Trim Expenses–Not Service

By Paul Rosta, Contributing Editor

Within three days after a resident moves into a building managed by El Paso, Texas-based Monterrey Asset Management, the maintenance team leader pays a call, introduces himself and asks whether everything in the apartment is satisfactory. Then the team leader encourages the new arrival to get in touch if there are any problems or concerns about the condition of the unit. To top it off, each resident gets a “Hey, Ray!” card. The Ray in question is Raymond Baca, the firm’s CEO and managing partner, who devised the cards partly to give residents a way to report maintenance concerns—or compliments—directly to the head of the company. The card may be low-tech, but it is also effective; Baca reports that he regularly receives several of the cards each month.

Across the country, managers are on the spot to maintain multifamily properties in a way that keeps both residents and owners happy. Property managers are on the front line of attracting and retaining residents, and the condition of the property pays no small role in those efforts. At the same time, they are under pressure to watch costs as rental revenue in many major markets remains flat or in decline. As a result, owners often expect the manager to justify spending for anything other than routine maintenance. “The balancing act is, how do you maintain your property so people want to live there while keeping your expenses down?” explains Cindy Clare, president of Kettler Management.

On the cost-control front, at least, several circumstances are in the manager’s favor. Many of Kettler’s long-time vendors are willing to re-negotiate contracts in order to keep the company’s business. Another effective measure has been trimming the size of inventory, so that only two of a given item are kept on hand, Clare explains. Such measures helped trim maintenance expenses by as much as 6 percent during the course of the recession.

Other managers are trimming expenses by taking on jobs that they used to contract out. “We do not cut back on maintenance,” insists Pedro Vermales, senior vice president for Pinnacle, an American Management Services Company. “We just do more in house than we did before.” Indeed, he notes, self-performing most functions is helping to cut costs, even as Pinnacle adds staff at some locations. One exception is landscaping, a service that the company continues to find more economical to contract out, Vermales reports.

The mandate to cut maintenance costs also appears to be accelerating interest in conservation. By now, many familiar measures—installing low-flow toilets, adding motion sensors and installing high-efficiency light bulbs, to name a few—are hardly news. Nevertheless, managers continue to cite their effectiveness. Since utility submeters became standard at properties managed by Monterrey three years ago, water and gas consumption has dropped an average of 15 percent throughout the company’s portfolio, Baca estimates. (For more on submeters, see “How to Submeter,” page 41.)

Clearing the air

Despite achieving significant savings through these measures, managers often find themselves having to lobby their clients to pay for big-ticket items. “I’ve got to market it to the owner to get it done,” explains Jim Cantrell,  principal at San Francisco-based Cantrell, Harris & Associates. Last fall, the fans that circulate air in the hallways broke down in the residential portion of a mixed-use building managed by the firm. Cantrell urged his client to fix the problem immediately, but the estimated $80,000 price tag initially prompted the owner to turn down the request.

Then a regularly scheduled visit to the property by the owner gave Cantrell a second chance to plead his case. While walking down a hallway, the client commented on the pungent aromas wafting through the unventilated corridor. Cantrell responded that he was having a hard time leasing units on that floor, a remark that got the attention of the owner, who relented and authorized the repairs. Cantrell rewarded his client by slicing about $18,000 from the project’s costs through multiple re-bids and negotiations.

Leading managers also stress the value of minding some basic principles. In a climate where owners are watching every dollar, asset managers warn against trying to do certain things on the cheap. Cantrell stresses the importance of choosing a reliable contractor that is able to get the job done right the first time. Hiring a bidder on the basis of price alone could end up as a costly strategy.

Recession or not, another basic rule also applies—spend a little money now to avoid spending a lot later. “It keeps the customer happy because things don’t break,” notes Pinnacle’s Vermales. “Things don’t break, so you don’t have to buy new.” Veteran managers often suggest giving each unit a thorough inspection three times a year. Besides offering a built-in schedule for catching problems early, this is the right frequency for maintaining the HVAC systems.

Vermales inspects each unit’s air conditioning before, during and after peak summer demand. At the same time, no manager wants maintenance-related visits, however valuable, to turn into a bother for residents. As a model, Vermales cites nearby Walt Disney World, encouraging his staff to emulate the theme park’s practice of making maintenance virtually invisible by creating the impression that nothing ever goes awry. Disney-caliber service may sometimes seem like an ideal, but today’s competition for customers is challenging managers to set new standards for maintenance.

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