healthy and safe amidst a global pandemic.
“As student housing operators, we’re used to responding to unorthodox situations,” says Jonathan Bove, executive vice president of acquisition and management services at Landmark Properties. “College students are creative tenants and they come up with creative challenges. Figuring out not just an individual instance that you have to respond to — like how to put out a fire on a Thursday or how to handle a party that has gotten out of hand — but supporting our teams, properties and clients through a paradigm shifting year of the pandemic — that was not something that I expected during that second week of February 2020.”
“As a third-party manager, the fact that our platform was already capable of being fully remote was absolutely critical,” continues Bove. “It is a lot easier to offer 100 percent contactless leasing and tours when you’re already offering fully online, paperless leases.”
For Landmark, a specific and intentional commitment to customer service prior to the pandemic also played a role in the company’s ability to successfully navigate the road-blocks presented by
COVID-19, notes Bove.
“We maintained 97 percent customer satisfaction throughout the entire pandemic, which meant we had a strong enough relationship with our residents that when we had to communicate things like amenity closures or changes to package pick-up required by local municipalities, residents were more accommodating of those changes because we had already been intentional about making deposits into their customer service bank account, ” Bove says.
Jonathan Jeans, vice president of operations at B.HOM Student Living, echoed the unexpected nature of the challenges faced over the past year. “There were regular updates from the CDC, universities were constantly changing their guidance on the pandemic — we had to find a way to advise in a moment where everything can change hour-to-hour, day-to-day,” he says.
“As a company, we have a lot of expertise in this sort of ever-changing environment,” says Jeans. “We were poised throughout the entire situation, even as we were congruently going through a company transition. That was a challenge and it went without a hitch. The pandemic brought many hurdles, but an experienced team can do its homework and advise clients in the right way operationally through even the worst of situations.”
For Petersen, one of the biggest benefits that PeakMade brought as a third-party manager during the pandemic was the company’s scale. “Scale is an advantage that larger third-party operators bring to the table every day and the pandemic was no exception,” he says. “As operating protocols continued to evolve and became more complicated to deploy, we were able to tap into more internal resources than most smaller operators have on hand, which allowed us to be nimble”
Companies like Landmark and CA that had already implemented new technological advancements were also ahead of the game during the pandemic. “Our in-house innovation team is up to date on all technology — we had already been continually testing and trying hundreds of software vendors and solutions to find the best technologies that ease operations, drive financial returns, reduce friction for the resident and support community growth prior to the pandemic,” says Hand. “When COVID-19 hit, our team deployed technologies that allowed for higher-converting virtual tours, easy communication with prospects and residents, and rental payment assistance.”
The same was true for Greystar, which leveraged its scale and technological systems to help students when on-campus residence availability became limited. “We were poised to quickly place the overflow into living spaces they felt comfortable in because we were able to combine experience with virtual tours, social media marketing and an online application process into a cohesive whole,” says Jennifer Fraser, managing director of real estate operations at Greystar.
“We also cultivated solid virtual residence-life programming through Facebook and Instagram, like live gaming and engagement, scheduled community online fitness events, virtual DJ parties and online comedy shows,” she continues. “Our experience also helped us quickly pick up on changing trends and policies, which we were able to communicate to our clients and together devise solutions that benefitted all parties.”
Speaking to the pandemic, Michael Davis, CEO and president of Alpha Management Partners, believes the situation provided further proof — if any was needed — that a proven third-party management firm is invaluable.
“Alpha Management Partners already deploys a robust digital marketing strategy, but we quickly enhanced and adjusted to account for the shift to primarily digital contact,” he says. “Regarding personal protective equipment (PPE), proper cleaning equipment and supplies, we procured resources from other states we operate in to adequately provide to each location. Our communities were never without adequate inventory.”
Tapping a third-party offers a variety of benefits for owners looking to make the jump out of property operations. The level of experience third-party operators can provide is one such advantage. “In times like these, experience matters most,” says Elizabeth Pinder, chief operating officer at Campus Advantage.
