Amenities — Blog — JDF Management Consulting

Today I wanted to briefly review a tricky subject – the economic payoff of an amenity. Whereas the cost of an amenity, if there is one, is pretty straightforward, the benefit is more intangible and may not immediately materialize.

As I mentioned in the very first blog post, more and more amenities are being implemented at no cost to the property. There are exceptions however, where an installation needs to be paid for by the property, or a service for the residents is subsidized by the property, as just a few examples.

For these types of amenities with an upfront cost, the first question that is usually raised in exploratory meetings is whether there is the budget for it. If the property hasn’t budgeted the necessary marketing or promotional funds, bringing the amenity in will generate a negative expense variance. Sometimes this outcome will prevent a great amenity from being implemented.

Having been responsible for a number of budgets, I can’t argue with that logic per se, but I would also argue that there are more factors to consider.

Generally speaking, amenities are not revenue generators. Their economic payoff comes in the form of retention and converting residents into net promoters of the property. Measuring this is not easy.

Amenities providers themselves have become much more skilled in surveying residents and isolating the impact their amenity is having on the residents’ experience.

Surveys at the time of lease renewal or when a resident decides to vacate can be invaluable in determining the reasons for those decisions. Carefully worded questions about what role a particular amenity played in a resident’s decision to renew can shed some light on how the payoff is being translated into retention. Further questions about how likely a resident is to recommend the property to a friend can illuminate how an amenity is contributing to the community at the property.

From there, the property can determine the saved costs of new resident acquisition, and these saved costs can be a proxy for economic benefit.

It can be a winding process to make these calculations and there is usually not a time when you can stop and say definitively what the economic benefit of an amenity has been.

But there is certainly more to a decision about an amenity than simply looking at the expense budget. If you’re in the process of contemplating new amenities and are concerned about the budgetary impact or about how to measure the payoff, we can help. Please contact us at julian@jdfmc.com.

Welcome to the JDF Management Consulting Blog! In this blog we’ll explore a variety of topics related to residential real estate amenities, alternative assets (parking garages, self-storage, laundry facilities), underutilized spaces, and non-rent revenue.

Our goal in this blog is to provide a new perspective for how owners, managers, and developers can think about amenities, resident retention, and non-rent revenue, while also showing what an important role these services and businesses can play in the well-rounded financial health of any property. We will also provide insights for amenities and alternative asset providers on how to improve their operations and client service. If there are any topics in particular you would like us to weigh in on, please contact us.

In this first entry I wanted to briefly outline just a few common themes I have encountered as a professional amenity and alternative asset manager. As I’ve discovered, optics and conventional wisdom can be deceiving.

1. Amenities Can Be Every-Day Functional

A big misperception about amenities, especially in a market such as New York City, is that it’s a race to the top for eye-popping amenities that can one-up your competitors. Such amenities certainly have a place in our market and do provide valuable services and value propositions to owners. But the universe of amenities is much broader and more functional. Services that address basic needs and desires such as transportation, wellness, and convenience often have little visual footprint inside a property but can play an enormous role in resident satisfaction and retention. A few big-splash amenities can’t hurt but don’t forget to look deeper into what residents really want and will really use.

2. Amenities Can Be No-Cost To Property

When I’m explaining possible amenities to my owner and manager clients, I often get questions about how much it will cost them. In many cases, the answer is nothing. Sure, if you want that state-of-the-art golf simulation room, that’s quite an investment (and one that your residents will love). But the creative offerings coming out of amenities providers these days will often be implemented at no cost to the property and sometimes will even cut in the property in a revenue share. Usually it takes a bit of negotiation to get that right deal for both sides, but the no-cost options are aplenty.

3. Contract Structure Matters – A Lot

This point is mostly related to revenue-producing alternative assets, although it’s relevant for amenities as well. When it comes to management of your parking garage, self-storage operation, or laundry facilities, typically owners and managers opt for what appears to be the low-hassle option. For parking this usually means a lease, for self-storage it means the storage company owns the units, and for laundry it means a route agreement. I’m going to write a lot more about this in future posts because I think it’s so misunderstood, but the conventional contract structures I listed above are almost never optimal for the owner or the operator. Furthermore, these kinds of third-party contracts are often seen as zero-sum: either the operator gets the additional dollar, or the owner does. Other kinds of contracts can provide a better relationship between the owner and operator and can expand the pie of income for both parties.

4. Listen To Your Residents, Build For Flexibility

The desires and needs of today’s renters seem to change every week and it’s easy to implement amenities and services that miss the mark. If you have space in an existing property, consider distributing a survey to your residents about what services they want and what services would make them more likely to renew and to recommend the property to a friend. Preferences will shift significantly with demographics, so know your resident base. And because these tastes change so frequently, think about allocating a fair amount of mixed-use flex space that can double as a yoga studio one day and a community gathering area the next. When thinking about connectivity and technology, keep in mind that today’s technology and hardware/software standards will quickly be outdated- so build with excess wiring capacity or go modular for when you want to upgrade your tech features.

5. Rent And Occupancy Are Just The Beginning

Anyone who’s taken a real estate class or worked in real estate knows that rent and occupancy are the primary metrics of residential real estate. In this blog we are going to strive to broaden the horizon into other areas that are equally as important to the health and success of a property. Amenities can lead to renewals and referrals. Alternative assets can provide significant non-rent revenue and much-needed core services for residents. Beyond rents and occupancy there are many levers you can pull as a property owner or manager that will influence your bottom line and set you apart from your competitors.

Thanks for reading our first post and we look forward to expanding on these ideas and more in future posts. If you’d like to learn more or see how JDF can assist you, please contact us.