The next several years will see dramatic changes in the multifamily housing industry. When the dust settles, the winners will be those who have created strong operating companies, brand names and clearly defined market identities. The losers will be fee managers, syndicators, merchant builders, investment advisory firms and everybody else. Sound grim? It is.
The only way to prosper in a slow growth, capital intensive industry with substantial over-capacity like ours is to generate a strong and identity and, in the process, create what marketing people call "brand equity."
So what is brand equity? Ten years from now the most valuable asset owned by a multifamily company will be its brand equity. Ask 100 people at random to name five restaurant chains, five banks, five department stores, five hotel/motel companies or five brokerage firms, and most everyone will be able to come up with five names. Ask the same 100 people to name five multifamily companies or apartment owners and you will get blank stares and very few answers.
The foundation of market power is attaching a distinguishing brand name and/or symbol to a product or service that identifies and differentiates it follows market choices. Based on this definition of market power, multifamily companies today are like Samson with a crew cut.
Multifamily companies are governed by the same rules that govern the rest of the business community. The problem is that we ignored the basic business and market rules until recently, when Ben Franklin's observation that "fear gives intelligence even to fools" again proved prescient. We were a unique business species -- born out of tax avarice, raised on a diet of syndication to the uninformed, educated with the excesses of the S&L and banking debacle and then dragged through apocalypse, now becoming our industry motto of "a dollar borrowed is a dollar earned." Until 1994 one rarely heard any discussion about resident satisfaction, resident retention programs, service guarantees and the like. The titans and moguls of the apartment industry were deal mavens, tax code specialists, financial wizards and syndication marketers with little resemblance to visionaries like Ray Kroc, Sam Walton, Bill Gates, John Reed and Walt Disney. Going forward, you can bet that the dominant multifamily companies will be market leaders who create widely known, recognizable brand names.
The essence of building a brand is to stand for something. Write it down, believe it, live it, breathe it, imbue your employees with it, tell the world about it and show your customers what it means by how you operate. If you stand for something positive and desirable, if you offer value for the rent charged, if a prospect thinks of your name when looking for an apartment home, if a prospect can immediately form a vision of quality living and an enjoyable lifestyle when seeing or hearing your name, then you have built brand equity. To be successful in the multifamily business, you must offer more than simply space, you must convey an image, offer a lifestyle and provide service exceeding expectations.
Brand equity is an asset that differs from brick and mortar assets. In developing brand equity, name awareness, perceived quality and brand association become the necessary building materials. Brand association is anything psychologically linked to the brand name.
The value of brand equity is measured by the loyalty of the resident base and the level of desire of likely prospects in becoming a resident in an AMLI community. A loyal set of residents has substantial value. They reduce marketing costs since a resident is much less costly to keep than to gain or regain. In addition, referrals are the best method of advertising and traffic generation.
Currently the multifamily housing market is a crowded field. The industry is highly fragmented (the 50 largest multifamily companies control about 11% of the U.S. market). There are few recognizable names and no national brand name leader. Over the next 10 years, the industry will go through a major consolidation, most likely ending up with five or so national companies and 10 to 15 large regional companies. Each will have created value in its name and established a brand identity with demonstrable marketing power.
Although building a brand image is a relatively new concept for multifamily companies, it has been at the heart of success for most other businesses. Because almost every industry has an over-abundance of players competing for the same customers, dominant companies have found ways to let people know exactly who they are and what they stand for. When one thinks of Nike, McDonald's, Citibank, Wal-Mart or Coke, an impression -- more powerful than any advertisement -- forms in the mind. It is this impression that adds real value to a name.
The principle of brand name power is the same in the multifamily business as in any other business. Companies in the hotel industry, close relatives to the apartment industry, spend millions of dollars a year building brand name awareness among their target audiences. Some of the country's most prominent brand names, such as Ritz-Carlton, Marriott, Hyatt, Four Seasons, Hilton, and yes, Red Roof Inn, Budgetel and Motel 6 are found in the hotel/motel industry. These companies have done an outstanding job in creating a consistent product from one property to the next. The quality and the standards are the same, from room decor, food service and amenities to the reception desk.
Recently companies in the multifamily industry have begun to adopt this brand philosophy, including our company, At Residential. AMLI is a multifamily real estate investment trust with 33 communities containing more than 12,000 apartment homes in the Southwest, Southeast and Midwest. In building brand equity and value in the AMLI name, we are undertaking one of the most important and critical missions to the future success of this company.
Before AMLI went public, its primary customer was the investor, the capital source. Our fundamental customer today is the resident. That is not to say it no longer pays attention to its investors. Of course we do. But AMLI's financial performance, growth and success depend to a significant extent on whether we can create brand equity. The more satisfied our residents are, the more successful we will be. The more brand equity AMLI is able to build, the happier our shareholders will be with its financial performance.
AMLI's strategy to "operate like a retailer and think like a brand" is helping to create a clear identity of a service-focused company with well-appointed, highly amenitized apartment communities. Its mission statement, "Provide an outstanding living environment for our residents," embodies AMLI's single-minded resident focus. That statement is framed and prominently displayed in all leasing and management offices, maintenance shops, models and corporate offices. This resident focus pervades everything we do.
The AMLI name is now on all of its communities for instant public recognition. AMLI maintains beautifully landscaped grounds at each of its communities. AMLI backs its goal of providing exceptional quality service with a guarantee. If it fails to satisfactorily complete a service request within 48 hours, that resident lives rent-free for each day the problem remains unsolved.
Each leasing and management office contributes to building the AMLI image with professional, well-trained managers and a leasing and service staff who wear uniforms emblazoned with the AMLI logo and pins printed with QSV, standing for "Quality, Service and Value." Brand awareness is further driven home as AMLI's name and logo can be found on pens, mugs, key chains, umbrellas and even mints. Taking a page from the hotel industry, all new residents receive welcome baskets containing AMLI brand shampoo, conditioner and moisturizing lotion.
The company also has centralized all marketing efforts -- the "AMLI Look" -- to further communicate a consistent message and image. Each apartment community is represented by the same signage, brochures and print ads, with the ability to tailor specific information for each community.
Finally, the key to building brand equity lies with committed employees. If the team is not convinced of AMLI's direction, they certainly will have a difficult time winning over new residents and recruiting new employees. People are our most important asset. We wants fluid organization encouraging informality, decentralization and dedication to excellence. AMLI strives to foster a bias toward action. Every employee with more than one year of service has an ownership interest. The company takes 3% of each employee's compensation and purchases AMLI stock in their name.
The multifamily industry -- like the rest of the business world -- has become extremely competitive. To win in this very competitive game, one must provide communities that dominate a specific market segment or a specific geographic region. To do that, one must create a brand name that says all one does and all one stands for in a single word. My Dad once told me: "The gazelle must run faster than the fastest lion or be eaten. The lion must out run the slowest gazelle or starve. Son, it doesn't matter whether you are a lion or a gazelle. When the sun comes up, you'd better be running." We are running as fast as we can toward creating brand equity. We intend neither to be eaten nor to starve.
Gregory T. Mutz is chairman of Chicago-based AMLI Residential Properties Trust and a member of the board of directors for the National Multi Housing Council.