2017 nmhc annual meeting january 24-26, 2017...net apartment absorption by quarter, seasonally...

2017 NMHC Annual MeetingJanuary 24-26, 2017

Stan DobbsApartment LifeFounder & CEO

Rick GrafPinnacle

President & CEO

Ron WittenWitten AdvisorsFounder & CEO

Todd FarrellLMC

President

Hanging on to ResidentsBy Cultivating Real Community and Relationships

THE STATE OF THE MARKET

Market insights for apartment owners, developers, investors and lenders | Hanging on to Residents; NMHC January 25, 2017 | Copyright 2017, Witten Advisors LLC, Dallas, Texas

THE NEED


Ron Witten: Founder, Witten Advisors

-5%

0%

5%

10%

85%

90%

95%

100%

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

Year

-Yea

r Effe

ctiv

e R

ent G

row

th

Occ

upan

cy

Equilibrium Occupancy, 94.4% Occupancy Rent Growth

Apartment market performing as expected to date:occupancy stabilizing, rent growth decelerating… both above normal



Source: Witten Advisors

New move-ins surged in 4Q16 – best quarter in six years –lifted annual demand near 2010 levels…



Net Apartment Absorption by Quarter, Seasonally

Adjusted (left scale)

Apartment Absorption, Trailing Four Quarters

(right scale)

-300

-200

-100

0

100

200

300

-150

-100

-50

0

50

100

150

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

Apar

tmen

t Abs

orpt

ion,

Trai

ling

Four

Qua

rter

s (00

0)

Apar

tmen

t Abs

orpt

ion

by Q

uart

er, S

A (0

00)

p

p


…but, at the expense of rents: the weakest quarter in four years(seasonally adjusted)




1.2%

0.8% 0.

9%1.

1% 1.1%

0.8%

1.1%

1.0%

0.5%

0.6%

1.0% 1.0%

0.3%

0.1%

0.0%

-0.4

%-1

.1% -1

.0%

-1.6

%-0

.8%

0.1%

0.6%

0.5%

0.8%

0.8%

1.3% 1.3%

0.7%

1.2%

0.9%

1.3%

0.5%

1.1%

0.6%

1.2%

0.6%

0.9% 0.9%

1.2% 1.2% 1.

3%1.

1%1.

6%0.

9%0.

8%0.

8%1.

2%0.

5%

-2%

-1%

0%

1%

2%

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

Effe

ctiv

e Sa

me-

Stor

e R

ent G

row

th b

y Q

uart

er, S

easo

nally

Adj

uste

d

Quarterly Rent Growth

Millennials the dominant source for new residents in this recovery



Source: U.S. Census Bureau, Witten Advisors

36%

19%

10%

15%13%

7%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

20-34 35-44 45-54 55-64 65-74 75+

$300K+

$250

Fewer new Millennials ahead (fortunately, others are moving to apartments too)



Source: U.S. Census Bureau, Witten Advisors

Year-Year Change (right)

58.9

20-34 Population (left)

69.6

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

45

50

55

60

65

70

75

2000

2005

2010

2015

2020

2025

Year

-Yea

r Cha

nge i

n 20

-34

Popu

latio

n (m

illio

ns)

U.S

. Pop

ulat

ion

20-3

4 (m

illio

ns)

Young Adult Population Growth

Chart1

20000.151329

20010.307644

20020.364603

20030.242072

20040.276633

20050.106486

20060.212712

20070.360148

20080.596623

20090.719379

20100.812058

20111.07085

20120.941858

20130.810108

20140.731822

20150.402355

20160.4635849792

20170.396722088

20180.3905357279

20190.4511142534

20200.3745547979

20210.3366195902

20220.2392729249

20230.1660106613

20240.0745013357

2025-0.1354908851

20-34 Population (left)

Year-Year Change (right)

U.S. Population 20-34 (millions)

Year-Year Change in 20-34 Population (millions)

Young Adult Population Growth

58.921164

59.228808

59.593411

59.835483

60.112116

60.218602

60.431314

60.791462

61.388085

62.107464

62.919522

63.990372

64.93223

65.742338

66.47416

66.876515

67.3400999792

67.7368220671

68.1273577951

68.5784720485

68.9530268464

69.2896464366

69.5289193615

69.6949300228

69.7694313585

69.6339404734

Sheet1

20-34 Population (left)Year-Year Change (right)

