Stay a While Longer: Getting those All-Important Renewals
Industry statistics tell us that the cost of every resident move-out is right around $2,000. And for most of us, that number is no surprise. We’re all too familiar with that inward shudder that comes with a resident’s notice to vacate. The mental calculator starts clicking…repainting, rekeying, repairing, replacing. And those are just the physical costs of turnover. Add in the month (or more) of lost rental revenue, the cost of advertising the vacancy, maybe a leasing concession for the new resident…and it quickly becomes clear that losing a resident means losing big money.
So what can we do to convince those valuable residents to stay? Especially in those oversaturated markets, where they have the upper hand and can bargain shop for the sweetest deal? This article will show you how some of your colleagues are handling the issue of renewals—and how it’s working for them.
How Soon Should You Start?
The question of when to first approach residents with the idea of renewing depends much on the state-mandated length of notice they are required to give of their intent to vacate. The general rule of thumb is to make contact at least one month before this formal notice is required. Therefore, properties in states with a 30-day notice might contact their residents 60 days before their leases expire. In states with a 60-day notice, residents might be approached 90 before the lease-end date. The idea is not only to identify residents who want to renew and close those deals quickly, but to identify those who may not be planning to renew in time to overcome their objections and convince them to do so.
Pamela Shubert, Vice President of Marketing for Dominium Management Services, says her company makes its first move 30 days before formal notice is required in a way that is both subtle and practical. “For a property that has a 90-day notice period, we usually go in 120 days before expiration with a maintenance checklist and make sure everything in the unit is perfect,” she says. “We let them know we’re going to do a ‘tune-up.’ That way, when it’s time for the 90-day notice of lease renewal, they don’t have any problems in their apartment to point out.”
The “earlier is better” approach may not work in every market, however. Christina Shambro, Regional Property Supervisor for The Hanover Company, says that her properties have stopped contacting renewals so far in advance. “We’re only working them 30-45 days out now,” she says. “With some of our markets so saturated, giving them 90 days’ notice just gives them time to find a BBD—a bigger, better deal.”
Finding the Right Approach
There are many different ways of making renewal contacts. Some properties send written communications, others make personal phone calls, and still others schedule one-on-one meetings with residents in their apartments. Perhaps the most effective approaches are those that combine several different types of contact over a period of time.
For example, at Dominium Management Services properties, the first contact consists of the “apartment tune-up” at 120 days prior to lease expiration. The second, which takes place 90 days out, is a written communication offering an array of incentives for renewing. At 60 days prior, which is the required amount of notice to vacate, the staff follows up with another written communication. And at 30 days before the lease end, the staff sends a final written communication, either asking “Can we keep you?” (if notice has been received) or reminding the resident of his or her obligation to submit written notice. But even this very complete series of contacts is not the end of the story. After every communication at 120, 90, 60, and 30 days, a staff member follows up with either a telephone call or a personal visit.
If you choose to use a series of written communications, remember that you need not stick to routine, formalized letters. Use your imagination! For example, Kelly Sansores, Regional Marketing Director for Simpson Property Group, approaches potential renewals 90 to 120 days prior to their lease ending dates with a “resident satisfaction” survey. Hidden among its several questions is a particularly important one: “When your lease is up for renewal, are you considering renewing?” Kelly, who oversees some 5,000 units on 27 properties, says that the survey is valuable because it lets management know early on where they need to focus their renewal attentions.
At several of Pamela Shubert’s properties, the invitation to renew takes the form of a menu, with a range of incentive packages to choose from. The menu is segmented into “appetizers” (for residents who have been at the property from one to three years), “salads” (for those with a three- to four-year stay), and “entrees” (for long-timers of five or more years). Each category contains various incentives that fall within a specified value range: $100-$300 for appetizers; $300-$500 for salads; and the cost of a total unit upgrade for entrees. If that doesn’t work, Pamela sends out a clever “Are You Sure You Want to Move?” flyer as a follow-up. The flyer has a cartoon on one side and a list of moving costs (i.e., taking a day off from work, mailing change of address cards, renting a moving truck, etc.) on the other side.