“It is important to have access to industry experts, proven systems, processes, consistency and resources,” she says. “Without a doubt student housing poses a unique set of operational challenges. Its complexities and nuances make it very difficult for most owners that may not be privy to student housing operations. Any proven student housing management company is only able to be competitive by attracting and hiring experts on-site and regionally, as well as creating the framework, systems and practices needed to make success replicable.”
Another benefit inherent with utilizing a third-party manager is its laser-focus on a property’s net operating income. “We can’t take our eyes off of that proverbial bottom line,” says Brent Gutwein, CEO of Granite Student Living. “Almost to a fault. We sometimes jeopardize our returns in the short run, but we strongly believe that real estate is a long-run game and our approach is designed to garner optimal results — both for the property owner and property manager. Third-party operators are also very flexible and nimble, which is especially relevant and beneficial in a change-oriented environment like we are experiencing today.”
Owners considering a third party to manage their properties should also consider the advantage of economy of scale and volume discounts with large vendors, according to Michelle Dixon, vice president of management at Michaels. “From simple ‘out of the box’ thinking to complex partnerships, a third-party manager can ensure communities are cared for down to the bottom line,” she says. “We have partnered with firms like eConserve, TrustHab, Refuse Specialists, Broadband Consulting Group and Pennoni to reduce expenses. Third-party managers have the expertise and the resources to solve particular issues that ownership can benefit from.”
Properties can also benefit from greater operational attention to detail when overseen by a third-party. “As an operator that does not own any properties, we put our client’s needs front and center,” says Jason Fort, executive vice president at Asset Living. “The largest advantage that we provide is attention to detail and the personalized customer service. At Asset Living we break up our ownership groups into different regions and marketing teams — we really manage each owner’s specific needs. Even though we’re one of the largest in the space, we’re extremely specialized in how we operate for each client. We want each ownership group to feel important to us, regardless of if they have one property or 60 properties.”
The Road Ahead
Moving forward, CLS’ Sholders believes the industry will see a flight to quality with regard to third-party operations. “I feel owners will begin to really focus on the quality of their management partner versus the size of the company or how cheap the fee is,” he says. “You are starting to see owners looking for managers not with the lowest fee structure, but ones who demonstrate their ability to provide the same type of support to the site level folks as if they were the owners of the property. Owners have begun to understand that focus, attention and support at the site level are the most important things a manager can bring to add value to the real estate.”
And while preleasing in the industry trailed year-over-year by as much as 10 percent last fall, that variance has shrunk over the last several months, finally turning the corner in early June with a positive variance of nearly 2 percent versus the prior year nationally, according to Eddie Moreno, executive vice president of operations at Cardinal Group Management. “While there will be a spectrum of winners and losers within each market, on the whole we are confident that fall 2021 will yield a mid-single-digit increase in occupancy with nominal rate growth.”
“While vaccine distributions have bolstered leasing this spring and summer, we’re still seeing policy decisions at the university level impact both on- and off-campus occupancy and preleasing,” Moreno continues. “Institutions that are not requiring their students to get vaccinated before returning in the fall have both higher occupancy and preleased percentages — a statistic we will continue to track through the end of this leasing cycle.”
As it relates to the changing world of third-party management, Hand believes this segment of the industry will remain competitive. “The third-party operators that will see the largest growth curve are those that can be flexible and accommodate clients’ evolving needs,” he says. “This may sound obvious, but the focus is going to remain on increasing the value of the real estate over time. Operators who have built a platform to support this will be highly sought after. It’s not just squeezing dollars, it’s about a high level of customer service, empowering on-site teams, utilizing technology wisely and having the right people in the right seats.”
Speaking to the competitive nature of the industry at large, Bove of Landmark notes that the sector is likely to see an extremely active end of the year in terms of property transactions due to deferred supply that did not get brought to market in 2020. “I think we are going to see a lot of assets that were able to stabilize after an inability to do so last year get brought to market, and there are a lot of capital partners that are anxious to deploy capital that likewise did not get deployed at the end of last year,” he says. “These folks are ready to find partners to work with — whether those be equity partners or third-party management providers for the student housing space.”
This article was originally published in the May/June 2021 issue of Student Housing Business magazine. To subscribe, please click here.