Let Data Drive Your Strategy
- Nov 28, 2018
Seattle-based Avenue5 Residential has recently had several reasons to celebrate. The company was named the second fastest growing firm in the state of Washington and it currently occupies the 30th spot in NMHC’s top 50 largest apartment managers—up 16 spots from last year’s position. The secret to its success seems to be its flexibility and willingness to adapt to a fast-changing environment. In an interview with Multi-Housing News, CEO Walt Smith shares the strategy that is designed to help the company thrive even more.
What are the main trends in apartment operations today?
Smith: One key multifamily industry trend is related to pricing. We used to be able to track pricing on a less-frequent basis. Because today’s market is increasingly dynamic, however, there is greater pressure to monitor indicators for rental rates every single day and to price apartments in real time according to the data.
Another critical trend is monitoring customer sentiment on an ongoing basis and empowering teams to make changes based on customer feedback. Providing exemplary customer service has always been essential, but today it holds particular importance due to the popularity of online ratings and review sites. Even a relatively small number of negative online comments can significantly impact a property’s bottom-line performance, so being able to proactively assess challenges at the property level and address those challenges quickly can give a property a competitive edge.
A third important trend is harnessing the power of the numerous metrics that are currently available to multifamily management firms. Managers who can select a data platform that aligns with their needs and the needs of their clients, who can aggregate massive amounts of data into easily consumable insights and translate those insights into actions that will improve performance will be in the best position to meet the demands of multifamily owners, especially in rapidly fluctuating market conditions.
How is Avenue5 navigating the current changes in the economy (trade policies, tax reform, rising interest rates, etc.)?
Smith: One particular concern that we hear consistently from suppliers is the escalating costs of imported materials, including construction supplies, appliances and fixtures. Our dedicated ancillary and supplier management services team, which is responsible for cultivating supplier partnerships and monitoring supplier and product performance, is watching pricing trends very closely.
In order to make sure that our clients experience bottom-line savings without sacrificing the integrity of their assets, the team leverages our partnerships with national suppliers to ensure pricing and support advantages, researches every available product and pricing solution, ensures the best possible contract scenarios for our company and our properties, and measures efficiencies, cost savings and product performance metrics.
Tell us more about Avenue5’s current tenant retention strategy.
Smith: We believe that asking residents for feedback, and taking swift action based upon that feedback, are key in crafting a high-quality resident experience, building resident loyalty and driving renewals. Our property marketing team supports properties in proactively managing resident satisfaction through our customer feedback and reputation management platform.
CFRM provides our properties with specific KPIs and the tools they need to survey residents and monitor survey results throughout key points in the customer experience. In addition, the CFRM platform provides our associates with the resources they need to monitor and respond to resident reviews in a timely fashion across platforms including Facebook, Google+, Apartment Ratings and Yelp. The tools within the CFRM platform allow our associates to quickly identify which factors enhance or impede resident satisfaction the most and to take corrective actions whenever needed, whether those actions are related to amenities, service delivery or any other specific areas that commonly drive resident satisfaction and renewals.
What can you tell us about the shifts in multifamily demand? Which markets are the strongest? Which are emerging? Which metros are not performing as expected?
Smith: Phoenix and Las Vegas have lagged in recovery and, at this point in the cycle, we’re seeing accelerated growth in those markets. This is due in part to construction starts in those two areas being behind all other major markets in the West.
In terms of emerging markets, Reno, Nev., looks promising right now, as it has enjoyed substantial growth and migration from California. Additionally, Class A properties in downtown core submarkets of Seattle, Portland, Los Angeles and Denver are thriving. However, because of the large number of construction completions in these areas, these markets are softening more than expected. In the Bay Area, South Bay/Silicon Valley is still showing promise but hasn’t been as strong as anticipated.
What are some of the major challenges in property management today and how could these be overcome?
Smith: One major operational hurdle that we, like other multifamily management firms, have been facing this year is the extensive resources required to acquire the best talent. This issue is particularly pressing in cities with tight labor markets and for on-site maintenance roles across the board. Over the past year, our recruiting efforts have seen a boost due to positive coverage after receiving several awards that reflected our exemplary growth rate and our high rate of associate satisfaction.