Many properties find that renewal parties are an effective and fun way of getting residents to sign on the dotted line. Kimberly Sherrill, Vice President of Marketing for CAPREIT, says that her properties have periodic “renewal blitz” parties for residents whose leases are expiring within one to two months of the party date. “Say we have 40 residents whose leases are coming up for renewal…we’d send them invitations and have a party just for them,” she says. “We’d have the leases all typed up, and offer a gift or financial incentive for signing on the spot.”
Kelly Sansores’ properties also use parties as a way of generating resident enthusiasm and closing the deal on renewals. At least once each quarter, invitations go out to all residents whose leases are ending in the coming three months. Residents are asked to RSVP, and the invitations are followed up by personal phone calls from the staff. Once the office knows which residents are planning to attend, they type up those residents’ renewal leases for easy, immediate signing. At the party, activities are provided for the kids, while the grown-ups mingle and sign leases. Kelly says the parties are highly successful, in part, because of the power of “copycat” behavior. “Residents see their neighbors signing leases, and it makes them think they should sign too,” she says. “People want to do what other people are doing.” Whatever the reasons, the results are undeniable; Kelly reports that it’s not uncommon for a community to sign 35 renewal leases in the course of a party.
Such “group” renewal parties can be especially effective at a property that has a policy of deliberately staggering lease-end dates. Such a policy can also keep vacancy rates more manageable by putting a cap on the number of potential move-outs for any given time period.
Pamela Shubert says Dominium Management uses staggered leases to eliminate high numbers of move-outs during the slow winter months, when it’s harder to generate traffic. “We use a lease matrix to track ending dates, and we only want 10 percent of our leases expiring during the entire period of November, December, January, and February,” she says. “We want only another 20 to 30 percent expiring in October and March, and 60 percent expiring between May and September.”
Simpson Property Group also staggers its lease expiration days, according to Kelly Sansores. “We never want more than 10 percent of the total number of units on a given property expiring in a single month—and some months we try for an even lower percentage,” she says. Adhering to such a policy of staggered expirations may require offering unusual lease lengths, on occasion. “We, obviously, have to offer a variety of lease terms in order to keep our expiration percentages on track,” Kelly says.
If you are in a highly competitive market, where your competitors are giving away the farm to draw in residents, you may find that renewal incentives are a must. Incentives tend to fall in one of three general categories: improvements to the resident’s apartment, gift certificates and merchandise, or rent concessions.
Some multifamily housing professionals recommend offering only apartment improvements as incentives, as these serve the dual purpose of enticing residents to stay and increasing the value of the property. “You menu of incentives for renewing should consist of only one set of things—capital improvements,” says Doug Miller, President of SatisFacts Research, a provider of resident satisfaction telesurveys. “Offer things like painting, carpet cleaning, carpet replacement, kitchen flooring replacement, and so forth.”
John Selindh, Director of Marketing and Training for ConAm Management Corp., says his properties tend to adhere to this theory. “We generally try to offer some things that are pretty much what we’d have to do with turnover anyway—like carpet cleaning or a fresh paint job,” he says.
Other incentives might fall slightly outside the range of standard refurbishing, but definitely increase the “rentability” of the unit. For example, Kimberly Sherrill held internal focus groups with her company’s residents to ask them what they wanted as an incentive for renewing. Some of the ideas they came up with included two-tone painting, accent walls, under-the-counter CD players or TV sets in the kitchen, and additional phone lines. Other ideas included free use of the clubhouse for meetings, free garbage pickup for 60 days, and payment of cable bills for a period of time.
The “menu” of incentive packages offered at some of Pamela Shubert’s properties, includes a mixture of capital improvements and non-cash gifts. For example, residents at the “appetizer” level might be offered a choice between a unit upgrade (new light fixtures, ceiling fan, and accent wall), a mall gift certificate, or a day at the spa. At the “salad” level, residents could choose between an upgrade package (parquet flooring in kitchen or appliance update) or dinner for two and tickets to a local sporting event.
And what about that old standard—rent concessions? According to Christina Shambro, of The Hanover Company, deciding whether to offer this incentive depends largely on what your comps are doing. “Prior to establishing what we will offer, we have our staff call our comps every Monday and ask what they’re doing for their renewal concessions,” she says. “We take that into consideration and try to come close.” One of her properties, for example, is offering three weeks’ free rent to residents who renew for a six to eleven month period. For residents who sign a twelve- to thirteen-month lease, the concession is six weeks’ free.
