Back to Basics
CEO Walt Smith shares Riverstone's property expense control strategies
From its national headquarters in Dallas, Riverstone Residential Group has seized a sizable share of the multifamily market. The company now has a presence in 31 states with close to 180,000 units. According to Walt Smith, who took the helm as CEO in September 2009, Riverstone oversees the following divisions: West (comprises 80,000 units located in coastal towns such as Seattle, Spokane, Boise, Portland, San Francisco, Sacramento, and up and down the greater LA area from San Diego up to Santa Barbara and Albuquerque); Central (50,000 units in Denver, Salt Lake City, St. Louis, Phoenix, Houston, Dallas, San Antonio and Austin); and East (50,000 units from Orlando and Miami to Atlanta, Charlotte and up to Boston, Washington, D.C., and New York). Smith recently talked to MHN Editor-in-Chief Diana Mosher about stabilizing revenue and minimizing operating costs without negatively impacting the resident experience or clients’ returns.
Riverstone has a diverse portfolio. Describe the types of assets managed by the company.
We manage [a range], from tax credit or affordable housing type products to class A urban and suburban style properties, including mid-rises, high-rises, three-story and two-story wood frame properties. Riverstone has cut its teeth on small, local investors around the country, and these clients still play significant roles in our business. Pension fund advisors, private and public institutions, local and national
developers and private equity firms are active players as well.
Are you looking to move away from the small, local investors?
Absolutely not. We have a minimum property size—which is in the neighborhood of 80 units—but certainly not [a minimum] from an investor size. Our corporate strategy is to ensure that we have local experts in markets across the country with national support and strength for those local operations. Having local experts and offices around the country that we rely on enables us to better serve and execute for the local investors in those markets.
What tactical and strategic goals have you set for Riverstone, and how will you measure success?
First and foremost, our goal is to enhance property performance for our clients. We’re shifting our focus away from the acquisition of companies, where it had been the last couple of years, back to the basics of property management with an emphasis on property expense control. We actually embarked on a process of rebidding most, if not all, of our national supplier contracts and enhancing our ancillary services so that we could generate more income during a declining rental market period. All of this is being done with attention to our clients’ bottom lines. So, from a strategic standpoint, I have been asking everybody to spend the vast majority of their time focusing on our clients and their properties.
I have also restructured the organization so that our property management division can focus specifically on servicing clients. With that in mind, I have recently named Terry Danner to be the president of the company and to be in charge of day-to-day operations of the three divisions. He can now concentrate, with our three divisional presidents, Maura Bilafer, Stephanie Brock and Mike Dow, on property management while I, along with the other key executives, direct and manage overall operations and business strategy for the organization.
In terms of measuring our success, our main goal for 2010 is to stabilize revenue and continue to minimize operating costs without adversely affecting the resident experience at our properties. There are many different ways of accomplishing these objectives that have been part of this initiative; for example, new forms of advertising and marketing, such as social media tools, and minimizing utility costs by creating enhanced green initiatives, which we’re implementing through our regional maintenance department. While we are cutting energy costs, we are also exploring ways to reduce energy consumption.
How is Riverstone navigating the economic downturn? Do you think the worst is behind us? What sort of business development initiatives are in place currently?
We launched a major effort last year that was precipitated by the need for our operating executives to focus on our clients’ property operations, to the point where they could not spend much time on operations for Riverstone. In response, we’ve added numerous market analysts and business development executives around the country in core markets. They’re devoting most of their attention to helping local Riverstone executives with business development initiatives so that we can hit our growth goals while, at the same time, our executives at the mid-management level and higher can spend their time working on our clients’ properties.
We certainly will take advantage of opportunities to grow by entering new markets. We recently entered the St. Louis market in the second half of last year, and we’re currently evaluating several other opportunities primarily in the central region of the country because we’re in
all, if not most of, the main markets on the east and west coasts. We’re mainly looking at opportunities that arise through regional and
national clients we do business with in other parts of the country. Entering markets like St. Louis is a way to gain access into other,
Does your strategy include international expansion—either for global clients with assets here or managing properties located overseas?
We’re currently focused on management inside the U.S. We have numerous clients that are international in nature who own properties here, but we’re not currently doing nor anticipating to do property management outside the U.S. at
Where is Riverstone in terms of providing a “greener” living experience for residents? Is this part of your marketing and/or operations plan? Do you see value in green in terms of the bottom line?
We see significant value to green in numerous areas: from achieving a paperless office at the property level all the way up to the corporate office where we’ve cut our paper consumption by 50 percent in the last couple of years. And our efforts will continue. Property management generates a lot of paper—from sending out financial statements, budgets and other kinds of reports on a daily, weekly and monthly basis. To be sending these electronically generates a significant change.