Beyond leveraging that coverage, we have focused on mining our internal talent for referrals, as we have found that our pool of talented, enthusiastic and engaged associates is the single best advertisement for us as an employer. The success of our in-house recruitment referral program demonstrates that our associates are champions for our company, understand what it takes to master property management roles and proudly refer others to join us.
Throughout 2018, we’ve also been analyzing our employment data to determine how we can focus our recruitment spend on the most effective external candidate referral sources and how we can attract our targeted prospective associates by understanding what is most desirable to them in an employer. Additionally, we’ve been finding ways to make inroads into other industries for expertise that will enhance and diversify our company. We believe that with the proper level of training and investment from us, professionals from other industries who have transferable skills can build rewarding careers at Avenue5 and help us to build significant value for the residents and clients we serve.
How does tech fit into Avenue5’s operations and how do you see it growing in the future?
Smith: Today’s multifamily renter has more information at their fingertips than ever and also more ways to access that information. It’s imperative that we meet current and prospective residents on their choice of technology, provide them with the data that they need in order to make informed purchasing decisions and effectively convey that we are dedicated to crafting a customer experience that reflects their desires and priorities. If we as service providers meet all of these needs, we are more likely to engage them at each step of their purchasing path in the short term and retain them as residents in the long term.
Shifts in digital marketing mean that the customer journey is constantly evolving, and multifamily managers whose approach reflects these shifts will enjoy significant competitive advantages in the years to come. At Avenue5, we’re exploring new ways to reach prospective and current residents through artificial intelligence and augmented reality. We’re learning more about how we can boost convenience for residents through technology-enhanced services, such as drone package delivery, automated package management systems, ride-share and bike-share services and blockchain payment processing that promotes higher transaction volumes.
In addition, we’re testing ways to enhance the resident experience through smart home features and machine learning. As we continue to adopt new technologies, that adoption will have ripple effects for us as property managers as well as the multifamily owners and developers that we serve. For example, drone package delivery services will require landing pads on buildings, and increased adoption of bike-share and ride-share options will reduce the demand for parking. By collaborating with our multifamily owner partners and sharing our experiences with regard to resident trends, we can help them plan their future investments.
Because Avenue5 clients and residents have more access to technology, we increasingly rely on the data generated by that technology in order to make informed decisions. By collecting new types of data and aggregating data through automation, we are better positioned to determine what our residents want and need from us and use that information to swiftly and confidently take action in order to optimize results. Our access to data also requires that we handle residents’ data in a responsible manner that respects the trust that they place in us. We are committed to ethical data management, and we continue to evolve our technological infrastructure with that commitment in mind.
Looking back, what would be your conclusion on how the business unfolded in 2018?
Smith: In 2018, most markets benefited from income increases of 3 percent or more. The exception would be several core submarkets, including downtown Seattle, downtown Portland, several Washington, D.C., submarkets, downtown LA and downtown Denver, which experienced flat or declining property revenue for the most part. Another observation is that during this past year, value-add strategies remained the darling of the multifamily investment market.
Several high-end core properties that went up for sale had smaller buyer pools at levels that caused sellers to accept offers. Many of these transactions were won by private capital sources, family offices and high-net-worth individuals. The institutional funds were not that interested in this type of pricey product, apparently fearing that these core properties were overpriced and that corrections in rental rates were imminent.
Furthermore, we noticed that operating expenses continue to outpace inflation in most markets. We are working diligently to slow these increases in our 2019 property budgets.
What are Avenue5’s goals going forward?
Smith: As always, in 2019, we’ll continue to focus on using data and client feedback to improve our properties’ top-line and bottom-line performance. We’ll also dedicate increased resources to supporting our properties in proactively managing their customer sentiment and online reputation, as we recognize that resident surveys and online reviews and ratings provide us with opportunities to improve our level of service and implement strategies that drive leasing and renewal traction. Additionally, in terms of our footprint, we would like to expand into at least one new market in the coming year, most likely in the eastern half of the country.
What are your predictions for the industry?
Smith: In 2019, we believe that overall growth will be moderately lower than in 2018. Employment metrics and the health of the overall United States economy will be the deciding factors that shape our industry, and these can change without much notice. We also anticipate that rental income growth will continue in most tertiary, secondary and core markets with the exception of those that have higher construction completions slated for next year.