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The tenant shuffle

Tenants often leave their apartments before a year is up. To hault this perpetual shuffle, some owners are going beyond the traditional tennis court and pool amenities. They're adding billiard pubs and cyber cafes, tanning beds and putting greens. Owners also are pampering residents with improved services - some that are literally for the dogs.

Costly cleaning The main reason owners want to keep tenants (the industry prefers "residents") longer is to avoid the steep cost of refurbishing vacated units, which can range from $300 to more than $1,000. "It may just involve cleaning the carpet and touching up paint to a complete turn of repainting, changing carpet, new ceramic tiles and so on," says Stephen LeBlanc, president and COO of Charlotte, N.C.-based Summit Properties Inc., which has a 18,696-unit portfolio. He pegs the industry's average annual turnover rate at a surprisingly high 80% and up, while others in the business tend to put it closer to 60% or 70%.

The current trend to larger units will push up turnover costs, notes Richard Van Wert, senior vice president, acquisition group, in the Baltimore office of Chicago-based LaSalle Investment Management Inc., which advises clients on acquisitions and manages nearly 5,000 units for third parties. Carpet replacement alone in these bigger apartments can run to more than $1,000, he says.

LaSalle Investment's turnover rate is accelerated by short-term tenants waiting for their new homes to be completed and residents who are on extended business trips or prolonged vacations. The company's apartments on Coronado Island in San Diego and in Boca Raton, Fla., for example, are frequently used as "pseudo vacation or corporate hotels," says Van Wert. "We don't have to do the carpeting after three months in those situations, but there is still a lot of wear because of the heavy use."

Owners often set aside some units for month-to-month rentals, and charge an extra 10% to 20% in rent for fewer than six months' occupancy. "In those circumstances, owners have to make sure the premium is truly compensating them for the additional turnover costs they wouldn't have had to digest if the units were rented for longer periods," adds Van Wert.

Turnover ratios hit the bottom line Since the cost of refurbishing apartments erodes an owner's profits, resident retention is becoming an increasingly important objective. With nearly 60,000 apartments in more than 30 states under its management on behalf of institutional pension funds, New York-based Sentinel Real Estate Corp. knows that making inroads into tenant turnover can have enormous financial impact, says David Weiner, the company's managing director.

Could the cost of refurbishment be recovered by raising the rent? Not likely. "[Rent] is totally market-driven," says Weiner. "Rents can be geared to making improvements just to attract tenants in a soft market. In a strong market we do less work to prepare a unit and expect to get higher rent."

However, trimming rents is not one of Sentinel's strategies for retaining residents. "No, our rents are at the market," says Weiner. "But we might offer financial inducements that could be interpreted as a reduction in rent. It might be a gift worth $100 or $200, a weekend resort vacation or a three-day cruise, for example, for which we pay wholesale prices because of our scale."

Homeowners in waiting Given the large number of residents in transition from rental apartments to home ownership, apartment companies with the right critical mass are bound to capitalize on that vast market potential. Some have done just that, cleverly allowing residents to convert part of their rent into home equity. These inducements keep residents in place longer to accumulate savings toward a new home and attract new tenants who plan to become homeowners.

Chicago-based Equity Residential Properties Trust, one of the nation's largest apartment owners with 224,000 apartments at 1,100 properties in 35 states, has the mass and the means to offer such a program. Equity Residential's other inducement programs include:

* Building equity with participating homebuilders. In this program, a percentage of rent is applied to homes built by major homebuilders such as Beazer Homes, Morrison Homes, Cambridge Homes, Washington Homes, Rottlund Homes and Westminster Homes. "If residents buy homes with participating builders, they will be able to use monthly credits of 15% to 25% of their rent toward the purchase price of their new homes, closing costs, a down payment or upgrades and options, with a cap of 2% to 3% of the price, or $6,000 on a $300,000 home," explains Gerry Wiatrowski, Equity Residential's senior vice president of marketing.

"The program helps attract new residents; current residents love it; and it's great for builders," he adds. "It's also an incentive for our residents to stay longer to build more credits, and applies even if we haven't found participating builders in markets to which residents expect to relocate." Builders also benefit because buyers are delivered to them, which eliminates co-op realty fees.

* Coast to Coast Relocation. This program allows residents who are about to be transferred by employers or who are simply relocating to a new city to scan lists of the company's properties or visit an Website to find out location, features, rents and availability. If tenants stay in the Equity Residential fold, they save $100 on their first month's rent, and the company waves the application fee at the new property and lease termination fee on the existing lease. Wiatrowski says the offer also applies to other locations in the same city under another program called "Block to Block."

Not surprisingly, Equity has a smorgasbord of more traditional types of marketing programs geared to leases expiring in 60 to 90 days and built around renewal savings certificates and other inducements. The company also conducts an annual resident satisfaction survey and matches scores against a first-year benchmark to demonstrate progress to residents.

