Feature
by Michael Michaud
Should you do a property makeover during these high vacancy times? The answer is “of course you should!” Any owner with business savvy knows that being at the forefront of marketability is an absolute must when a market suddenly becomes more competitive.
From past experience working with a general construction company and several property management companies prior to starting my own, I learned that attention to detail and high maintenance standards led to astounding results. These included success in retaining tenants and filling vacancies in a timely manner and in a variety of rental climates. Another facet of the rental housing business is to keep this practice within budget—always a worthwhile challenge.
What’s a property makeover? To begin, stand outside your building and pretend it is the first time you have ever seen it. What do you see? Look at the entryway, lighting and cleanliness. Is the building’s architectural integrity compromised by lack of cleaning, badly maintained details or previous quick fixes and bad patches? Remember, property makeovers do not have to begin with a wrecking ball. Proper cleaning, maintenance and curb appeal are an excellent starting point in the makeover process.
All too recently, we woke up to some new facts in our business climate. First, dot-coms were either closing down or moving out of our city at a faster pace than their arrival a few years earlier. Second, with the decline of dot-coms, their highly paid staff disappeared, which meant that we lost a significant source of affluent renters willing to pay record high prices in our apartment buildings.
Obviously the demise of dot-coms has had an adverse affect on our local economy. Add to this, the drop in tourism following both the September 11 terrorist tragedy and the threat of additional terrorist attacks. Our challenge now is to maintain our buildings and a flow of steady income rather than trying to increase rents unrealistically by leaps and bounds. Many view the abrupt turnaround in the economy that we are now experiencing as both disastrous and frightening. However, San Francisco is a very resilient city, surviving a history of economic spirals from the Gold Rush to more recent natural disasters. Time and again, our true pioneering spirit has always guided our diverse and accepting citizens through these events.
Optimists in the rental housing business realistically see these changes as an opportunity to analyze what we charge for rent and to make appropriate price adjustments and necessary improvements. We can no longer continue to conduct business with our previous anything-rents-at-any-price mentality. The time is now for making clear adjustments to an altered rental climate.
During the past few weeks, I accompanied one of our new employees in his search for an apartment since he had recently relocated to San Francisco. There were no vacancies available in the buildings we manage because our clients adhere stringently to our suggested maintenance and upgrade practices. As a result, I at last had a real opportunity to see exactly what is available for rent around the city. I was shocked by what I saw. A majority of studio and one-bedroom apartments were below what I consider a good ratio of value to condition. Owners apparently lack interest in attracting potential tenants as evidenced by the lack of cleanliness and poor curb appeal of many multiple-vacancy buildings. At least owners should start with proper cleaning and probably a coat of paint.
After two weeks of viewing rentals, we visited a building that was well maintained and clean with a vacant unit that had been properly prepped. Good management, pride of ownership and a contractor who knows how to “do it right” were the ingredients that obviously made this apartment appealing. The manager explained that the only reason there was a vacancy was due to the fact that the former tenant had relocated for work reasons. The price of such a unit, you might ask? The price was comparable to what we had seen in our unsuccessful two-week search of poorly maintained units.
We have a responsibility as owners and property managers to enthusiastically maintain our properties. We need to remember to conduct our business with a high level of integrity that extends beyond profit margins and reflects the pride and quality of living in San Francisco. We have all seen the ripple effect in neighborhoods when improvements are made in one building, then the next one and the one after. The aesthetics of entire neighborhoods change with one owner deciding to start the ball rolling. One owner starts by cleaning, then another in the next building follows suit. Before long, building-by-building, street-by-street, neighborhoods are transformed. The same happens again when an owner paints the building, installs new lighting, etc.
The opposite also occurs in both more and less desirable areas of the city. One building becomes run down and soon the next. Before long, entire neighborhoods are in a downward spiral.
Property makeovers and upgrades show results beyond monetary expectations in buildings where we have instituted these changes. I have witnessed tenants in buildings pick up trash on sidewalks and wash their windows more frequently. Residents openly brag to friends and colleagues about the well-maintained condition of their building. The impact of change doesn’t stop there. A higher percentage of chronic complainers become proud of their address and soon they are messengers and salespersons for their building. Suddenly they are seen asking managers and leasing agents if there is anything available in “my building.” These same apartment buildings never experience high-vacancy rates and, in two instances, there are waiting lists of potential tenants. Additionally, when you invest in your property you help stimulate our local economy.
Now you can see clearly that a wrecking ball and starting all over, or awaiting the next dot-com revival may not be necessary to relieve the frustration you are experiencing in our current market. Again, stand outside and pretend this is the first time you have ever looked at the place. How does it look during the day and again at night? Walk the hallways. How do they look? Do they smell fresh and clean? There are a lot of inexpensive products available that can immediately improve the interior of your building. Walk through one or more of your vacant units. Does it seem worth the price you are asking, and would you want to live in it?
Make a realistic list of what is both positive and negative about the property. Plan improvements from cleaning and touch-up painting to lighting and security. Then take your realistic list and develop a budget and starting point.
Contact some contractors and start getting bids for both minor and major improvements. Many of them advertise in this magazine, and thousands of others are readily available. Discuss routine and sound cleaning and maintenance practices with resident managers. Contact reputable maintenance companies when necessary. Talk with one of our many independently owned hardware stores. They can be a fountain of information and are always willing to help.
Take the time to look closely at your building. Your answer to a makeover will probably be “of course I should.” Take this common-sense approach to what we already know and reap the benefits.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Michael Michaud is the owner of Michaud & Associates, a local property management company providing “creative property management.” He’s able to tailor an individualized program for San Francisco owners that maximize potential. He has been managing properties in San Francisco for more than ten years. He can be reached at 415-923-9004. © Copyright 2002.