Question

Topic: Other

Tax Credit To Market Rate....how To

Posted by Anonymous on 5/10/2010 at 12:44 AM ET 250 Points
I manage a 152-Unit community that has 1, 2 & 3 bedroom apartments and 2 bedroom townhomes. The community was just recently sold and as a result we are no longer in the tax credit program. The new owners state that the entire community including each apartment will be renovated and updated with new light fixtures, appliances, paint, some carpets, new laminate flooring, countertops, bath and kitchen fixtures and so on. My problem is this..... we have been given NO TIME LINE for when any particular unit will be renovated however, they have increased our current rents anywhere from $100.00 up to $150.00 per month. My questions are:
1. How do you re-market a tax credit community to attract a "market rate" resident without having any of the updates/renovations complete?
2. How can we possibly show the "value" to our existing residents when they are at the moderate to lower income levels and the value just means that they can no longer afford to live here?

Our new rents are comparable with the 3-BRAND NEW apartment communities in our area, of which they have more square footage, open floor plans, amenities galore etc. Oh and did I mention they are BRAND NEW, not 15 years old with renovations?!

PLEASE HELP.....I am trying very hard to stay optimistic during this process but am struggling to understand how we are going to be successful in this situation. My apartment community is located in a suburb of approximately 35,000, blue color workers. In the past year and 1/2, I have increased rents twice, totaling an average of 12 % per unit type and still maintained 100% occupancy or very close to it, plus I have a zero delinquency by the 10th of the month. Our current comp's are barely hanging onto 90% occupancy and giving away the farm to boot!
ANY ideas that anyone may have would be GREATLY appreciated! I have been in property management for almost 18 years and I am at a loss as to how to approach this situation!
Thanks much!
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  • Posted on 5/10/2010 at 5:59 AM Accepted
    You must be doing something right to have such a high occupancy rate when everyone else is seeing increased vacancy. Whatever it is, keep doing it!

    You probably have more time than you think. There's a cost to your tenants to move. They would have to spend a month's rent (or more) just to move, if they could find a suitable place nearby. It's much easier to stay where they are, even with an increase in the rent. And with the promise of a renovation soon, you can probably hang on to most folks for another year or so.

    And, from the point of view of the owners, they would probably be OK if your occupancy rate dropped a few points, given that the average rent is up by more than 10%.

    So: Continue to do whatever you're doing that has been successful. There are reasons other than price and tax benefits why people are renting there. Identify those and merchandise them. (Maybe it's the sense of community, or the highly responsive maintenance folks, etc.)
  • Posted by Peter (henna gaijin) on 5/14/2010 at 12:21 PM Accepted
    I agree with Michael - if you are running close to 100%, you have room for a price increase. More so if the units are being improved.

    The total income from the units is based on number of units rented at a rate. Not sure what your base rates are, but if the increase you are looking at is 10%, and this causes less than 10% of the population to move, then the rental business makes more money. So even if the increase goes through without the improvements being done yet, it may not be a bad decision to do. And empty units would be much easier to perform the improvements on.

    It sounds like you are having philosophical issues with the new owners trying to change the apartments from lower income apartments to market rate. It may put some of the current residents into some difficulty as they either have to pay more, or find a new place to live. This issue is something you need to decide if you can live with.
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