Improved employee training Apartment owners also are training leasing agents to do their part to retain residents. There isn't much point in training staff if there is no way of testing what they have learned against their performance on the job, says Jay Harris, vice president of property management for the Washington, D.C.-based National Multi Housing Council (NMHC).

"Measurement surveys are an important part of evaluating the job performance of site managers, and the resident satisfaction tool is an indicator that more attention is being paid to how well training is working," says Harris.

Sentinel's Weiner says the company's leasing consultants are responsible for follow-up contact with the residents they signed up. Leasing agents make sure residents are settled in comfortably, provide the company's move-in package, check in three weeks later to see if the resident is satisfied, and send the tenant a follow-up letter 12 weeks later.

Satisfaction guaranteed Other owners are offering incentives that are more common in retail: satisfaction guarantees. "We were one of first in the business to have a 30-day satisfaction guarantee," says Kenneth Valach, managing partner in the Houston office of Atlanta-based Trammell Crow Residential (TCR), which manages about 30,000 apartment units for third-party owners across the United States, and owns and manages about 25,000 apartments.

"Residents can break their leases without any penalty if their apartments aren't what they thought they would be for whatever reason," says Valach. "We were also one of the first to have a one-day maintenance guarantee, where we fixed something within 24 hours or one business day, or the resident doesn't pay rent until we do," he says, adding that this guarantee covers minor maintenance tasks, so the 24 hours is not a difficult deadline to meet.

If a tenant is pleased with how a leasing agent or maintenance worker treats them, it can translate into overall satisfaction with the apartment complex. "[This contact] is where the rubber meets the road. [Employees] have to be customer-service oriented," Valach says. "If they aren't, you can add all the programs you want, but if the people on the frontlines don't believe in your programs then it's not going to happen for the residents."

Adding amenities Most major apartment companies are enthusiastically adding amenities to their properties as another retention incentive. TCR, for example, has added business centers and conference centers for residents who work from home. Personal trainers at fitness centers also are becoming more widely available. Owners offer these amenities to create an interactive community rather than a "commodity," says Valach. The Reserve at Park Central, a TRC property located in Dallas, recently opened a 24-hour Kinko's copy center.

Sentinel's retention program also includes improving amenities, says Weiner. "All of our properties have amenities which have been or are being retrofitted," says Weiner, adding that the amenities and services include exercise facilities, clubhouses with meeting rooms, free video movies once a week, parties for tenants and monthly programs such as health fairs.

"That links the resident to the property because they see they're getting extra services they may not get somewhere else, and programs they might look forward to repeating the following year," he says. "It's a small encouragement to stay, but if we do them well enough and often enough they accumulate into significant reasons for not moving, or to think twice about it."

Sentinel, like most of its competitors, also plans to provide residents with high-speed wired and wireless Internet services. It already has retrofitted the Desert Palm apartment complex in Phoenix, which has a predominantly student resident population, with multiple computer hook ups and high-speed Internet access.

And since security usually is at the top of residents' wish lists, Valach says TCR creates an atmosphere of security with controlled access gates, perimeter privacy fences, staff patrols and other measures.

One-stop shopping NMHC's Harris says there is a greater focus on making the whole apartment experience a "one-stop opportunity" for all kinds of services that meet residents' needs. For example, Camden Property Trust, a Houston-based REIT, partnered with AT&T to offer residents telephone service at lower rates.

"Apartment companies, particularly the larger ones, are setting up Websites with services designed to make living there more enjoyable and therefore retaining residents longer," says Harris. "There is a lot of aggregation going on, where Internet-related intermediaries offer bundled services, so that smaller apartment owners and managers can also take advantage of a whole menu of services."

LaSalle Investment's Van Wert says it helps to offer services that set a property apart from others. "It's the little things that keep residents around, like staff walking residents' dogs, checking on their apartments when they're gone and providing free firewood in the winter," he says.

Apartments with pubs and cyber cafes; staff willing to run errands and walk the dog - these amenities are creating a new apartment experience. And in doing so, apartment companies just might create the kind of communities residents won't ever want to leave.

Did you know? The median size of a multifamily unit was 1,095 sq. ft. in 1997, compared with 922 sq. ft. in 1985

Did you know? 27% of apartments built in 1997 had more than 1,200 sq.ft., compared with 14% in 1994

Did you know? 49% of apartments in 1997 had two or more bathrooms, the second highest level since the statistic was first recorded in 1974

Pools and tennis courts aren't the only amenities at apartments these days, To retain residents, complexes are offering:

* Personal garden plots, community herb gardens, wildflower cutting gardens and potting sheds

* Media rooms with theater-style seating

* Comprehensive concierge services, including running errands, walking dogs and watering plants

* On-site caterers, after-hours doctors and dentists, valet car services and personal trainers

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