Fine-Tuning Multifamily Management for 2019
- Dec 18, 2018
As rising construction costs begin to give developers pause nationwide, and as older assets continue to demand ever-higher sales prices, multifamily investors are in the process of reevaluating their investment strategies for the coming years. With more than 50,000 units under management across the country, Bell Partners is well-positioned to observe current trends.
The company was very active over the past year, with significant acquisitions and divestment across a number of major markets. In an interview with Multi-Housing News, CEO Jon Bell offers advice on how investors can increase their returns via successful property management strategies, whether following a value-add acquisition or after picking up a newly built community. He also provides insights into the challenges and opportunities likely to appear in the coming year.
Given Bell Partners’ diverse multifamily portfolio across the country, what are some significant and/or surprising trends you observed in 2018?
Bell: Bell Partners manages over 50,000 apartments across the United States on behalf of its various investment management and third-party property management accounts, so trends vary by market and submarket. I don’t think we’d describe any of the performance trends in our portfolio as surprising, but we have seen a continuation of trends witnessed in 2017, as expected. Overall, performance across our portfolio continues to be relatively steady with moderate NOI growth. Nonetheless, the labor market remains tight. As a result, salaries have increased throughout the industry, and it’s challenging to hire and retain great people, an issue partly mitigated by our scale and intense focus on talent management.
Tell me about a recent Bell Partners acquisition and how it is indicative of the current trends.
Bell: In 2018, we had a balanced year of acquisitions and dispositions. We sold roughly $1 billion of apartment communities and also purchased roughly $1 billion of apartments. Recently, renovation properties have often been priced beyond perfection, but we’ve found value in some transitioning locations where gentrification is occurring rapidly and where we can lean on our local operations, asset management and investment teams to identify attractive up-and-coming areas. One example would be an asset we purchased in 2018 in the uptown area of Oakland.
What are some challenges in multifamily investment you expect to see next year?
Bell: We don’t expect much turbulence in multifamily investment in 2019. Our internal business intelligence group led by Jay Denton, formerly of Axiometrics, is projecting steady operating performance across our portfolio, a trend that will likely command continued strong capital interest from foreign and domestic equity and debt providers. If interest rates rise considerably, there could be volatility further down the road, but this can also present opportunities for savvy, well-capitalized buyers.
What opportunities do you anticipate in the coming year?
Bell: Opportunities are continually evolving and vary by market. While we are one of the largest renovators in the country and have well-evolved design packages catering to specific situations, more recently we’ve often found better opportunity purchasing assets built one to three years ago, whereby we can finalize the lease-up, bring our management expertise to bear and achieve a basis lower than today’s replacement cost given the dramatic rise in constructions costs, and not be burdened with the capital expenditures associated with purchasing an older asset.
We feel many buyers chronically underestimate the capital expenditure requirements of properties older than 20 years old. The renovation opportunities will eventually increase again, but we like having the flexibility and capability to pivot towards areas where we see better value proposition as capital markets and operating fundamentals shift.
How can an investor best maximize their returns in value-add acquisitions?
Bell: There is no question that the opportunity still remains to raise rents with value-add renovations. However, the issue is what a buyer must pay to access these investment opportunities. While we are still finding attractive renovation properties to purchase, they are hard to come by, as we often don’t feel the seller’s sale price expectations compensate us for the risk associated with older properties.
What changes has Bell Partners observed in demand across its portfolio over the past year, and how has this impacted your investment and management strategies?
Bell: Even though we are late in the economic recovery, there is still solid renter demand across virtually all segments of the apartment sector. However, from an investment perspective, some segments are often overpriced—e.g. older, to-be-renovated assets—and some pockets have excess supply. There has been a lot of urban development, so there is some corresponding softness operationally in many of those pockets. Many suburban locations remain strong and exhibit some barriers to entry.
What operations or processes give Bell Partners an advantage in the current market?
Bell: There are a number of processes that give Bell an advantage. Our larger size affords good economies of scale and enables us to reduce expenses and offer in-house specialized support groups in areas such as purchasing, utility management, renovation, etc. Another advantage is our incredible transition team with processes that ensure acquisitions, dispositions and third-party management transitions are handled smoothly with minimal disruption to property operations.
What role does technology play in property management across your portfolio, and what implications does this have for the coming year?
Bell: From property software to marketing and reputation management, technology continues to play a critical role in property management. We’ve focused on maintaining and enhancing our existing systems but also look for new technology to help our associates and residents have the best possible experience at our communities.
The way we find and lease to prospects is changing. As a result, we are investing heavily in our business intelligence group to better understand our consumers and their preferences. We have also expanded our marketing group to include a heavy focus on social and digital marketing.
How do you see the role of property managers changing in the near future?
Bell: Property managers continue to be asked to expand their knowledge from a financial and operational standpoint. Data has become critical to our industry, so property managers must be able to analyze the data they receive and use it to make efficient and effective decisions for their portfolios. Despite changing technology and consumer trends, it’s still a people business. Delivering great service and caring about residents is a priority, hence our company’s purpose statement to “create communities our residents are proud to call home.”
Image courtesy of Bell Partners