At the site level, as I mentioned, we’re working with the local municipalities and utility companies to reduce water and electrical consumption through new fixtures and audits that ensure sensors and timers are all coming on and going off at the appropriate times. There’s a strong focus on that, and I’d say residents are more on board today than in the past because of the economic impact on the properties where they live.
There’s no question about the marketing value associated with green. We have LEED properties being developed by our clients all over the country. In the core urban markets, especially, there is a substantial amount of marketing advantage that can be gained, compared to a property that does not have that LEED [objective in mind].
Where do you see rents going in 2010 and beyond?
I don’t believe we’ve reached the bottom of the multifamily rental cycle yet. I do think this will happen during the 2010 calendar year. Provided we see the bottom of the job market environment in 2010, I think we’ll then see the bottom of our cycle as well. We expect on average, nationwide, that we’ll see a 2 1/2 percent decline in rental revenue in 2010, and that by 2011 we’ll be flat or up by 2 percent. By 2012, we’re budgeting for a 3 to 5 percent growth in rental revenue.
In regards to net rental revenue, I think we’ve seen the worst of the accelerated declines. These rapid revenue declines—and other indicators in the economy—have been very difficult on all operations in many facets of business. I would say that the market is more stable than it was, but most markets will continue to see revenue degradation for a few months. The main indicator [to keep an eye on] will be job loss.
At Riverstone, we’re focusing on how to be more productive within our business and for our clients; we’re streamlining our business through initiatives that are mainly technology-oriented to consume less paper and to cut out layers of operations to make the business more productive. Just like any other industry, we have to find ways to deal with declining revenues and find ways to be more productive mainly through technology. We have seen substantial strides in this area in the past two or three years and continue to look for additional ways to further these goals.
What’s your philosophy regarding concessions, and how much freedom do leasing agents have in respect to offering these on a case-by-case basis?
With the introduction of revenue management systems around the country—which we’re piloting with several of our clients—there is (especially in this economic downturn) a substantial focus on rent-setting and concession-offering. The rental agents on site get a fairly strict parameter of what they can do to close an individual deal, but the revenue setting is done daily to weekly now. So there is a tighter reign today on rent- and concession-setting than in the past—because there is so much downward pressure. When rents are going up, we tend to give the on-site people a bit more latitude because they’re raising rents. But when rents are going down, there is probably less.
What are some of the most creative concessions you’ve seen in the industry? What do you think works—and what doesn’t? How much is too much (in terms of giving too much away)?
The most creative concession in today’s market is no concession. The challenge is to create other ways to add value. I’d also say that in most markets, because of the economic outlook around the country, a [more effective strategy] is net effective rent and attempting not to give away concessions and amortize concessions. I would rather get to a rent that would attract enough customers to keep the property at the target occupancy rate. There still are many markets around the country that are in a high-stress situation where you see two to four months free being offered—either up front or amortized over the term of the lease. But the most sophisticated landlords are attempting to get to a net effective rent.
What else can be done besides concessions to keep units occupied?
Marketing campaigns can highlight concierge services and other amenities that can be offered on a property specific basis to add value to the resident experience with something other than simply a rental adjustment.
Are there any lessons learned from other industries that might apply to multifamily during this challenging environment?
Multifamily has offered concierge services for quite a while now. We borrowed that idea from the hospitality business—the benefits of being more full-service to our residents as if they were in a four- or five-star hotel. Revenue management systems were also a product of the hospitality business.
Another idea taken from outside the multifamily industry, which has been implemented increasingly in the last 24 to 26 months, is online training rather than in-person training. It’s much more cost-effective. Associates can sit in their offices and complete training exercises without leaving the property.
In terms of overall operations across Riverstone’s portfolio, what are the biggest challenges?
The biggest challenge continues to be NOI stabilization. There’s still downward pressure even where we have stopped the downward movement. Many of the properties are at an uncomfortable level. We’re really focusing on our revenue enhancement programs though ancillary income programs, such as the acceptance of renters insurance including “pink slip” insurance. Such programs are accepted in most of our core markets now. We see these as ways to lower insurance costs for our clients and to bring some revenue back to the properties. We continue, also, to devise ways to cut operating costs and increase occupancy to a level above what we had experienced the year before. I think we will actually see occupancy go up a bit in 2010 versus 2009.
What keeps you up at night?
I would say the global economy—because it’s not within my control—and wondering what I’m going to read in the Wall Street Journal when I wake up the next morning.