Series on Syndication: Part III Asset Management

June 3, 2024

The Capital Stack

Asset management, the third part in our Series on Syndication, is a crucial yet often under-discussed aspect of real estate investments. At a glance, it may seem straightforward: purchase a property for X amount, invest Y in renovations, and sell it for Z. However, the reality is far more complex, involving many dynamic elements that require careful coordination and oversight.

Our Asset Management Strategy

We take a hands-on approach to asset management while working with third-party property managers. We communicate with our managers daily. Our main focus is on the factors that significantly impact returns and property values. We use Excel to track move-ins-move-outs, unit renovations, vacancies, renewals, delinquencies, and capital expenditures. Tracking these items helps us monitor each property’s status, capitalize on opportunities, and make adjustments when necessary.

Maintaining accurate and consistent investor reporting is a top priority for us. We can create informative and accurate monthly investor reports by consistently tracking these key performance indicators. We value our investors’ trust and want to ensure they are well-informed about any developments at the property they have invested in.

Move-in-Move Outs

We monitor move-ins and move-outs for several reasons. Firstly, it helps us understand occupancy trends and deal with potential vacancies proactively. Additionally, it allows us to evaluate tenant turnover rates and assess the effectiveness of our leasing strategies. Ultimately, this data enables us to make informed decisions, optimize property performance, reduce vacancy periods, and maximize investor returns.

Unit Renovations

We closely monitor the progress of unit renovations to ensure they meet our standards and are completed in a timely manner. Conducting what we refer to as the “pre-move-out walk-through” has proven crucial in expediting the renovation process. These walkthroughs are straightforward, involving our managers capturing video or pictures of the unit ideally 3-4 weeks before a tenant moves out. By assessing the unit’s condition beforehand, we can plan the renovation accordingly. Typically, we opt to order materials and schedule major contractors, such as for flooring and cabinets if needed, while our management team handles the finishing touches.

Vacancy

Tracking vacancies enables us to adjust rental pricing strategically. If vacancy rates are high, indicating difficulty in attracting tenants, it signals a potential need for a price reduction to attract more renters. Conversely, if vacancy rates are low or nonexistent, suggesting high demand, it may be an opportunity to consider a price increase to maximize rental income. Vacancies are often seasonal, with units taking longer to lease in the winter months and around the holidays, while demand typically increases during the summer months from April to September.

Lease Renewals

We monitor lease renewals to promptly identify when a tenant intends to vacate and to ensure that lease renewals are aligned with our business plan, including implementing appropriate rent increases.

Delinquency

We monitor delinquency because it directly impacts the financial health and stability of the property. To ensure strong collections, we oversee property managers in promptly initiating the court process and evicting non-paying residents as soon as possible. Our approach has proven successful as Plymouth Gardens, our 16-unit property in Plymouth, MI, maintained 100% occupancy and 100% rent collection from January to May.

Cap-Ex

We oversee capital expenditure (cap ex) projects to ensure they are completed on time, within budget, and to the required standards. Effective oversight of cap-ex projects ultimately contributes to the long-term success and profitability of the property, aligning with the overall investment strategy and goals.

Final Thoughts

Emmie, our head of asset management, ensures that everything runs smoothly and is completed promptly. In the past, we allowed the management company more leeway, trusting them to manage these tasks perfectly. However, they have other properties to oversee as well. It’s a delicate balance to avoid micromanaging while ensuring our properties remain a priority and none of these tasks are neglected.

Major Market News


Adam Neumann & WeWork

According to an article by TheRealDeal Adam Neumann, co-founder of WeWork, acknowledged his failed bid to reclaim the company, which is in bankruptcy. Despite offering over $500 million, his efforts did not receive public interest from WeWork’s leadership. Instead, Yardi Systems reached a deal to become WeWork’s majority owner post-bankruptcy. Neumann claimed the company avoided negotiations by not signing a non-disclosure agreement and made false statements against him.

WeWork filed for bankruptcy last year after years of losses and Neumann’s ouster in 2019 following a failed IPO. Neumann has since started a new venture, Flow, focusing on residential apartment management.

Source: TheRealDeal. (2024, May 28th) Adam Neumann drops bid to buy back WeWork. https://therealdeal.com/national/2024/05/28/adam-neuman-drops-wework-buyback-bid/

Tips and Tricks

Terms-

Investor Reports: We send monthly reports to our investors that cover occupancy, delinquency, budget, cap ex, and more. These reports help our investors stay in touch with what is going on at the property in which they invested.

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