For Small-Portfolio Real Estate Players, It Remains a Relationship Game

By Chris Nebenzahl, Senior Analyst, Yardi Matrix

Despite the fact that technology has found its way into nearly every aspect of our lives, small-portfolio real estate remains very deeply connected to its roots as a relationship business. That is not to say that there is no room for technology, as small-portfolio owners and managers are taking to Twitter, Facebook and other social media platforms to market and lease their properties; however, developing a strong and personal rapport with both residents and industry colleagues is essential for owners in the small market.

Many large apartment communities are owned by institutions and managed by third parties. Rents, repair requests and move-ins are often handled electronically, and for many residents, their relationship with their landlord is limited or altogether non-existent. Owners expect a certain level of perpetual vacancy and understand that units will continuously turnover. However, in the small market, a strong resident-landlord relationship can be the key to both a successful business and a happy living situation.

Residential is Becoming More Technological

While the residential market has taken strides to enter the age of technology, there remains a competitive imbalance between small owners and managers and their institutional colleagues. Many large firms employ teams of marketing personnel to create websites, distribute listings and focus on search engine optimization to attract residents. With limited resources, small owners use social media and some internet listing services, but a personal touch and a strong reputation in the local community remains paramount in order to attract residents to their properties.

Once leased, small-market owners also typically manage their own properties and handle resident issues personally. Responsive and timely accommodations to resident requests build mutual respect between both parties, and that respect proves beneficial when renewal negotiations and lease terminations come about.

Happy and satisfied renters often renew their leases, or recommend their landlord to a friend or colleague if the landlord-resident relationship is trusting and close. This type of organic turnover helps small landlords cut down on marketing costs and lost revenue due to vacancy. In the small market, low vacancy is extremely important, as one vacant unit represents a significantly larger percentage of an owner’s portfolio and cash flow, compared to institutionally owned assets.

Commercial Remains Entrenched in Old Ways

Renting commercial space, especially smaller floor plans, remains entrenched in a more traditional style, where relationships drive leasing activity. For small office landlords, having a presence in the community and a deep network of professionals across industries makes for a more robust tenant pool, and a lower vacancy rate.

Strong relationships between tenants and landlords are integral since many tenants are small businesses and start-up firms that may have unsteady cash flows. Building a close relationship can help provide flexibility for tenants if they need to make a late payment from time to time.

Certain Markets Still Depend on Brokers

Leveraging their network, small office owners, often use local community and regional brokers to help drive occupancy. The importance of understanding the local business community helps foster the connections tenants and owners look for in small-market real estate.

On the apartment side, brokers are frequently used in certain gateway markets to facilitate the renting process at the middle and high-end due to the historically strong demand and short rental window for vacant units. For renters in New York, Los Angeles and San Francisco, it has become somewhat of a requirement to employ a broker when searching for an apartment, which brings added expenses that could equal up to one month’s rent. It is also commonplace for landlords to list apartments just a few weeks before move-in so prospective residents are forced to act quickly in order to lock down a lease.

However, in smaller secondary markets, renters often search for housing on their own, either through internet listing services or online public forums such as Facebook or Craigslist, or by reaching out to property managers directly. The housing search tends to be slightly longer, as landlords and residents are able to negotiate new leases a month or more prior to moving in. Small owners anticipate upcoming vacancies and begin the marketing process months before their unit’s turnover.

As institutional apartments and offices add high-tech amenities and digitized communication platforms, small-market real estate remains close to its roots of personal connections and close relationships between owners, managers, brokers and residents.