How to Bolster Apartment NOI During COVID-19

It’s easy to hit your numbers when times are good.

But for multifamily pros navigating the fallout of COVID-19, 2020 has been about finding ways to maximize net operating income (NOI), even when times are tough.

“We’re really thinking things through more to make sure we keep our NOI up,” says Tammy Shields, chief operating officer for Atlanta-based Audubon, which manages 5,500 units across 21 properties from the Carolinas to Louisiana. “The message we’ve sent to our teams is we still have our jobs, and we’re essential in this economy. So let’s do our jobs now, to make sure they’re still there when we get through this thing.”

For operators on the front lines, doing so means hitting NOI numbers—a measure of income versus expenses, the most vital stat for a community’s financial health—even when it’s harder to get full rent from residents and expenses have gone up.

Tim Peterson, chief operating officer at the Boca Raton, Fla.-based Altman Cos., which oversees approximately 8,000 units, sums up what many in the multifamily sector are experiencing today.

“Income has been negatively impacted by collection and occupancy issues, and expenses have been impacted by the need to adopt new cleaning and monitoring protocols,” Peterson says. “Keeping occupancy up and vacancy down is the top driver of NOI for Altman.”

To keep her occupancy up, Shields looks at renewals on a case-by-case basis, and has reevaluated her renovation schedule to keep as many of her existing residents in place as possible.

“We’re looking at strategies where we ask if it’s worth discounting a point or two on the renewal, in order to lock that resident in and not turn the unit,” Shields says. When successful, that keeps make-ready expenses down at the same time.

One thing she’s not doing? Backing off opportunities to push rents when she can. “We’ve definitely throttled back slightly on our increases for renewals where necessary to try to reduce our turnover,” Shields explains. “But we haven’t said we’re not doing rent increases across the board at any of our deals.”

Across the country at Foster City, Calif.-based Bailard, which manages more than 1,700 units, senior vice president of portfolio management Tess Gruenstein is also focused on retention. “Our biggest opportunity is to keep residents in place,” Gruenstein says. To do so, her team contacts every resident that gives notice, often multiple times, to save the lease. That included a resident who was working from home more and needed more sunlight in their apartment during the day. “We toured them through all of our vacant units in the building until we found one that fit their needs,” she says.

Gruenstein raises a word of caution when screening new tenants today; industry observers say application fraud has increased since the onset of COVID-19. “One of the biggest challenges is a prospect providing fraudulent identification and pay stubs, moving in, and then not paying rent,” Gruenstein says. “More than ever, we are utilizing technology to provide more robust background checks and income verifications to ensure we are getting the right folks in the building.”

For Marcie Williams, president of Charlotte, N.C.-based RKW Residential, a third-party manager of more than 22,000 units, keeping NOI at a healthy level means taking areas that have contributed to increased expenses, and using it to her advantage. For example, like many in the industry today, her outlay for cleaning supplies has gone up during the pandemic. But she used that increase to negotiate a better rate with her supplier for next year.

“There’s a lot of things we don’t know about what’s going to happen going forward, but I do know that we’re going to continue to spend more on cleaning supplies in the next 18 months,” Williams says. “So if I’m going to spend more, I want more of a discount. What kind of a discount can our vendor give us?”

Adds Ari Rastegar, CEO of Austin, Texas-based Rastegar Property Co., operator of 400 units, “Every dollar really needs to be stretched right now. It’s about watching your expenses, more so than ever.”

By taking thoughtful steps to keep revenue coming in via rent checks, while employing strategies to ensure expenses stay in check and vetting new prospects carefully, multifamily operators can continue to maximize NOI, even during uncertain times.

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