Apartment Owners, Look Beyond Rents

LOS ANGELES—With the steep competition in the Los Angeles multifamily market, investors may need to adjust the way they are managing apartment portfolios. Apartment owners have typically been more rent focused, but property management firm LBPM is encouraging these owners to treat multifamily assets more like commercial assets. Utilizing accounting tools, like cost segregation, will help increase the bottom line of these properties.

“Commercial property owners tend to be a touch more sophisticated. We are trying to bring that to multifamily and even single-family homeowners that are treating those properties as investments,” Gregg Bernstein, CFO and co-founder of LBPM, tells GlobeSt.com. “Apartment owners are often focused on rent: how do I increase the rent, how do I get the vacancy factor as low as possible, and how do I keep my maintenance down. Larger firms and REITs have that sophistication to do CAM analysis, sophisticated budgeting, cross segregation. I can't say that our group of clients are reaching to that extra level, but we are certainly encouraging it. We really want to squeeze the last penny out of these things.”

This is especially true today, when owners are paying record prices for multifamily properties in Los Angeles. If investors adjusted their accounting practices, it might help cover some of the costs of a low cap rate deal. “People that have bought properties in the last few years have paid some pretty crazy cap rates, and I can't wrap my head around a 3.5% cap rate because we know that things break,” says Bernstein. “There is regular recurring maintenance, and things that aren't budgeted into the maintenance budget happen. These are tools that can help to cover those costs.”

LBMP is in a unique position to guide multifamily owners through this process. The firm manages the full gamut of investment property types—from commercial to multifamily and even single-family portfolios—and can see how tools used by commercial property owners can be applied to multifamily assets. “We have a multifamily, commercial and homeowners association division,” explains Bernstein. “That is really unique to our firm, because most property management firms specialize on a single property type.”

Although the firm is encouraging it, they haven't seen apartment owners really start to utilize these methods yet. “I would like to say that I have seen that change, but I still feel like there is a different mentality,” he says. He does expect that to start changing soon. In the next two decades, owners in Los Angeles will be operating apartments like commercial assets, he says.

LOS ANGELES—With the steep competition in the Los Angeles multifamily market, investors may need to adjust the way they are managing apartment portfolios. Apartment owners have typically been more rent focused, but property management firm LBPM is encouraging these owners to treat multifamily assets more like commercial assets. Utilizing accounting tools, like cost segregation, will help increase the bottom line of these properties.

“Commercial property owners tend to be a touch more sophisticated. We are trying to bring that to multifamily and even single-family homeowners that are treating those properties as investments,” Gregg Bernstein, CFO and co-founder of LBPM, tells GlobeSt.com. “Apartment owners are often focused on rent: how do I increase the rent, how do I get the vacancy factor as low as possible, and how do I keep my maintenance down. Larger firms and REITs have that sophistication to do CAM analysis, sophisticated budgeting, cross segregation. I can't say that our group of clients are reaching to that extra level, but we are certainly encouraging it. We really want to squeeze the last penny out of these things.”

This is especially true today, when owners are paying record prices for multifamily properties in Los Angeles. If investors adjusted their accounting practices, it might help cover some of the costs of a low cap rate deal. “People that have bought properties in the last few years have paid some pretty crazy cap rates, and I can't wrap my head around a 3.5% cap rate because we know that things break,” says Bernstein. “There is regular recurring maintenance, and things that aren't budgeted into the maintenance budget happen. These are tools that can help to cover those costs.”

LBMP is in a unique position to guide multifamily owners through this process. The firm manages the full gamut of investment property types—from commercial to multifamily and even single-family portfolios—and can see how tools used by commercial property owners can be applied to multifamily assets. “We have a multifamily, commercial and homeowners association division,” explains Bernstein. “That is really unique to our firm, because most property management firms specialize on a single property type.”

Although the firm is encouraging it, they haven't seen apartment owners really start to utilize these methods yet. “I would like to say that I have seen that change, but I still feel like there is a different mentality,” he says. He does expect that to start changing soon. In the next two decades, owners in Los Angeles will be operating apartments like commercial assets, he says.