With more and more renters moving back home or doubling up, vacancy rates throughout the nation are on the rise. Industry experts agree that, while the emphasis is usually placed on leasing and marketing, there needs to be a shift toward focusing on the current paying customer. In other words, resident retention in today’s difficult economy is even more important than ever before.
“Leasing/marketing gets all the attention, and it’s important, but that’s where you cut your losses,” asserts Doug Miller, founder and president of SatisFacts Research LLC, which currently has 500,000 units under contract. “Retention is where you grow NOI and protect against rising cap rates. Reducing turnover is the easiest cost-free way to boost those numbers,” especially since each move-out costs an average of $4,500.
The good news, according to SatisFacts’ statistics, is that 60 percent of resident turnover is, in fact, controllable. However, managers must first determine what it is that makes their residents want to stay at—or move from—a particular community.
Recognizing what residents are “thinking about their community, and understanding their connection to the brand, is critical to understanding and knowing what keeps them satisfied and what will keep them around,” notes David C. Smith, vice president of operations at Kingsley Associates, a real estate provider of research and consulting services.
The key to resident retention, then, is ensuring that your customers are satisfied with the product you are offering them. The problem in the industry, however, is that “all too often, companies talk about customer satisfaction but they don’t measure it,” notes Joseph Batdorf, CEO of J Turner Research, which measures satisfaction at 800 properties around the country on a monthly basis.
And once you do measure the level of resident satisfaction of your community, it is equally, if not more, important to act on it, using your findings to improve occupancy throughout your portfolio.
“The importance of measuring resident satisfaction is similar to why it’s important for any business to understand the voice of [its] customer,” explains John Falco, principal in Kingsley Associates’ Atlanta office. “Having that input and feedback allows you as a company to better provide for those customers and build their loyalty.”
There is some contention, however, about the frequency with which residents should be surveyed. “There’s a huge difference between monthly and event-driven surveys and it goes to methodology,” notes Miller, adding that the central issue is how you use the information once you have it.
On the one hand, as Batdorf believes, “Doing it on a monthly basis enables you to see trends.” For example, he points out, “if you have a rehab going on, or a new manager that comes in, or a new maintenance guy that’s taking over at the property, our system enables them to see what effect that’s had on the resident satisfaction levels” more immediately than if residents were only surveyed annually.
On the other hand, Miller and his firm believe that event-driven surveys are more practical. “Those are the critical moments in time when you are more likely to get feedback, and feedback at critical moments can reduce turnover,” he notes.
Such event-driven surveys include post move-in and post-work order. Kingsley also offers a post-move out survey, which is sent to residents once they submit a notice to vacate. When the resident makes the decision to move out, Smith asserts, it is important to get some feedback on what’s driving that decision. “We want to capture them before they are gone and some major points become a distant memory,” Falco adds.
Though Kingsley has different methodologies for its various clients—some prefer event-driven surveys while others favor those performed on a monthly or annual basis—Smith asserts that the frequency of surveying is often dictated by the way that the client wants to utilize the results.
“We will never say the name of the game is getting the highest satisfaction score possible, because it’s impractical and you can go bankrupt. You can buy high scores by lowering rents and giving whatever residents want, but it’s really an optimization,” Falco adds. “You are trying to optimize the relationship between what you can provide and what will keep retention high.”
The company uses its proprietary Kingsley Index, containing millions of data points, to objectively compare communities based on type and class, geography and methodology (whether data has been collected via a Web or print survey).
Driving factors of renewal
Experts have determined that certain drivers often indicate whether or not a resident is likely to renew. Those areas most important to residents are usually those that are “low-cost, high-impact,” Falco notes. “It’s not always about adding expensive things, and you shouldn’t necessarily take the high-cost road to increasing resident satisfaction.”
For example, as Smith points out, “the areas that are most highly interrelated with overall resident satisfaction are service-interaction areas,” with communication with management playing a particularly key role.
Jen Piccotti, vice president-Consulting Services Group, SatisFacts Research LLC, agrees, noting, “the greatest impact on renewal likelihood is prompt staff response to calls and emails and follow-up on completed service requests.”
Kingsley has also looked at how employee engagement—an aggregation of 10 key questions to determine whether staff is highly, moderately or low-engaged—interacts with resident satisfaction.
“When we look at communities where at least two-thirds of associates are highly engaged, you see significantly higher satisfaction overall with service delivery,” reports Smith. “Most importantly, you see that there is a big difference with renewal intent, so when the majority of associates are highly engaged, you are more likely to see that residents intend to renew. And ultimately, we see that there is a relationship between satisfaction and renewal intent.” He adds that stated renewal intent tends to be 75 percent predictive of a resident’s final decision.
Meanwhile, in today’s recessionary environment, where price has become a top priority, Smith adds that it is equally important to focus on controllable factors of satisfaction and retention. “Giving people reasons to want to stay, from a service perspective and in terms of the sense of community, are really important,” he notes.
At the same time, while residents’ values may not be any different in a downturn, if they “don’t feel like the management is reacting to their needs, it’s a lot easier to move,” Batdorf points out.
“People aren’t hunkering down,” adds Miller, noting that residents are simply “evaluating value more than ever, and when you focus on what matters most to residents, it pays off.”
Act on it
While measuring resident satisfaction is crucial to determining renewal likelihood, your efforts cannot stop there. Instead, it is absolutely crucial to act on the surveys’ findings.
“When we talk to our clients and advise them and their managers on how to utilize our results to drive satisfaction in a positive direction—or maintain it—we focus on thinking through how to build systems that respond quickly, how to consistently communicate about what’s going on, how to resolve resident concerns,” notes Smith.
To that extent, Batdorf recommends that management create opportunities for residents to communicate with on-site staff—particularly when they need to vent their frustrations. This is especially critical in today’s technologically advanced world, where it is all too easy for residents to vent their frustrations to the outside world.
“We recommend that the first thing you do every day is follow up with existing residents. They are your number one [priority] because they are the ones paying you—they deserve that recognition and that respect,” asserts Piccotti.
In addition to creating an action plan, she points out that management needs to communicate their plans to the residents. For those that participated in a survey, they will feel that their feedback has been validated; those who didn’t participate will recognize that management utilizes the information they receive to improve the community, Piccotti adds.
Despite the need for a plan, however, Piccotti warns against trying to improve too many things at once. Instead, she suggests identifying three to five items—that management can truly measure—to put together in a step-by-step plan.
“One of the big obstacles that can face a team,” she notes, “is if you try to do everything to improve, but nothing changes because you are spreading yourself so thin.”
What Matters Most
Doug Miller, founder and president of SatisFacts Research LLC, reports that 60 percent of turnover is controllable—good news for those managers who don’t like the $4,500 price tag often associated with move-outs.
If you can determine the underlying causes of your residents’ dissatisfaction—and do something about it—it pays off. Those who utilize SatisFacts’ surveys, for example, reported an average turnover rate 9.5 points lower than that reported in the NAA Income & Expense Report.
And the company has determined where that translates into hard costs, based on this turnover rate and move-out costs. For a 5,000-unit portfolio, for example, NOI can increase over $2 million—at an 8 percent cap rate, this can increase your asset value by $26 million.
However, it takes some work on the management side—according to Kingsley Associates, seven of the top ten areas most highly correlated with overall satisfaction includes management.