Why This Round of Inflation Will Require a “New Look”

As inflationary pressures continue to mount across all sectors of the economy, property managers face a unique challenge: maintain asset values while servicing the ongoing needs of an increasingly nuanced renter pool.

That’s according to Lucinda Lilley, CPM, VP of Southern California-based FBS Property Management, AMO, and the 2021 winner of the Certified Property Manager of the Year award from IREM (Institute of Real Estate Management).

“Going forward, we have to take what we’ve known historically about how inflation affects the market and essentially throw it out the window,” Lilley says. “We have to take a new look.”

Lilley said increasing inflationary pressures are already impacting the property management industry in tangible ways.

For one, “it’s no secret that the costs of goods and services have increased, and that, of course, is impacting our employees directly,” she says. “People are really tightening their belts. And for the industry at large, this is trickling down in a few key ways. Fuel surcharges are beginning to be the norm, just like we saw back in the 1980s.  And as our suppliers’ labor costs have gone up, so are the hourly rates we’re paying them.”

Lilley says higher interest rates are also dampening purchasing power for some multifamily investors – but is quick to add that this isn’t the entire story.

“Inflation causing interest rates to rise has historically meant that people are slower to invest,” she says. “But that’s not happening.  Instead, people who have the money to buy can’t do it fast enough – because they know that ultimately, the cost of business services will level out, rents will continue to rise, and if they have bought well, cap rates will come back down.”

In other words, “when interest rates stop rising, they’ll be in a good position,” she says.

Exacerbating the cost issue surrounding goods and services is that the pandemic has left a backlog of deferred maintenance, elongating repair timelines and extending delays.

“In many cases we weren’t inside rental homes for a two-year period,” Lilley says. “That can result in serious deferred maintenance issues – and now, the world is opening up, renters are opening up their homes, and they’re asking for services. But because suppliers are backed up, we’re facing serious struggles. It requires us to rely on ongoing relationships to get work done and provide the necessary support to our residents.”

Against that backdrop, property managers will continue to play a critical role in maximizing the value of assets for owners while keeping costs in check. Lilley says rental housing providers “have gone above and beyond” doing just that since the onset of the pandemic.

“The services our residents demand are really communication, transparency, honesty, and empathy – and we’re in no short supply of that,” she says. “So while we may not be able to make a repair in the same way a renter would want because of cost increases, we’re able to effectively communicate with renters and understand where they’re coming from. And we also can’t forget about employees and suppliers; rental housing is really an ecosystem and we have to keep the whole thing going.”