April 18, 2023
Most commercial real estate developers and ownership groups will tell you that there are serious market challenges out there, and the next 12-24 months are still uncertain. The past 3+ years have been a hectic ride in seniors housing, from covid lockdowns to bubbles in construction materials, and now onto inflation and high interest rates. A hectic ride for sure, but the good news is that there are ways to mitigate risk and move your projects along – and the first path to a successful project is choosing a successful management partner.
As you likely know, there are vastly different kinds of property management partners out there, and the right one for your project often depends on several factors, including asset type, market location and demographics, projected lease-up period, and capital structure.
The primary types of management companies in the industry include:
A. The Big Guys: You know their names – they’re the largest in the industry, and the biggest value you get from them is scale. They have processes and relationships that have the potential to lower certain costs, but not without hidden pitfalls. Many times, their hands-off approach and the reality that your asset is perhaps one of hundreds under management, may set the stage for you not always getting the attention and effort that your project requires.
B. The Versatile Ventures: These are established companies who have dipped their toe into every asset type but lack specialization. While they may certainly invest the necessary effort in a challenging lease-up, they may also be learning the nuances of Active Adult on your dime and to the detriment of your project.
C. The Emerging Field: These are the younger companies that may have experienced staff, but small portfolios. They typically manage 3-5 active adult communities, and are improving their craft, but are not necessarily equipped to handle the emerging market conditions and challenges along with operations, accounting, marketing and sales.
D. The Lease-up Companies: This is where we live and play, along with a select few others. A lease-up company in Active Adult brings many years of relevant experience and has managed thousands of units in a variety of locations and market conditions. Companies in this category flourish by solving difficult problems, navigating, and mitigating risk, and getting creative based on what the data shows and what past experience has taught us.
Choosing the right type of management company is a heavy decision. Understanding what it means to be a lease-up company will help you determine what type of partner you are seeking to make your project a success.
What is a lease-up company, and what added value do they bring?
For years, the team here at United Group have repeatedly said “we’re a lease-up company." So we decided to break that statement down a bit and get to the core of what it really means, and what value it delivers to our ownership partners.
These are the 5 Key Factors we came up with. A lease-up company:
1. Thrives on the challenge. Let’s be honest here, not everybody gets their buzz from a difficult assignment. But when it comes to active adult, it's key to have a team that thrives on a challenge. You need a team of people that rise to the occasion, finds innovative solutions, remain calm during seasonal or difficult months, and work together to increase momentum and leasing velocity. These qualities will set your assets up for success and enable you to achieve your goals.
2. Has in-house marketing and sales expertise. Ah, the age-old “do it in-house or outsource it” debate. For a lease-up company, we’ve repeatedly concluded that in-house is a must. Having experts who know the space, are laser-focused on resident satisfaction and retention, and understand resident needs and wants is critical to all aspects of success. We’ve worked diligently to build an in-house team that is break-even so our clients end up paying less than half the market rate for marketing services but can expect deeper and stronger strategic plans from a seasoned team. A win for all!
3. Brings experience that you'll benefit from. It is important to note that utilizing an inexperienced team for an active adult lease-up is never encouraged, regardless of any potential cost savings. In fact, many lenders insist that the operator handling an Active Adult asset bring extensive experience. As an illustration of our experience, we developed our first senior asset in the early 1980s in Lake Placid, NY, which was essentially an affordable active adult project. This marked the inception of our 40+ years of experience in senior housing.
4. Has mastered the data. Living in the funnel and being data-obsessed leads to mastery. For example, a true lease-up company can tell you that in an active adult lease-up in most markets you’re going to need at least 125-150 leads per month from 15+ unique lead sources. You can’t put all your eggs in one basket on a higher-intensity lease-up, and you can’t risk the dreaded “not-enough-leads” situation so many assets run into.
But the data goes even deeper than the funnel. Another great example is "The Unit Scarcity Dip" (shown in the figure below) that we have discovered in our many lease-ups. This dip in leasing velocity typically happens around the 55-60% occupancy mark, and can really derail a project that is destined for great success. We have analyzed this dip across multiple asset types and markets, and have come to understand why it happens and how to avoid it. Contact us below if you would like more information on how to fix this issue on your asset.
5. Is the right size: It's a straightforward concept - partnering with a giant company means you're likely to be a smaller priority in terms of attention and value. On the other hand, a mid-size partner will likely provide you with more attention from a senior team, as well as the ability to pivot and innovate quickly when market conditions demand. Opting for a small management company in the Active Adult space can often be a risk, as they may lack backup plans, support teams to deploy during a challenging lease-up, and the experience necessary to handle unforeseen circumstances.
An active adult lease-up requires a combination of grit, determination, passion, and expertise. While there may be slightly more risk involved than in traditional multifamily assets, the potential rewards are significantly greater. A reliable lease-up company brings these qualities and more to every project and is the ideal partner for any new deal or struggling asset.
>> Ready to explore all of the other differentiators we can bring to your next project? Contact us HERE!
