Hidden Problems

Written by Tyler Kastelberg

March 27, 2022

Happy Sunday!

Last week I caught up with John Grellner, inspiring this deep dive on grocery-anchored real estate. I’m really proud of this one … lots of actionable bits of information. 

This week, I speak with another freelancer and dive into problems that multifamily asset managers are currently experiencing in their portfolios. 

… but first, forward this to a couple of multifamily asset managers and see if they have these same problems. 

If you were forwarded this letter and enjoyed it, subscribe here. I send one weekly email on Sunday — no spam. 

I got 99 problems …

I caught up with Jonathan Buckelew this week, a Bullpen freelancer who has extensive institutional experience as a multifamily asset manager. Before becoming a proptech entrepreneur, Jonathan worked for DRA as an asset manager on their multifamily team. Our conversation surfaced a handful of problems that institutional asset managers are currently facing in their portfolios. 

1) Class A rent collections

You typically wouldn’t imagine Class A properties would have rent collection issues. However, Covid and rent relief programs made collections a problem for all properties. Asset managers had to borrow best practices (like payment plans) from Class C properties and apply them to their Class A assets. Given the Great Reopening*, this problem is starting to solve itself. 

*I just made up the term “Great Reopening” on the fly – let me know if you think it will stick. 

2) Maintenance team turnover

The labor shortage is real, and property maintenance teams are feeling it. Jonathan noted that at DRA, maintenance turnover was a massive problem, and the training cost to hire new staff was meaningful. Additionally, work orders would balloon when the maintenance team was short-handed.

Why would maintenance staff leave? Maintenance isn’t the easiest job, and the pay typically isn’t great. Garden-style properties can be 30+ buildings, spread out over 10-20 acres. Depending on the time of year, it could be either unbearably hot or cold outside. You’re cleaning up trash, and you’re not exactly sure what you’ll run into … drugs, weapons, etc.

3) Aligning on-site team with HQ’s brand expectations

One challenge for asset managers is to effectively convey HQ’s brand expectations to the on-site teams. Most properties have a quality standard as part of their business plan. Nuanced expectations are hard to convey, and the folks doing the turns sometimes struggle to get it right. This can impact leasability and value over the long term. 

4) Cost inflation

This one comes from Rob Hudert who replied to one of my LinkedIn posts … Marketing costs are materially increasing as leasing teams pivot to SEO and paid search. While this marketing strategy is effective, it’s very expensive. Turnover costs are increasing, particularly due to a paint shortage. Paint quality has also suffered as the supply chain shortage is impacting the availability of raw materials. Additionally, payroll costs have increased 10-15% across the board. 

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That’s all for this week! Reply if I missed anything.

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