San Francisco Apartment Association

Feature

Minor Changes That Add Major Value<

by Allison Chapleau

Whether you are considering selling now or holding on to your apartment building forever, small maintenance items can reduce tenant phone calls and complaints to you, expanding your free time and increasing your building’s value.

Attractive Building Entrance
The first impression of a building formed by a tenant, buyer or anyone else, comes from the appearance of the entryway. Often the entryway is overlooked and underappreciated, given its value. Many entryways are in total disarray: the carpet is old and smells musty, the paint is chipping, the walls are covered with horrible 1960s wallpaper, there is poor lighting and there is a massive pile-up of discarded mail. Whether your goal is to obtain the highest rents, achieve the highest sales price or just maintain pride of ownership, paying attention to your entryway is a major priority.

I routinely walk through buildings with neglected entryways even though there are outstanding rental units within. I recently walked through a large building in an upscale neighborhood, and the owner told me that he was struggling to get market rent for his top-floor studio. With a couple of small changes to the entryway (and some other areas in the building), he was able to market and rent the studio for above-market rent in less than a week’s time. This example proves that an entryway in disarray can make for a much tougher sell, especially for that desirable above-market rent range.

Since a well-maintained entryway can have a direct affect on attracting tenants who will pay above-market rents, this important feature also impacts the sale price of the building because obtaining the highest possible rent is gravely important to maintaining and increasing the value of your apartment building. In today’s sales market, a difference of $100 a month can translate to a $15,000 difference in sales price. “One of the first items we look at improving when we purchase properties is the common area; we want our tenants to have as much pride in their apartments as we have in owning the building,” reports Taylor Lembi of Skyline Apartments.

There are a number of simple ways to spruce up the appearance of your entryway. Potted plants help add curb appeal. Well-organized and properly labeled mailboxes with recycling bins nearby are a must (having a place where tenants can discard their junk mail can save time and money by reducing maintenance costs, while keeping the entryway looking clean). Good lighting in the entrance is not only important for safety, but it also makes the building look inviting. Lights on timers help you save energy and keep costs down.

Painting
Interior painting can also be a low-cost item that adds to the overall appeal of your building. Having clean hallways that are well taken care of sets a precedent in the minds of the tenants. Although there are always people who have no respect for the apartment they live in, there does seem to be a high correlation of these tenants to buildings whose owners share the same mentality.

The exterior painting of a building is not a minor expense, but it can be done affordably, and have a major impact on the rent you will command for your units, once again increasing the value of the building.

Semi-Resident Manager
I am often asked if hiring a fulltime building manager makes financial sense. The answer is often found by hiring a semi-resident manager. A semi-resident manager is valuable in reducing the number of your tenant phone calls and last minute trips to the building. If you own smaller properties near each other, the semi-resident manager might be able to help you with several of your properties. “It is our goal to make sure our tenants are comfortable,” says Maria Castellucci, a San Francisco apartment building owner. “Having semi-resident managers helps us stay on top of all potential problems before they become an inconvenience for our tenants. We do not want to receive calls from tenants with complaints, just as much as they do not want to have complaints. Doing routine preventive maintenance helps to keep both our tenants and us happy.”

A less expensive way to handle the day-to-day management of your investment is to give a small discount to a longtime resident, whom you trust, to watch over the building. Below is a short list of tasks that you might consider turning over to a tenant for a small reduction in rent (the amount of rental reduction should vary depending on the size of the building and the value of the given responsibility):

  • sweeping the front and rear of the building;
  • vacuuming stairways weekly;
  • cleaning up the mailbox area;
  • changing light bulbs as necessary;
  • setting timers and monitoring lights;
  • watering entryway plants;
  • reporting the current conditions of gutters, stairs, laundry machines, trash bins, exterior walls, door locks and more; and
  • handling lockouts.

Professional Cleaner
If having a semi-resident manager for your property is not in the budget, another option might be to hire a professional cleaner. The job of a professional cleaner is typically to clean, vacuum and sweep common areas and also change light bulbs. (It is typically not a good idea to plan on using a professional cleaner to notify you of any maintenance problems throughout the building.) Again, keeping the building clean not only helps you achieve the highest rents, but it also sets a precedent for the tenants, encouraging their respect of the common area and discouraging them from storing their belongings outside of the designated areas.

Trash Removal
The trash area is not an area in which most people want to spend any time or money. But a little preplanning can go a long way in keeping the area clean. Tenants are almost always going to treat this area of the building with no care at all if it is out of sight. By making sure that you have the appropriate number of trashcans, stored in the best possible area with significant ease of access, tenants will have an easier time disposing of their trash. Having the appropriately sized bins and a proper pick-up schedule can significantly increase the overall level of cleanliness in your building.

I can remember a number of occasions when I have looked over owners’ trash bills and have found that they are being billed excessively for the size of their bins or for incorrect placement. Making sure that you are being billed correctly can literally save you hundreds of dollars.

More Cost-Saving Measures
Routine preventive maintenance is another key to success. This includes checking the roof gutters and rooftops, the boiler(s), light timers, interior hallway lights, alternate stairwells for rotting wood and lost handrails, and all other common areas for signs of decay. Identifying and repairing minor problems early on will save you hundreds, if not thousands, of dollars.

Updating the electrical system, from fuses to circuit breakers, should also increase your bottom-line profits and increase the value of the building. As P.J. Tradelius of Commercial Coverage states, “The number-one reason owners pay a premium for their insurance policies are due to a lack of upgrading the electrical system from fuses to circuit breakers.”

It is a fact that over the last five years insurance rates have fluctuated significantly due to global and domestic catastrophes. Real estate in California, and San Francisco in particular, is very unique in that it is typically one of the first places that insurance companies will begin tightening underwriting guidelines and dropping coverage. Tradelius adds that “there are many building owners in San Francisco who have had their insurance rates rise over the past few years and are now above current market prices.”

The steps that I have addressed here are applicable for every building owner and can be used not just to improve the appearance of the property, but to save money, positively impact rental values, as well as increase the value of any property. And that’s the bottom line!

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Allison Chapleau is a real-estate investment broker at Marcus & Millichap and specializes in the sale and purchase of San Francisco apartment buildings, NNN and multitenant retail properties. For additional information, please contact her at 415-625-2159 or achapleau@marcusmillichap.com. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.