At the Canadian Apartment Investment Conference two philosophies emerged about how to manage multi-unit residential properties. One approach, lets call it the 'hospitality model' is to manage apartments more like hotels, to treat tenants like customers and introduce fees for ancillary services. The other approach, the 'accommodation model' stresses tenant service by offering in-house training for staff and minimizes provision of non-shelter based ancillary services.
Leading the charge for the 'hospitality model' was Jonathon Holtzman, CEO, Village Green Companies Village Green Companies, a privately held company that owns 30,000 apartments units in the U.S. Midwest.
Holtzman says that 'he believes that there is no real difference between the apartment industry and the hotel industry except that in the apartment industry they just stay longer.' He compared the quality of service provided for a $100 per night hotel stay to the service provided to a tenant who pays rent for two years for $24,000.
Holtzman explained that 'in America 30% of the people rent. We have a 100-million people who rent that will never go away.' He continued by saying, 'How am I going to achieve a 'Starbucks premium'. I want a 'Starbucks profit margin'. Who pays $3 and $4 for coffee when you can pay 50-cents or a dollar somewhere else.' Holtzman's Starbucks analogy was to illustrate that tenants, like coffee consumers, make buying choices where they may choose to pay more for a particular service.
Holtzman cited good hiring practices in the hospitality industry compared to those in the multi-residential sector as a way for improving service. He faulted the apartment industry for not emphasizing education, customer service and outlining a career path for university graduates in the multi-unit residential industry like that in the hospitality industry. According to Holtzman the hotel industry hires '3 and 4 year college graduates who can read financial statements and understand what customer service is.' Village Green hires from the hospitality and retail sectors and offers performance based incentives to leasing agents.
Charging fees for dry cleaning, laundry, delivery, vending machines, concierge, recreational facilities and any other kind of ancillary service, Holtzman considers as an under-utilized source of revenue. In the U.S. some apartment owners are charge fees for having a pet, more for two pets. Holtzman called it an 'everything fee', charging for services when and where the tenants are able and willing to pay. Village Green also acts as a real estate broker for tenants buying homes and shares a part of the brokerage fee with the tenant as a rent rebate.
Representative of the other point of view, the 'accommodation model' was Tom Schwartz, President and CEO, CAP REIT, a publicly traded Canadian company, which owns 11,673 units across the country.
Schwartz said, "We are in the accommodation business. We deliver a very good quality of service and shelter and all the components of that. We don't want to go beyond the shelter business. We don't want to be in the dry cleaning business or the grocery business." He later emphasized this point by adding, "Everytime we look at getting into other businesses we feel we can't deliver them as well. We want to do one thing and do one thing well."
CAP REITs approach to its staff also differs from Holtzmans. Schwartz said, "One thing we do very well is extensive staff training. We find that has paid really big dividends and we have extended it into management and sales people." He expanded on the point by saying, "It really works so well. It is a direct payback in customer service. It is through all the markets, through the most affordable to the most luxurious."
Daniel Drimmer, President, TransGlobe Property Management Services, that manages 10,000 apartment units agreed with Schwartz that they were in the accommodation business but they are taking more of an 'in-between' approach. TransGlobe is about to roll-out a TransGlobe tenant loyalty program where tenants are going to be offered incentives to rent at TransGlobe, stay longer and live in another TransGlobe building if they move.
Regardless of whether one prefers the 'hospitality' or the 'accommodation' model, as long as vacancy rates continue to stay high, and the tenant market strengthens, ways to provide better services to apartment residents will grow and there is a lot to be learned from both approaches.