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I am a manager who doesnt get it.

I am a manager who doesnt get it.

Those of you reading this, I beg of some knowledge.  As a manager of a larger community in the Chicago Metropolitan Suburban area, I am frequently confused with concessions.  It seems to me that the most important selling point to the apartment and getting the prospect to apply, isnt just comfort and good service, but a good price. I understand GPR and meeting budgets and expectations of companies to get the most $$ for their apartments.  But what is the big deal about concessions?  If competitively priced, with a decent value to the prospective resident, in your market area, not overpriced or under priced, this should be more important than a concession.  It seems to me that the price is higher in some cases than it should be, so that investors perhaps see a dollar figure and match to investment value.  So the concession is a different line item and is shown somewhere else.  So it looks like a community is getting $$$$ for the apartments, but are giving away $$$$$$ to get those leases.  Am I making any sense?  It just seems counter productive.  You could potentially have less turnover and a steady flow of leases, happier current residents appreciative that they arent losing a deal that the new move in is getting, and our leasing doesn thave to try and explain  all of these confusing "deals".  Isnt it better to just have the right price? I guess I just dont get it?
 
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Don't worry, I don't get it either, so I get you...:D
Give me a fairly priced (fair determined by appropriate market lines and the value of the unit itself) apartment to sell with Zero Concessions anyday before you give me a community of concessions that reeks like a blue-light special two days older than the sell-by date.

  Tara Smiley
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Jennie-

You do get it. Concessions don't work. Let's answer the question, "What is the intent of a concession?" The intent is to attempt to differentiate yourself from your competition by using price as a motivator to gain more market share. The reason concessions fail is because just as soon as you offer a concession, your competition will find out and either copy it or try to one up you. In the end, unless you find a unique way to differentiate your community/brand you'll still end up having the same market share that you would have had if everyone just left their prices alone.

So, now that I've made that point, it is irrelevant because companies believe that if they don't have 96% occupancy or more they are under-performing. So, they try to compete with concessions and we all have to play this ridiculous game all-the-while wondering why our concessions can't get us better occupancy. It's an exercise in futility.

There are multiple reasons why we do concessions all crazy, and all mainly are in an effort to protect the gross rent standard. So, whatever method you choose to competitively price your apartments (if you must), make it easy to explain and maximize your revenue. With your pricing, however, remember it is not as important as developing your brand, customer experience, and reputation in order to gain market share.

  Mark Juleen
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Mark - Here's a situation for your take... we have a local competitor with a HORRIBLE reputation for maintenance,. mgmt, etc. and as a result, they earned the worst types of residents. However in the last year they were installed with a new owner/mgmt. THey have greatly improved the physical appearance and curb appeal of the property, they are quickly weeding out their problem residents and as a result, have achieved 98% occupancy while their comp's (us) have not. Their customer exerience is great and their reputation improves. THeir method - to attract attention and property traffic, they have slashed prices on their most common floorplan - their reasoning is that if they lease it at 50% of their normal rate this year and fill the books, they are stll collecting $. Then next year, they will have earned the respect and trust of their residents and will be better able to raise the rents to market rates.
So what's your take?

  Tara Smiley
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Tara-

Not a fan of this strategy. I would assume they are getting rid of the "problem residents" as a result of stricter credit guidelines. There's no way curb appeal and customer service coupled with reduced rates would accomplish that in my opinion.

Anywho, I'd like to hear about the increases they are going for next year. We saw this happen with a new lease-up for a student property we compete with in Bloomington, IN. They made so many people angry with their rent increases that any loyalty they tried to create during the year was completely wiped away. Your price and the way your present it is also a component of your brand and reputation.

Bottom line is that the property is not 98% occupied, but 49% occupied (economically). My guess is that they will have turnover in the 75%+ range. That is, if they ask for a 100% increase in rent next year I believe the majority of people will leave. Then they will find themselves in a situation where they have to decide to get a smaller increase or plan to just turnover a bunch of apartments and hope their new reputation (that is now tainted by huge rent increases) helps them lease the whole property up again.

I don't envy the position they are in and believe volume (sale) pricing only works for products that have (essentially) unlimited volume, like a commodity. Thanks for sharing.

Mj

  Mark Juleen

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