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Operational Performance and Value Maximization

Operating an older multifamily property can be an expensive endeavor. Older properties have higher maintenance and repair costs due to functional components such as plumbing, electrical, roof, asphalt, concrete and landscaping wear out over time. As the component nears the end of its life, maintenance and repair costs tend to escalate. Funds must be set aside for replacement of the component, and with labor and materials costs ever rising, funds allocated today may not be enough when the project comes to fruition years down the road.

Moreover, older properties do not attract the most affluent of renters due to condition and lack of amenities which are common today in newer properties. This leaves a less well-heeled rental clientele which can sometimes cause more wear and tear on units. While this is not the norm for all renters, a manager has to plan for more involvement and repairs for these properties.

Reducing Expenses

This is an area where SVMG differentiates itself from other property management firms. Since most of what we manage, sell and invest in was constructed in the early 1960’s we are extremely familiar with the norms and idiosyncrasies of these properties. We have a work force of vendors familiar with and well-suited to maintaining and repairing these assets at reasonable prices.

Because of the ever escalating maintenance costs, we periodically evaluate each property to determine what can be done to reduce these expenses. Sometimes it may call for a capital improvement, sometimes just a different way of maintaining the component, and on rare occasions we have been able to remove or change out the component without any degradation in service or appearance. With this in mind, we evaluate operational performance of the asset on an ongoing basis.

We will also evaluate the personnel costs associated with a property. While we believe in paying good resident managers and maintenance personnel well, we are also quick to evaluate their performance to ensure that our manpower expenses are appropriately allocated.

Rent Maximization in Rent Controlled Cities

In the last few years numerous cities have enacted new or stricter rent control ordinances, San Jose and Mountain View being two key examples. These measures are extremely unfair to landlords and can greatly impact not only the profitability but the operational budget required to maintain these older properties. While one can debate the value of rent control, the reality is that it is here to stay. (For a more thorough analysis of rent control please contact us for a copy of our published white paper on the topic.)

Our strategy is to make rent control properties profitable without violating any municipal or Fair Housing regulations or ordinances. We do this by closely monitoring market rents, and then implementing and strongly enforcing strict rental agreements and house rules. All the properties we manage and own are operated in a way that enables us to maintain strict control over the tenants and the asset. While many claim to do this, we see on a regular basis situations where landlords have essentially allowed the tenants to manage the building by default, thereby eroding profitability and value.

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