Another factor in deciding whether or not to offer rent concessions is how close residents’ rents already are to market rate. Often, residents of new construction properties, who were offered special move-in incentive rates, are already renting at below-market rates. In these cases, rent concessions may be unnecessary; residents understand (or can be gently reminded) that they are already getting an excellent deal.
These below-market renters, in fact, may even be candidates for rent increases. At one of Christina’s California properties, where the rents are currently well below market, the incentive is not a rent concession but an across-the-board $30 cap on increases for renewals. Christina acknowledges that the company is not sure how residents will respond to the increase. “We’re testing the water, because we are just now turning units,” she says. “Other properties in the market have been unsuccessful at raising renewing residents up to market rate—they had people wanting to move.”
Combating the Urge to Own
Of all the reasons residents leave their apartment homes, one of the most common—and hardest to beat—is home buying. For many people, owning a home is part of the American dream. Confronted with such a powerful reason for moving out, it’s the rare leasing professional who can change a resident’s mind.
Pamela Shubert, whose properties include a number of Section 42 communities, says that home buying has a definite impact on her staffs’ abilities to retain residents. She also says that discussing the own vs. rent decision with potential move-outs is a delicate matter. “Many of our properties are designed to help moderate-income families get on their feet, so when they’re ready to buy, it’s a very positive thing for them,” she says. “You want to handle it very positively and be happy for them, but at the same time to help them really think it through. We remind them that they’ll have taxes there, and heating costs, and mowing the grass, and all that. We remind them of some of the features we provide for them on a daily basis that they won’t have with ownership.”
Recognizing that home ownership is a tough competitor, some management companies are taking the “if you can’t beat ‘em, join ‘em” approach by establishing home ownership programs. In these programs, a portion of a resident’s rent can be used as credit toward purchasing a home, as long as he or she buys from one of the management company’s designated partner builders. Since the resident’s credit accumulates for as long as he or she remains under lease with the management company, this can serve as incentive to stay longer—and build up more equity for their eventual home purchase.
No matter how early properties approach renewing residents or what they offer them as concessions, whether they throw parties, send letters, or make phone calls—one thing seems to be universally agreed upon: The renewal process really starts at the beginning of the lease. Satisfied residents stay in their apartments, and dissatisfied ones leave. No amount of last-ditch begging or renewal incentives will convince unhappy residents to stay, if they have received sub-standard service during their lease.
That’s why so many properties think in terms of renewals right from the start—even as their new residents are first moving in. “You have to make them happy all the time…you can’t approach it at the last minute,” says Paige Smart, Regional Marketing and Leasing Coordinator for Camden. “The day they move in, we start working them as a renewal. They know we’re there for them throughout their whole contract.” Camden’s program includes a structured series of follow-up contacts—within seven days of move-in, four months into the lease, 90 days before lease expiration, and 60 days before lease expiration. It also includes “we care” reminders and services like birthday cards, resident functions, and the offer of extra help whenever possible.
John Selindh’s properties follow a similar procedure. “We have what we call a “Warm Call Program,” which begins the first day of a resident’s occupancy and never stops,” he says. “We have a formalized system for keeping in touch, with no more than a three-month interval between contacts. All this leads up to the renewal, so when we talk to them about renewing their lease, it’s not the first time they’ve heard from us.”
In addition to ongoing contact with residents, consistently excellent service is a vital part of any retention effort. According to resident surveys conducted by SatisFacts Research, a full half of the top ten reasons residents give for not renewing are all about service—and are completely under the property staff’s control. They include community cleanliness, maintenance responsiveness, maintenance work quality, office staff responsiveness, and office staff courtesy and professionalism.
According to Doug Miller, SatsiFacts’ president, there is an especially high correlation between uncompleted maintenance requests and residents’ unwillingness to renew. “As the percentage of residents with outstanding work orders increases, the likelihood of renewal drops by 38 percent,” he says. “So if you have a lot of residents with outstanding maintenance issues, you’re throwing money away on retention efforts.”
The best way to ensure renewals, then, appears to be the old standby: extraordinary service. “When it comes to the renewal process, you want to get the cart before the horse,” says Doug. “That is, the renewal process is not the important part. What’s important is what happens before the renewal process. Are residents’ expectations being met? Are there basic needs being taken care of? Renewals are easy if your people are happy.”