200058.920.15

200159.230.31

200259.590.36

200359.840.24

200460.110.28

200560.220.11

200660.430.21

200760.790.36

200861.390.60

200962.110.72

201062.920.81

201163.991.07

201264.930.94

201365.740.81

201466.470.73

201566.880.40

201667.340.46

201767.740.40

201868.130.39

201968.580.45

202068.950.375

202169.290.337

202269.530.239

202369.690.166

202469.770.075

202569.63-0.135

Homeownership still not a threat to rentals?Overall rate finally firmed in 3Q; less clear for young adults



Source: U.S. Census Bureau

Chart1

1Q041Q041Q04

2Q042Q042Q04

3Q043Q043Q04

4Q044Q044Q04

1Q051Q051Q05

2Q052Q052Q05

3Q053Q053Q05

4Q054Q054Q05

1Q061Q061Q06

2Q062Q062Q06

3Q063Q063Q06

4Q064Q064Q06

1Q071Q071Q07

2Q072Q072Q07

3Q073Q073Q07

4Q074Q074Q07

1Q081Q081Q08

2Q082Q082Q08

3Q083Q083Q08

4Q084Q084Q08

1Q091Q091Q09

2Q092Q092Q09

3Q093Q093Q09

4Q094Q094Q09

1Q101Q101Q10

2Q102Q102Q10

3Q103Q103Q10

4Q104Q104Q10

1Q111Q111Q11

2Q112Q112Q11

3Q113Q113Q11

4Q114Q114Q11

1Q121Q121Q12

2Q122Q122Q12

3Q123Q123Q12

4Q124Q124Q12

1Q131Q131Q13

2Q132Q132Q13

3Q133Q133Q13

4Q134Q134Q13

1Q141Q141Q14

2Q142Q142Q14

3Q143Q143Q14

4Q144Q144Q14

1Q151Q151Q15

2Q152Q152Q15

3Q153Q153Q15

4Q154Q154Q15

1Q161Q161Q16

0.3410.6310.583

0.3520.6340.584

Homeownership Rate, Under 35

Total

35-44 (L)

Share of All HouseholdsWho Own Homes

Homeownership Rate Under 35 (R)

Total Homeownership Rate, SA (L)

0.423

0.687

0.688

0.436

0.694

0.694

0.431

0.689

0.686

0.433

0.691

0.7

0.433

0.692

0.701

0.428

0.687

0.687

0.43

0.687

0.686

0.431

0.689

0.697

0.423

0.686

0.689

0.424

0.688

0.689

0.43

0.689

0.688

0.428

0.688

0.689

0.417

0.685

0.683

0.419

0.683

0.676

0.42

0.68

0.681

0.41

0.678

0.672

0.413

0.679

0.667

0.412

0.681

0.676

0.41

0.677

0.672

0.403

0.675

0.666

0.398

0.674

0.657

0.39

0.674

0.668

0.398

0.674

0.665

0.404

0.672

0.657

0.389

0.672

0.653

0.39

0.669

0.656

0.392

0.667

0.652

0.392

0.665

0.639

0.379

0.665

0.644

0.375

0.66

0.638

0.38

0.661

0.634

0.376

0.659

0.623

0.368

0.656

0.614

0.365

0.656

0.622

0.363

0.654

0.618

0.371

0.653

0.604

0.368

0.652

0.601

0.367

0.651

0.603

0.368

0.652

0.611

0.368

0.651

0.609

0.362

0.649

0.607

0.359

0.648

0.602

0.36

0.643

0.591

0.353

0.639

0.588

0.346

0.637

0.584

0.348

0.636

0.58

0.358

0.636

0.581

0.347

0.637

0.593

0.342

0.635

0.589

Sheet1

Homeownership Rate, Under 35Total35-44 (L)

