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It's the end of the multifamily market as we know it.

The ancient Greeks knew all about bad timing. "I well believ'd, to unwilling ears; None love the messenger who brings bad news," said Oedipus' uncle Creon in Sophocles' tragedy Antigone.

"They killed the messenger because he brought bad news and didn't offer a solution," said Allen Cymrot of Cymrot Realty Advisors Inc. in Mountain View, Calif., at the Institute of Real Estate Management's mid-year conference in Chicago.

In a presentation with the provocative title "The Death of Multi-Housing Real Estate, As We Know It," the former chairman of the National Multi Housing Council outlined some serious problems facing apartment owners and managers, but unlike the unlucky Greek bearing unwelcome tidings, Cymrot had some answers.

Breaking out of the box

The most significant change in apartment management and investment, Cymrot said, is that rents, by themselves, are no longer adequate to make apartments an attractive investment.

Apartment developments have only been a major part of commercial real estate since the end of World War II and had always performed in somewhat predictable cycles. Now, an area will not stay short of housing units very long, Cymrot said, because of the maneuverability of large, national developers.

"The bull market -- when everyone's formula works -- is gone."

Although owners and managers are conscious of a sea change in the industry, they talk about the new economic environment in seminars like the IREM conference but the next day return to work and do the very same things they had been doing the day before.

Beyond rent

For a business in general, the two ways to generate more revenue are to add more clients or to make more money from existing clients. Apartment managers have a fixed number of clients so adding more is not an option.

To generate additional revenue, apartment managers need to look at Alternative Incomes To Rent (AITR), Cymrot said, goods and services property managers hadn't thought to provide before.

Of the 4 million home sales last year, 2 million were people moving from apartments into houses, which is an economic decision and an American tradition that isn't going to change no matter how well luxury apartment developers position their product, Cymrot said.

Apartment managers, who have to know the local real estate market in order to attract tenants in the first place, ought to provide brokerage services to their clients/tenants looking for a new house, he added. Those people would be moving out of apartments anyway, given the right financial situation, and the management would be bringing in 6% commission on a $150,000 transaction that it would otherwise not see a piece of.

After rent, apartment dwellers spend $600 million on goods and services, Cymrot said. Apartment managers have been dipping their toes into the pool by leasing washers and dryers to "clients," Cymrot's preferred term for tenants. If managers can provide their clients with convenient, cheap and dependable washing machines, those clients will not need to take those dollars out of the apartment building.

Planning for the future

The first thing a property manager needs to do, Cymrot said, is to put together a profile of clients/tenants. Leasing and credit applications provide invaluable market research data, which direct marketers would probably kill for, he added.

The second thing to prepare is a list of goods and services the tenants needs, ie. how they spend their money.

The third thing is to integrate the two lists to see what goods and services their particular tenants need that the management can provide conveniently, cheaply and dependably -- the three factors that ensure client satisfaction and that will keep the dollars spent on goods and services after rent on the premises.

Natural resources

The residents of an apartment community are a captive market, Cymrot said, a market that only a handful of major property management companies, most notably Insignia, are taking advantage of.

"An asset's value is a by-product of net operating income," Cymrot said. Because ownership can no longer count on the market to provide an income stream, property managers need to find new sources of revenue from their existing client base, and to Cymrot the obvious place to look is the untapped pool of money leaving the apartment complex.

Apartment managers need to be doing more than just collecting the rent, Cymrot said, and the few who actually implement change in their business plans will make more money and create more value at their properties than ever before. A little creativity and the will to implement significant strategic changes will ensure that, at the end of the fiscal year, an apartment owner will be sitting a little more comfortably than some unfortunate Greeks.

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