Multifamily Vacancy: 10 Negatives

Multifamily Vacancy: 10 Negatives

When significant multifamily vacancy becomes an issue it is because of  one of three reasons; the people, the paper or the property. High vacancy means one of these three have gone for a walk.  To maintain the physical and financial health of an asset extended vacancy requires a property specific game plan.  Here is a starter list of things that go south with extended vacancy:

Asset valuation.   Vacancy deteriorates asset value more severely than any other category save legal battles. Wither we shed a tear  or stand and fight? Vacancy is an affront to valuation.  Extended vacancy is a piercing sword to soft tissue; it cannot withstand the blade.

Loss of revenue (of course). Like a cruise ship, at the end of the day, the day is done. That  cabin (or unit) can never re-capture the opportunity to earn income from the day that has passed. Days vacant, on a property-wide basis can add up to years of lost revenue.  Ten vacant units for 30 days equals 300 days of vacancy!!!

Intensive staff time. With extensive vacancy your property management staff is devoting  their energies to a remedy. This requires other note-worthy management tasks to be pushed back or eliminated until the vacancy issue is addressed.  

Utility costs. Want to lose lots of money real fast?  Heat and cool vacant units for an extended period.  I can hear the sucking sound from here...

Upkeep. Stuff happens.  Like neglect or a slow water leak that goes un-noticed.  With significant vacancy priorities get re-ordered.    Sometimes without HVAC being monitored or toilet leaks addressed.

Neglecting newly vacated units. This is  bad on many fronts; first, that newly vacated unit may be an easy turn. Or worse, food and other matters remain with the utilities off. Worse still, there could be fleas- things can cannot/should not wait for a week or three.  The need to get product rented could mean that recent vacants are lost in the shuffle, without a walk-through, without an immediate clean.

Neglected long-standing vacant units.  Physical deterioration can sometimes be subtle, sometimes overt.  How do you know?  Can you document the last time a staff member walked into each vacant unit? Are there notes on what they found?

Advertising costs and monitoring.  No matter your advertising type,  increases in vacancy requires increased attention to advertising.   And someone has to monitor the results.  Who is in charge?  Is advertising  and lead follow up  addressed by someone that is fully aware of the urgency? 

Pride, Desperation and Blame.  Owners, property managers, Regional Managers, sometimes start the blame game. At the point in time when focus should be on "what" (the what being vacancy) much hot air is wasted pointing fingers.  Granted, this is sometimes a necessary exercise to determine weak points.

The costs side (back to valuation). With fewer occupied units and less revenue, fixed and variable costs are a higher percentage of gross revenue.  This fact decreases real and perceived market value in real time. 

The extended cost of vacancy is reflected in low valuation.  We work to make money, earning equity with our expertise, letting time carry value via improved operations, rental increases and a reduction in debt.  Long-term vacancy affects all of these.  

If current management is unable to address the matter, find new management.  If you are self-managing multifamily and performance is sub-par: fire yourself and seek professional management.  Interview several companies for fit with the skill set to address the immediate vacancy issue and transition to stabilized operations.  Time is of the essence!

About This Blog
Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel.

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