Operating Institutional Private Rented Sector Assets
November 10, 2014
With any businesses’ strategic planning, it’s vital to understand what success looks like at the outset. The Private Rented Sector is no different.
When investors are scoping Private Rented Sector investments, the operational aspect is just as important as the investment strategy. How will the assets be managed, the rents set, residents sourced, the homes maintained, refreshed and further down the line, refurbished?
Asking – and answering – these questions at the outset informs the operational strategy, goes some way to informing the costs involved and can provide investors with Key Performance Indicators (KPIs) with which to sense check progress.
For instance, the operational strategy can be impacted depending on whether an investor is focused on absorption rates, occupancy levels, or has set out to create (and maintain) market leading income levels. As life is rarely as black and white as the example above, investors and their operating team must be aligned in their aspirations and objectives.
The skills and knowledge needed to operate PRS assets are vast. It is akin to running a hotel group, a retail chain and a lifestyle brand, all at once. The key elements span; identifying the potential target market of residents, setting pricing strategy, release phasing, marketing strategy, live reporting and analysis, applicant processing, contracts and compliance. Not to mention ‘resident relations’, which spans; property management, community and stakeholder engagement, building management and so on… The list can seem endless.
Clearly there is much to consider, and all with an overarching focus upon maximising asset value and enhancing income. With so much to consider, it’s crucial to have robust reporting mechanisms in place to enable those at the helm to take fleet-footed decisions on a day-to-day basis. It is this insight, and understanding the nuances of day-to-day operations, where real value is added.
For example, the balance between supply and demand for unit types should be understood at a granular level in almost real time. It’s the role of the operator’s Asset Managers to spot layouts that are proving most appealing, or specific aspects and views that capture the imagination of applicants, and to flex the pricing strategy algorithm accordingly.
Similarly, if a large cohort of applicants is identified from a specific industry sector, the Asset Manager evaluates whether that represents a risk or an opportunity, before working with marketing colleagues who can adjust campaign activity accordingly.
For many investors, having a consumer as a customer can be a new experience and there can be a temptation, certainly during the initial occupation phase of managing a new Private Rented Sector development, to over-service. It seems the natural thing to do. And whilst it’s vital to get the customer experience right – the old adage that “you only get one chance to make a first impression” is grounded in truth – this can’t be at the expense of the commerciality of the operation.
It’s vital to be clear about what the service levels will be from the outset, communicate a proposition that clearly resonates with those service levels and above all, stick to them. Over-servicing can be just as costly as not meeting customers’ expectations and is incredibly difficult to pull back from once a precedent has been set.
The Power of Consistency
However, every good operator should have a host of weapons in their armoury which enable them to deliver defined levels of customer experience and maintain them at a measurable, constant level. The three core elements in delivering a defined customer experience are people, process and technology. For success, all three must be equally strong:
A highly-qualified, knowledgeable and superbly trained team that understands and embodies the company’s aspirations as well as those of its clients is vital in delivering front-line services to applicants and residents.
Without clear, compliant and detailed processes and procedures, it’s impossible to deliver a consistent experience, let alone know what level of service is being provided, how it’s being received and how feedback is being acted upon to improve process and service delivery development.
It goes without saying that technology should be an enabler to create opportunities, efficiencies and insight. For instance, how much time can be saved by investing in a keyless door entry system that allows property managers to give tracked and recorded contractor access from their desk? How much is saved on traditional key management hardware and software? And how much good will is generated by enabling a resident to remotely give access to their property to a friend without having to arrange handing over of keys?
Gone are the days when an applicant benchmarks their experience against local lettings agents. Consumers are more informed than ever and an increasing number will, for example, have experienced living in institutional-grade, purpose built student accommodation.
In an ever-more connected and instantaneous world, Private Rented Sector operators are judged against every single experience that a consumer has – irrespective of the type of organisation or brand that has delivered it. Clearly a challenge that isn’t for the faint-hearted.
Emperor’s New Clothes?
One option for institutional investors is to set up their own Private Rented Sector consumer brands – both to mitigate any perceived reputational risk and to attempt to differentiate and add value to their proposition.
However, as alluring as it may seem to develop one’s own Private Rented Sector consumer brand, given the complexity and resource-intensive nature of managing PRS assets, investors could get better value from the hotel sector model, where it’s commonplace to employ an experienced management brand to operate the assets.
Utilising a specialist third party business – one that operates for a number of Private Rented Sector investors, has the firepower and broader market exposure to attract a wider pool of applicants and the operational scale to generate efficiencies that a lone investor simply couldn’t achieve – makes sense.
Such an operator would be in a position to offer investors performance-related fixed price operations, bringing cost certainty to an area that has the potential to quickly – and severely – widen the differential between gross and net returns if not handled correctly and expertly.
It’s time to talk to a Private Rented Sector operational management expert.