1Q0442.30%68.7%68.8%

2Q0443.60%69.4%69.4%

3Q0443.10%68.9%68.6%

4Q0443.30%69.1%70.0%

1Q0543.30%69.2%70.1%

2Q0542.80%68.7%68.7%

3Q0543.00%68.7%68.6%

4Q0543.10%68.9%69.7%

1Q0642.30%68.6%68.9%

2Q0642.40%68.8%68.9%

3Q0643.00%68.9%68.8%

4Q0642.80%68.8%68.9%

1Q0741.70%68.5%68.3%

2Q0741.90%68.3%67.6%

3Q0742.00%68.0%68.1%

4Q0741.00%67.8%67.2%

1Q0841.30%67.9%66.7%

2Q0841.20%68.1%67.6%

3Q0841.00%67.7%67.2%

4Q0840.30%67.5%66.6%

1Q0939.80%67.4%65.7%

2Q0939.00%67.4%66.8%

3Q0939.80%67.4%66.5%

4Q0940.40%67.2%65.7%

1Q1038.90%67.2%65.3%

2Q1039.00%66.9%65.6%

3Q1039.20%66.7%65.2%

4Q1039.20%66.5%63.9%

1Q1137.90%66.5%64.4%

2Q1137.50%66.0%63.8%

3Q1138.00%66.1%63.4%

4Q1137.60%65.9%62.3%

1Q1236.80%65.6%61.4%

2Q1236.50%65.6%62.2%

3Q1236.30%65.4%61.8%

4Q1237.10%65.3%60.4%

1Q1336.80%65.2%60.1%

2Q1336.70%65.1%60.3%

3Q1336.80%65.2%61.1%

4Q1336.80%65.1%60.9%

1Q1436.20%64.9%60.7%

2Q1435.90%64.8%60.2%

3Q1436.00%64.3%59.1%

4Q1435.30%63.9%58.8%

1Q1534.60%63.7%58.4%

2Q1534.80%63.6%58.0%

3Q1535.80%63.6%58.1%

4Q150.34763.7%59.3%

1Q1634.20%63.5%58.9%

34.1%63.1%58.3%

35.20%63.4%58.4%

Young Millennials (

Temp agencies suggest job growth moderating, but no recessionConsensus expects hiring slowdown



Source: U.S. Bureau of Labor Statistics establishment survey; Consensus forecast

48.9

-800

-600

-400

-200

0

200

400

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Year

-Yea

r Cha

nge

in T

empo

rary

Hel

p Se

rvic

es (0

00)

Year

-Yea

r Cha

nge

in T

otal

Em

ploy

men

t (00

0)

Payroll Employment Consensus 3Q Consensus Temporary Help Services (right)

Total 5+ starts the highest since the 1980s (i.e., 2015-2016 at a 29-year high)Deliveries will continue to rise – peak hits this year



Source: U.S. Department of Commerce; Witten Advisors

0

100

200

300

400

500

600

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

e

Total 5+ Starts (000)

Pre-1986 tax act, tax-shelter

syndications drove starts

Chart1

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016e


330.5

287.7

319.6

522

543.9

576

542

408.7

348

317.6

260.4

137.9

139

132.6

223.5

244.1

270.8

295.8

302.9

306.6

299.1

292.8

307.9

315.2

303

311.4

292.8

277.3

266

97.3

104.3

167.3

233.9

293.7

341.7

385.8

369.7966035635

Sheet1


1980331

1981288

1982320

1983522

1984544

1985576

1986542

1987409

1988348

1989318

1990260

1991138

1992139

1993133

1994224

1995244

1996271

1997296

1998303

1999307

2000299

2001293

2002308

2003315

2004303

2005311

2006293

2007277

2008266

200997

2010104

2011167

2012234

2013294

2014342

2015386

2016e370

Where do we go from here? A New Phase of the Cycle






• 2010-2012: Almost all tailwinds for apartments• Consumer uncertainty very high; strong aversion to ownership• Rents a bargain; rent affordability the highest in over 20 years• Negligible competition from new construction





• 2013-2015: Winds mostly favorable but beginning to shift• Consumers mostly cautious but fear lessening (confidence up)• Rents growing more expensive• Increasing new supply





• 2013-2015: Winds mostly favorable but beginning to shift• Consumers mostly cautious but fear lessening (confidence up)• Rents growing more expensive• Increasing new supply

• 2016-2018: Headwinds strengthening• Rent increases have really stretched budgets (faster wage growth will help)• Higher mortgage rates provide urgency to buy, especially after big rent increases• Substantial new supply ahead in most markets, while job growth slows

Increasing headwinds likely to boost turnover



• Next phase of the market cycle requires owners to balance raising rents versus:

• down-time,• make-ready• marketing

40%

45%

50%

55%

60%

65%

70%

20002001200220032004200520062007200820092010201120122013201420152016

U.S. Turnover Rate

• Resident retention programs have reduced turnover by 3-5 points

• Community a sound investment in a more competitive market

Source: 2000-2015 data from National Apartment Association survey

Chart1

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

U.S. Turnover Rate

0.65

0.6473174156

0.6111065137

0.6189593733

0.6163272733

0.6132906076

0.6155727228

0.5863555098

0.5458701637

0.5675054543

0.5345747937

0.53

0.53

0.545

0.51

0.524

Sheet1

Column1U.S. Turnover Rate

200065.0%

200164.7%

200261.1%

200361.9%

200461.6%

200561.3%

200661.6%

200758.6%

200854.6%

200956.8%

201053.5%

201153.0%

201253.0%

201354.5%

201451.0%

201552.4%

2016

Friendship Factor

NEW THOUGHT PROCESS

Stan Dobbs: CEO, Apartment Life

STAYING ALIVE

Breathing Clean Air

Exercise

Losing Weight

Reducing High Blood Pressure

Social Integration

Quit Smoking

Less Heavy Drinking

STAYING ALIVE

7. Breathing Clean Air

4. Exercise

5. Losing Weight

6. Reducing High Blood Pressure

1. Social Integration

2. Quit Smoking

3. Less Heavy Drinking

DECLINE of SOCIAL CONNECTEDNESS

SOCI

ALCO

NN

ECTE

DNES

S(in

dex)

