The management of multifamily properties and portfolios involves distinct operating models, each with unique approaches and implications for cost, efficiency, and operational effectiveness.
10 or 20 years ago, there was someone for every task with a traditional on-site management model. Five years ago, Centralization gained momentum, especially during the COVID-19 pandemic, when many operations were transitioned to virtual, self-guided alternatives.
But there is a not-so-new way of doing things that is starting to eclipse the infamous "centralized" model, "functional specialization."
Today, we are breaking down the basic core differences, along with the pros and cons of each operating model, so savvy property owners and investors like you can optimize their management strategies or even rethink your partnerships come 2025.
If you've ever heard someone start a story with "back when I was on-site", then you or someone you know may have experienced the pros and cons first hand of the traditional model.
Traditional on-site management involves having dedicated personnel stationed at each property. These team members handle a wide range of responsibilities, including leasing, maintenance, resident services, and administrative tasks.
This may initially provide the resident experience with an enhanced sense of support and accessibility, but having a full house at every property comes with downsides too.
The Pro’s:
1. Personalized Service and Support: On-site staff can offer a high level of personalized service, building strong relationships with residents.
2. Accessibility: With staff on-site, issues and emergencies can be addressed promptly, enhancing resident satisfaction and asset protection.
3. Community Building: Fully on-site managers can foster a friendship-like sense of community through organized events and activities. Happy residents renew their leases.
The Cons:
1. Higher Costs: This model incurs higher labor costs due to the need for multiple full-time employees at each property. As difficult as it is to find qualified candidates for on-site roles, it can be even harder to keep them.
2. Inconsistent Service Levels: Service and experience quality can vary significantly based on the capabilities and past experience of individual on-site managers. Take it from me, one bad apple can rot the whole bunch.
3. Limited Scalability: When you have multiple people managing multiple properties in close proximity, it can become complex and less efficient due to the decentralized nature of this model.
What Is Centralized Management? At Transforming Cities, it's not a huge secret how we feel about the C-word.
Watch The Centralization Debate with Mike Dimella and Moshe Crane Here!
Centralized management can have different meanings depending on who you ask. But here’s the jist: centralized management consolidates operations into a single hub, from which a team manages multiple properties. Functions such as leasing, maintenance coordination, and administrative tasks are handled remotely and often assisted by AI.
The Pros:
1. Cost Efficiency: By reducing the need for on-site staff, this model can significantly lower labor costs.
2. Standardized Operations: Centralization allows for consistent service delivery and standardized processes across properties. This helps alleviate human error and unconscious bias in accordance with fair housing compliance.
3. Scalability: This model is highly scalable, as additional properties can be managed without proportionately increasing staff.
The Cons:
1. Less Personal Interaction: Reduced face-to-face interaction with residents can impact the resident experience and satisfaction. There is nothing worse than paying market-rent and begging a chatbot for help when something goes wrong.
2. Response Delays: While centralized teams can coordinate responses, the lack of immediate on-site presence can lead to delays in addressing urgent issues. Most "centralized" operating models need to have separate standards of procedures for specific instances and emergencies that centralization is just not a fit solution for. Like lock-outs for example.
3. Communication Challenges: Efficient communication becomes crucial, and for luxury price tags, the residents expect nothing short of white glove, seven-star service. Any breakdowns or disconnects in crucial communications can impact the quality of service attached to your brand.
What if we told you there is a hybrid-model of multifamily operating that balances the best parts of traditional and centralized models?
Buckle up for this one.
Functional specialization is quickly becoming the new golden child of operating models in multifamily new development today. It involves dividing management tasks into specialized roles handled by experts in those areas rather than centralizing them to impersonal air coverage. For example, leasing agents focus solely on closing leases, while a resident services agent focuses solely on retention and community building.
The Pros:
1. Expertise Utilization: This model allows for the use of specialists who can deliver higher quality and more efficient services within their areas of expertise.
2. Increased Efficiency: Specialized roles can streamline operations, as employees can focus on their core functions without multitasking.
3. Improved Performance: With specialists handling specific tasks, overall performance and service quality can improve.
The Cons:
1. Coordination Needs: This model requires strategic coordination between specialized teams, which can complicate operations.
2. Potential for Increased Costs: Depending on the structure, employing multiple specialists can lead to higher overall costs compared to centralized models.
3. Fragmented Tenant Experience: Tenants might interact with different individuals for various needs, which can impact their overall experience and satisfaction.
It's not cheap to be the best! But you can use your money wisely when you invest in an operating model that in the long-run, saves you more money than it'd cost you. Below we break down the cost considerations stakeholders make when searching for operational efficiency.
Traditional On-Site Management
This model tends to be the most expensive due to the need for multiple full-time staff members at each property. Costs include salaries, benefits, and training for on-site managers, leasing agents, and maintenance personnel.
Centralized Management
Centralized management can reduce costs by consolidating staff and resources. Savings come from lower labor costs, reduced need for on-site office space, and the ability to spread expenses over multiple properties.
Functional Specialization
Costs in this model can vary widely. While it benefits from the efficiency of specialized roles, the need for multiple experts can offset some of the savings. Effective coordination and management are essential to ensure that specialization does not lead to excessive costs.
Selecting the right multifamily operating model depends on the specific needs and goals of the property owner/stakeholders. Traditional on-site management excels in personalized service but at a higher cost. Centralized management offers cost efficiency and scalability but may sacrifice some level of tenant interaction.
Functional specialization leverages expert skills for improved performance yet requires careful coordination to avoid increased costs. By carefully considering these factors, property owners can choose the model that best aligns with their operational objectives and financial goals.
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