Centralizing Operations to Maximize NOI
This method helps cut costs, improve workflow and better serve residents.
Multifamily operators are always on the lookout for a way to boost the net operating incomes of their communities. The latest trend of centralizing operations has caught the attention of some firms looking to get the most out of their residential portfolios, while others are more hesitant about the potential benefits.
Centralizing operations may not be a novel concept, but is relatively new when applied to multifamily real estate management. Centralized operations allow companies to serve residents and prospective residents quicker, while also improving workflow and efficiency across the portfolio. Some companies have created centralized corporate teams with specialists and others are using artificial intelligence. Companies such as Yardi Systems, Travtus and Knock also offer software that simplifies centralizing operations.
While the idea of centralizing operations has been gaining momentum, recent events may have sped up adoption. Michael Tuer, vice president & general manager of the western region for Yardi Systems, told Multi-Housing News that the labor shortages and the COVID-19 pandemic have accelerated the trend at which multifamily operators are converting to centralized operations.
Accelerating Adoption, Implementation
BH Management started centralizing its operations for its portfolio prior to the onset of the pandemic. Joanna Zabriskie, president & CEO of BH Management, told MHN that the firm is in the middle of its four-year strategic plan to do so, which has been fast tracked due to current market factors.
“Facing high demand and a very real labor shortage this year, we amplified our efforts,” said Zabriskie. “The COVID-19 pandemic made us rethink our approach and even accelerated our transition in certain ways.”
Most importantly, Tuer said that multifamily operators will always be looking for ways to maximize the bottom line of their communities. Now, companies are looking at centralizing operations as a direct way to improve returns by reducing costs and improving efficiency.
“The other thing that people are always looking at is, how can I increase the bottom line or the net operating income at a property?” said Tuer. “At the end of the day it’s about, how can I get and do more with less, and centralization helps them do that.”
Two Schools of Operations
With the concept of centralizing operations still in its early stages, Tuer explained that there’s currently two divergent approaches. On one hand, he is seeing companies create a centralized corporate office that handles specialized tasks to reduce burdens elsewhere. On the other hand, Tuer also sees operators utilizing automated artificial intelligence tools to respond quicker to current or prospective residents.
For corporate office centralization, Tuer said operators are diverting tasks, like leasing efforts, renewals and rent collections, away from on-site property teams and towards a main office.
“Rather than needing a person to do this at every property, now I may need two or three bodies,” he said. “At the end of the day, it helps the bottom line of a property, which is what everyone’s really focused on, increasing that NOI.”
For BH Management, its specialized corporate level teams took on work like hard-stop screening, renewals and evictions, freeing up its property teams to focus on improvements elsewhere.
“Early in the pandemic, we realized that managing the accounting and legal complexities of payment plans, hard-stop screening and rental assistance on top of day-to-day operations was just too much for our on-site teams,” said Zabriskie. “We moved these workflows to centralized teams at the corporate level, allowing us to have better oversight and be more consistent in managing the outcome.”
For those on the automation side, Tuer is seeing operators use virtual leasing assistants that can automatically reply to emails, website chat boxes or on social media. The bots can address specific topics ranging from resident maintenance requests to inquiries from interested renters.
“It’s way beyond just the normal website interactive bot,” Tuer said. “It’s not only dealing with potential renters, but dealing with resident inquiries as well and looking at ways for this virtual assistant to be able to handle any request form.”
Chad Munitz, vice president of development for Towne Properties, told MHN that the company started incorporating centralized operations a few years ago to meet the expectations of its renters.
“They wanted to pay rent 24/7, have their questions answered after hours, and find most of their information through online sources,” said Munitz. “At that time we started to think that centralization of operations could become the future of apartment management.”
Bring on the Benefits
For BH Management, the goal of implementing centralized operations was to streamline the resident experience. While the firm is still working on its four-year plan, BH Management has already seen a “measurable increase in ROI,” Zabriskie said.
“Shifting this work from property to corporate teams has not only allowed us to be more efficient, but we’ve also seen a measurable increase in ROI because of centralized operations,” Zabriskie added. She said that since the second quarter of 2021, BH Management’s team of dedicated renewal specialists have shortened the overall renewal process by 19 days.
For Towne Properties, a more centralized approach created more connectivity throughout the portfolio. Munitz said that the company consolidated leasing offices of properties that were near each other and created a centralized database that’s accessible from anywhere on any computer or mobile device.
Is Centralization Worth It?
In spite of the many benefits that centralized operations can provide, there can be some downsides to implementation. Tuer said that larger operators get the benefit of economies of scale with a larger portfolio. However, he added that there’s a bit of a learning curve so that operators don’t lose track of their residents in the process.
Larger companies may also have a harder time implementing the system across a large residential portfolio, whereas smaller companies can adapt a lot faster.
“While larger companies are at an advantage because they have the human and capital resources available to absorb processes, they may find it difficult to stay nimble,” Zabriskie said, adding that BH Management can instead adjust quickly. “We’re able to put more centralized resources together on an efficient basis to drive better NOI at the asset level.”
Multifamily operators like BH Management and Towne Properties are a few years into their implementation of centralized operations, but not everyone has bought into the trend. Tuer said that the industry has more of a wait-and-see attitude about centralized operations, wanting to see if the benefits are worth the effort.
“It’s too early to tell, people are just starting to look to do these things,” Tuer said about widespread adoption. “You have some of the main players trying this out and other operators are watching to see how it works out and if there is a return on this investment, does it help the overall prospect experience and resident experience, and are they gaining the NOI that they’re looking for?”