NOI Drivers That Boost an Apartment Property's Value

How can multifamily property values increase? There are many net operating income drivers that can be put in place amid rising market costs and interest rates, and slow deal-making, according to panelists at GlobeSt’s Multifamily Spring 2023 Conference.

The first step is to evaluate proptech. For Tess Gruenstein, senior vice president of acquisitions and portfolio management at Bailard, Inc., the key thing to keep in mind is how much the resident is paying each month.

“Is it going to be helpful to us as an investor? Is it going to be helpful to our residents’ daily lives or the value proposition of the building?  Is it going to be helpful for the operator and reduce their workload?” Gruenstein said.

Ensuring the service offered fits the demographics is also important. Gruenstein said she’s often pitched dog walking services, or pet concierge services for a workforce housing product.

“That’s a clear mismatch, and it’s really up to us as investors to try to understand what the true goal should be and how we can properly invest our dollars in proptech,” said Gruenstein. “It’s important to understand where the incentives lie. There are very often third-party property managers who have direct investments in some of these proptech firms and have a vested interest in some way to make sure that you’re getting a good product. It’s important to understand that before you invest all your dollars into something that will not be of value to you.”

With rising rates, Gruenstein said collections have never been more important.

“The eviction process now is as hard as it has ever been. The hardest part is getting a lease signed, and it’s even harder to collect rent so let’s not sign a lease until we’re really sure we can collect rent,” she said. “That means on the additional leasing process that means having something like ApproveShield or a background check system verifying that IDs are not fake, the paystubs are accurate.”

The downside of that proptech is that the process can take a while, but there are solutions to make the on-side management model work.

According to Vincent Korta, COO and CFO of 2B Living, proptech is looked at from the view of the operator, owner, and resident.

“One thing we’re looking at very closely is how we can reduce some of our labor, as an operator, that’s certainly our largest cost. For ownership it’s certainly a big cost when you have on-site management. How can proptech help the people that we already hired, do more important tasks, and leave some of these other things for automation,” said Korta. “When I think about that, I think about the accounting piece, the leasing funnel and even some of the maintenance can be somewhat self-performed if you have the right technology.”

Ways to create more income and monetize square footage better include leasing out parking garage space to a parking lot manager or leasing laundry room space or an underutilized rooftop to an event manager.

“If you go at it from that strategy, you’re looking for people who can better utilize those resources. Real estate investors are not the end all be all of figuring out where those resources are,” said Gruenstein. “It’s probably going to come from third-party relationships.”

As buildings go through a seven-year build cycle or less, the panelists say it’s important to stay on top of emerging technologies.

Korta said, as developers often build for what they know today, it starts to make less sense as lifestyle trends change.

“We have to think about how you can monetize space more effectively, less dead space,” he said. “There’s a lot of unused or poorly used space, so how can we think about that in the next cycle or set of developments?”

As Gruenstein sees it, virtual leasing is a really effective use of internal resources and property management time.

“We have so many leads that don’t even meet the first criteria of filtering,” she said. “If you can restructure the way you do that initial leasing, the prospect comes in and tours themselves or does it remotely via the Matterport from 2,000 miles away, then that changes the services you have onsite and how you interact with residents. That really matters.”

Korta suggests finding ways to tie the resident experience to the brand.

“What does this apartment offer amenity-wise that I can take advantage of as a resident that’s not just a rooftop, it’s actually monetizing my unit in certain instances,” he said. “I think that’ll be interesting to create that brand. People will be renting a lot longer than they were 10-20 years ago. Not only because of the interest rate environment, I think it’s also just generationally it’s not as big of a deal to own as it was 20 years ago.

The panelists agreed that having those offerings will be critical to an apartment building’s success going forward.