By Teresa O'Dea Hein, Senior Writer
NOVEMBER 01, 2005 -- Getting optimum returns on your real estate investment takes some groundwork -- literally. Planting and pruning greenery -- and trimming operating expenses -- can help generate greenbacks for real estate investors ready to sell. As you prepare to market a property, evaluate its overall appearance and operation to see what areas can be enhanced. Experienced deal makers share a number of suggestions below for positioning multi-family housing in its best light.
Creating Appeal
Landscaping and painting spruce up a property and create a good first impression that can pay off attractively for a seller. If your property has a workout room, make it an appealing one, says a real estate observer -- don't keep out-of-date equipment and shabby furnishings. Since workout rooms are typically small, it doesn't cost that much to put in new carpet, nice mirrors and a TV. Similarly, pool areas should be inviting.
"There is definitely an economic benefit to painting and landscaping. Increasing curb appeal can enhance a property's value and that additional value can sometimes far exceed the cost of cosmetic improvements," points out Richard Swartz, managing director and principal at Sonnenblick-Goldman Co., New York. "If you even drop cap rates by a quarter of a point," Swartz adds, "you will increase the value of a property substantially."
Kenneth P. Balin, president and CEO of AMC Delancey Group, Philadelphia, specializes in repositioning properties and pairing with operating partners in larger transactions. Often, he says, his company acquires properties that are not positioned properly, such as a Class C property that's in a neighborhood of B's and B-'s. "But with an upgrade, a C property can fit in." Therefore, Balin notes, "if you put in a relatively reasonable investment into remodeling the property -- such as replacing kitchen and bathroom fixtures, it's likely to offer a good return when you sell it."
Similarly, Balin also recommends figuring out who your customer is and where the market is going to see how the property really ought to be positioned. "Understand what buyer may be out there to provide you with the highest price," he suggests.
Working with a Broker
While opinions may vary on how to best work with a real estate broker, the idea of co-brokering is actively advocated by Sperry Van Ness, Irvine, Calif. David Frosh, president of Sperry Van Ness, believes that co-brokering is a key way to reach the maximum number of prospective buyers, thereby increasing the potential for multiple offers at higher selling prices. Frosh also says that it's essential to set a good fee in order to "incentivize the broker."
David Lichtenstein, president and founder of the Lightstone Group, Lakewood, N.J., suggests two additional marketing strategies that have worked well for his company, which is a nationally recognized expert in repositioning properties and owns nearly 20,000 apartments.
According to Lichtenstein, "The single-most important thing when selling property, besides making sure it's presentable, is selecting the right broker. If you sell an asset with the wrong broker, it can seriously impact the value of the sale. Choose a broker that makes sense for that asset type," he explains. "If you're selling a Class B product with a large institutional broker, they may not really want to look at it, they may not give it the attention it deserves, and they may act like they're just doing you a favor."
Or if you give an A product to a small, local broker, it might turn out less than optimally. "Where we've made a mistake in this area, we've paid the price," Lichtenstein admits. However, this works on both sides of the equation. He says, "If you're buying property, a broker mismatch can work in your favor because it's not being priced properly, so you can get an opportunity on the pricing."
Also, look into some preliminary financing arrangements when you're selling a property, Lichtenstein recommends. "It sets the table and makes a product more sellable if the broker can say that a loan can be obtained for X dollars. That gives a buyer a good idea of what he then needs."
Lichtenstein says he often asks a bank to prepare a term sheet for the buyer so he can see how the property is valued. Since the bank often wants the business, a representative will frequently follow up on the quote and offer financing to the buyer.
Targeting tenants' needs
Paul Daneshrad, CEO of StarPoint Properties LLC, Los Angeles, thinks that targeting the tenants' needs can maximize an owner's returns. First of all, Daneshrad says, you have to differentiate your property from others in the area with things like interior features and/or amenity packages. "We make a very focused effort on understanding our tenant profile to see what they want, such as valet services, and will pay higher rents for." In turn, he explains, this creates greater value in the property itself.
StarPoint Properties invests in sales training so that its staff is skilled at asking the right leading questions and understanding the customers' driving motivations. "We in the multi-family industry have not been as focused on using up-selling and other sales techniques used in the retail industry," explains Daneshrad. It's also important to look at comps that have been sold in your market.
Trimming Operating Costs?
Trimming your operating costs while upping occupancy rates are also practical strategies shared by real estate professionals, who encourage sellers to analyze their marketing efforts carefully. Closely manage your property's rental income. Utilizing minor concessions to increase occupancy rates may also enhance the value of a property, says one expert. However, he warns, "if concessions get too deep, that can decrease your effective rents -- it's a balancing act."
As long as occupancy rates are around 92 to 93 percent, one industry expert believes that's high enough. In fact, he warns, "If you're running at 100 percent occupancy, your rent rates are probably too low."
To make a property more attractive to buyers, trim your operating costs where feasible. For example, energy costs should be submetered, suggests a leading real estate broker. "Equip the units so that each tenant pays his own utility costs."
And since real estate taxes are a significant cost factor, "You should evaluate them relative to the market and, if appropriate, contest them when the levels would indicate an opportunity to reduce them," recommends one industry expert, because of their significant impact on value. With all the money that's at stake if you get them lowered, you can afford to spend some money on a property tax consultant or lawyer -- or, on simple but effective upgrades that can help the property sell for top dollar.