(data collected from: Robert Putman, "Bowling Alone")

1

0.5

1950 2000

STATE of CONNECTEDNESS in APARTMENTS%

OF

RESI

DEN

TS

# OF FRIENDS IN APARTMENT COMMUNITY

(data collected from: Witten Advisors)

3% 8%

13%23%

53%

7 + 5-6 3-4 1-2 0

FRIENDS MATTER to BUSINESS!

# OF FRIENDS IN APARTMENT COMMUNITY

INTE

ND

TO R

ENEW

(data collected from: Witten Advisors)

29%

38% 40%

47%

7 +4-61-30

THE APARTMENT PRODUCT

CULTIVATING CONNECTEDNESS

WELCOME

CONNECT GIVE

CARE

Stories, Case Studies, and Results

PRACTICAL APPLICATION | LMC

Todd Farrell: President, LMC

Why Build Community At My Community?• Resident satisfaction is enhanced by relationships with neighbors and staff

• Word-of-mouth, whether by social media or otherwise, is important

• Communities with a “friendly” reputation outperform on lease-ups and

renewals

• Satisfied residents renew

• A happy, engaged resident base is easier on our staff

Doing “Community” Right

• It starts with hiring people with a heart for serving residents

• Think Nordstrom and Southwest Airlines - not the cable company

• Measuring and rewarding excellence in customer service

• Deficiencies in Property Management metrics (leasing, collections, NOI, and blind shopping reports)

• Changing the focus is imperative

Building Community

• Emphasis on “Touch Points”

• Move-in contact (within 2 weeks)• Resident functions • Weekly better than monthly• Personal invitation from appropriate Leasing Agent to resident• Renewal is a key touch point

• Great resident functions matter

• Many residents need the “nudge” to interact• Our most successful functions have been when we let the

residents lead with ideas

Community Building Resources

• CARES Teams

• Outsourcing community outreach• Frees staff up to focus on their primary responsibilities• Act as liaison between residents and staff• Renewal time is critical

• ACTIVE BUILDING

• Community Intranet• Activities, communications, announcements, etc.• Careful—bad news travels fast

• Timely contact• Timely feedback• Responding to resident needs

Real Stories

• West & Fondren (New Lease-up, Houston, TX)

• Weekly resident functions• Large turnouts and buy-in from residents• CARES Team introduced themselves to prospects who were touring during the resident function, told

them about what life was like at the property• Successful leasing tool

• Crest at Millenia (Stabilized property, Orlando, FL)• Crime from neighboring property spilled over, car break-ins, one apartment break-in• CARES held a community meeting (without management team present) and got to the heart of

residents’ concerns• Headed off a potentially challenging situation with residents by allowing our staff to formulate a plan,

instead of being blind-sided• Started having weekly meetings with local officers until problem subsided

Stories, Case Studies, and Results

PRACTICAL APPLICATION | PINNACLE

Rick Graf: President & CEO, Pinnacle

Community Starts With Us

• Won’t happen in the field if it doesn’t happen within the company

• Culture creates community

• Core values must be more than words on paper

• Our Focus: Do the right thing. Be Kind. Be humble.

Community Within Pinnacle

• Hire for customer service

• Train our team members in the little things

• Facilitate opportunities for community-building

• Pay attention to the details

• Monitor results

Redefining The Resident Experience | The Adair Apartment Homes

• The CARES program has redefined the resident experience at The Adair Apartment Homes through relationships with a focus on increasing resident retention, enhancing online reputation, and improving resident satisfaction. They do this by:

• Building community• Building relationships• Being good neighbors• Being available• Welcoming new residents• Helping residents get acquainted with the community

Redefining The Resident Experience | The Adair Apartment Homes

• The CARES Team has helped The Adair Apartment Homes create great customer service, raise the level of resident satisfaction, and increase resident satisfaction scores.

The Move-in Experience | The Adair Apartment Homes

• The CARES Team personally welcomes new residents and helps them get acquainted with the community.

