While the signals are mixed, there are signs that inflation is finally easing. We can debate the measures the Fed and the Biden administration have taken to push back against rising costs, but inflation control would undeniably be a good thing for the bottom lines of investment real estate properties. Job market and supply chain issues over the past several years have made the labor and materials necessary to operate real estate scarcer and more expensive, causing delays in maintenance and repairs and dragging down NOI.
There’s no easy solution for staying on track with the investment goals for a real estate asset in the face of inflation challenges. It takes a professional property manager using all the tools in their toolbox to manage the property efficiently. Good property managers are skilled at getting the property what it needs at the best prices available, choosing the right cost-saving technology for the asset, and working to optimize revenue. Each strategy, used in alignment with investment goals, can help a property stay on track in the face of high operating expenses.
Purchasing with power
The cost of just about everything is up. This includes the materials and services necessary to run a building. Cleaning supplies, furniture, asphalt, roofing, electricians, plumbers and painters are just a few examples of what’s gotten more expensive and harder to obtain.
While property managers can’t fix a problem with the entire global economy, we do have the power to get the best prices for the market. Through best practices in project planning, sourcing, bulk purchasing and contractor selection, a good property manager can obtain the most competitive rates on everything from office supplies to energy. And since we often do business with suppliers and service providers at scale across our portfolios, we can potentially negotiate discounts.
And don’t underestimate the power of a good professional network. Being able to rely on a large network of colleagues, service providers and members of an organization like IREM has clear advantages over going it alone. When someone has a good tip for tackling a problem as big as inflation, word gets around, and that tip quickly becomes a best practice for controlling expenses.
Tech to the rescue
Property management technology, or proptech, has taken the industry by storm over the past few years, with new solutions constantly on the market. Investing in this technology can have a tremendous payoff in the form of lower operating expenses. The right tech solution can make everything from the elevators to the HVAC system significantly more efficient and cheaper to operate, and automation is driving greater cost savings than was possible before the proptech revolution.
One risk of investing in technology is choosing the wrong solutions. This is where good property management can help. A best practice in choosing technology is to match a problem to a solution, and property management teams are most familiar with the issues unique to a property. They can identify those problems that could most benefit from a technology investment and achieve the highest ROI.
Proptech can also automate key management tasks, freeing up property staff to devote more time to tenant and resident engagement. This advantage should not be underestimated as the hybrid work environment has taken hold. Office building tenants want quality and convenience, along with experiences they can’t get at home. And now that they work from home much of the time, multifamily residents want more from the property, including the convenience of resident apps and smart home technology. Occupants of both office buildings and multifamily properties want the type of tech-enabled experience they get with other industries and services. Meeting this demand leads to lease renewals and healthy occupancy.
Getting the revenue right
This leads to our next key strategy in counteracting the effects of inflation—optimizing revenue. Like controlling expenses, getting the revenue right needs constant attention. To optimize revenue, property managers must provide the experience tenants and residents want, as discussed with technology. We need to keep the property fresh and contemporary through capital planning. And we must find other sources of income through tactics like rooftop cell tower contracts, event space rentals and premium services for tenants and residents. And we must meet revenue targets according to the investment goals, budgets and business values of our owners.
Other tools in the professional property manager’s toolbox can help keep the property on track toward its investment goals. For example, we can often be a valuable part of a team advising on issues such as tax appeals, refinancing and dispositions. But managing a real estate asset through uncertain economic times largely relies on controlling expenses and optimizing revenue. Getting these fundamentals right is something that good property managers excel at.
Renee M. Savage is 2023 president of IREM. She also serves as president of SavageCRE Inc, a consulting company supporting the commercial and multifamily real estate sectors. She has more than 34 years of experience in property and asset management and corporate operations.