As with any industry, those in multifamily have their own set of shorthand terms and jargon. While for some, learning this secret language is part of the fun of an industry, for others, it can cause confusion and frustration.
One of the more common of these multifamily terms, particularly with companies doing a great deal of new construction, is the term ‘lease-up.’ Plenty of those new to the industry, or even just new to this part of the industry, may be wondering “what a is a lease-up and why does it matter to me?”
To help things along, this blog covers the definition of a lease-up, why it’s important, what goes into a lease-up, and a few things to consider when it’s time to calculate those all important lease-up costs.
What is a lease-up?
When you here that a property is in lease-up, it means the time period from pre-leasing (leasing prior to building delivery) and stabilization (when the community hits the magical stabilized percent occupied — typically 95%). In other words, a lease-up is the critical time when communities work on signing as many leases as possible as quickly as possible to. If leasing up a new construction community, that timeline is typically anywhere from 6 to 15 months depending on the size of the community. Before and throughout that time, the property team working at a lease-up will need to implement a number of critical moves to establish their brand within the competitive multifamily community. They will build up websites, make sure the team is fully staffed, market the property effectively, and, ultimately, move in as many residents as humanly possible.
Why is a lease-up important?
This may seem fairly self explanatory based on the above information, but without a successful lease-up period, the cashflow, financing, and longevity of the community will be at risk. A new construction lease-up period is literally make or break time for a community. On top of that, it’s not just a speed game to get as many people in the community as possible. It’s all about getting the right people into the property as well. The first residents will be the ones setting the right, or wrong, tone for the reputation of the property in the larger community (and online). Getting the wrong residents in, getting bad reviews written online, having residents break leases or non-renew, and more will not just have a negative impact on the effectiveness of the lease-up, but long-term for the community as well.
What are the challenges of a lease-up?
A lease-up property, particularly new construction, faces a different set of challenges than teams working to fill vacant units at established, stabilized communities. And that makes sense. Any time a new brand is working to make their mark in an established area or industry, there are definite hurdles unique to that circumstance.
One big issue is a lack of established authority with online search engines and very little marketing content to push out. Many established communities have plenty of community and unit photos and videos to showcase their community, resident testimonials, positive reviews, and more. In a lease-up, that isn’t really the case, particularly with a new build. However, using video technology, those working at a lease-up can walk prospective residents through the community, even when unfinished, to paint the picture of what it will be like to live there and instill trust and transparency into the process when those things are lacking.
Lease-up Schedule Management
The life of a property manager or leasing agent is already a hectic one. Add in the increased stress and pressure of an apartment lease-up and managing one’s schedule can become somewhat of a nightmare. Early in the process there’s the whole dealing with construction and, to be honest, it’s rarely ever an on time delivery. Shifting construction schedules make managing a schedule innately difficult to begin with. Add on top of that the difficulty of trying to show something that isn’t really ready to be shown while trying to promote it, market it, advertise it, and more…and life gets crazy. The second the building is delivered though is when the fun really begins. If you did a proper job of building excitement during construction, then you’re going to have an impossible schedule of coordinating showings, tours, move-ins, and more. Once residents are moved in, it then adds that additional layer of resident engagement and ensuring early residents are kept happy, content, and regularly communicated with while construction likely is finalized on the amenities and troves of people are, hopefully, moving in each week. It is an unsettled stage for communities and simplicity needs to reign with your schedule. Find ways to simplify your life, processes, and communications and things will be ever so slightly more manageable.
With so much riding on the lease-up period for multifamily communities, the budget will typically reflect that importance — meaning up to 3X a stabilized asset’s budget. Ranging from increased marketing spend to increased staff. It can be easy to let budgets balloon during a lease-up. While pressure and deadlines and expectations will dictate the increased spend, it is also critical to lay a firm foundation for the community to build upon once stabilized. If you effectively manage your lease-up costs and put the proper technologies, processes, and people in place during a lease-up while also filling the community with residents that thrive in the space, the transition from lease-up to stabilized will be a rather smooth one. Make sure to work directly with the ownership throughout the entire lease-up process to diligently track your spend against forecast budgets and take time to be strategic about the growth and progression of the community over time.
While it’s easy to define a lease-up, that’s about the only thing easy about it. It is a crucial time in the lifecycle of a multifamily community that comes along with plenty of challenges, demands, and stresses; however, in the end, it’s worth the hard work involved. Achieving your lease-up goals requires regular communication, an all-in staff, careful planning, and even more careful execution. But, seeing those leases signed, happy residents moved in, and stability reached, can make the entire process worth it.
Until next time…keep it real!