• The average satisfaction score for new move-ins is in the upper percentile on a scale of 0 to 5.

The Community Experience | The Adair Apartment Homes

• The CARES Team helps residents connect, cultivate friendships, and give back to the greater community.

• They do this by planning engaging community events, organizing small groups with common interests, coordinating resident appreciation events, and facilitating outreach projects.

The Renewal Experience | The Adair Apartment Homes

• The CARES Team helps The Adair maximize renewals by visiting each resident prior to renewal to assess satisfaction and uncover any threats to retention.

• CARES Teams generate Immediate Retention Alerts to allow quick intervention to save renewals at risk.

Bottom Line • Kirby pays CARES approximately $12,000/annually. They helped us save a resident who is paying

$29K a year for his lease! Had he vacated, with the new lease pricing now (substantially lower) we would have lost around $13K on a new lease.

Case Study | Kirby Place

• The resident who lived at Kirby for six years and almost fell through the cracks at renewal

• CARES personal visit with resident• Resident was going to vacate after 6 years• CARES Team brings resident’s concern to staff• Manager fixed the miscommunication & resident renewed

Proving The Value

VALUE PROPOSITION OF RELATIONSHIPS

Ron Witten: Founder, Witten Advisors

Hanging on to ResidentsBy Cultivating Real Community and Relationships

RESEARCH ON COMMUNITY


Measuring the impact of community building



• Resident and staff surveys regarding CARES: On-site resident team focused on redefining the resident experience through relationships

• Increases resident satisfaction• Raises resident retention• Enhances online reputation• Increases staff satisfaction

Leasing: Value of having CARES team in community $10,700

Leasing: Higher closing rate$35,500

Leasing: Traffic generation$14,000

Resident retention: Value of having CARES team in

community $32,200

Resident retention: Marketing savings $38,500

Resident retention: Turnover savings $36,500

Staff retention: Higher satisfaction, lower turnover $8,700

$0

$50,000

$100,000

$150,000

$200,000

Annu

al F

inan

cial

Con

trib

utio

n

Survey responses of 681 residents and 85 staff in 18 properties

Team

Team

Chart1

CARES Financial ContributionCARES Financial ContributionCARES Financial ContributionCARES Financial ContributionCARES Financial ContributionCARES Financial ContributionCARES Financial Contribution

Column2Column2Column2Column2Column2Column2Column2


Leasing: Value of having CARES team in community

Leasing: Higher closing rate

Leasing: Traffic generation

Resident retention: Value of having CARES team in community

Resident retention: Marketing savings

Resident retention: Turnover savings

Staff retention: Higher satisfaction, lower turnover

Annual Financial Contribution

10700

35500

14000

32200

38500

36500

8700

Sheet1

Column1CARES Financial ContributionColumn2

Leasing: Value of having CARES team in community$10,700



Resident retention: Value of having CARES team in community$32,200

Resident retention: Marketing savings$38,500

Resident retention: Turnover savings$36,500

Staff retention: Higher satisfaction, lower turnover$8,700









community $32,200




$0

$50,000

$100,000

$150,000

$200,000

Annu

al F

inan

cial

Con

trib

utio

n


• Witten Advisors’ analysis: Resident and staff surveys attribute the equivalent of $176,000/year in revenue to having a CARES team on site


Team

Team

Chart1












10700

35500

14000

32200

38500

36500

8700

Sheet1













• Witten Advisors’ analysis: Resident and staff surveys attribute the equivalent of $176,000/year in revenue to having a CARES team on site

• CARES raised retention 3 to 5 points (Greystar, Archon) • Resident satisfaction increased 12% year-year in CARES

communities [2% higher than entire portfolio] (CWS )• CARES communities showed 18% increase in online

reputation rating (Asset Plus, Riverstone)

• Owners’ analysis






community $32,200




$0

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$100,000

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10700

35500

14000

32200

38500

36500

8700

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QUESTIONS/DISCUSSION

Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19STAYING ALIVESTAYING ALIVEDECLINE of SOCIAL CONNECTEDNESSSTATE of CONNECTEDNESS in APARTMENTSFRIENDS MATTER �to BUSINESS!THE APARTMENT PRODUCTCULTIVATING CONNECTEDNESSSlide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31Slide Number 32Slide Number 33Slide Number 34Slide Number 35Slide Number 36Slide Number 37Slide Number 38Slide Number 39Slide Number 40Slide Number 41Slide Number 42Slide Number 43Slide Number 44Slide Number 45Slide Number 46Slide Number 47

2017 nmhc annual meeting january 24-26, 2017...net apartment absorption by quarter, seasonally...

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