Multifamily Budget Review Process
Interested to hear how different shops handled their budget review process. I am a product type generalist at a capital allocator, so this isn't my specialty. Our partner is awful IMO, and I would like to understand best practices.
Certain questions:
- Staffing
- What are rules of thumbs for 250+ unit buildings (e.g. 1 Leasing Person Per 100 Units, etc.)
- Payroll / Compensation Per Unit
- Per Unit Costs
- Advertising
- R&M (newly built property)
- Unit Turns
I recognize this is largely market based, but any rules of thumb would be great...and might help enhance the education of this forum
EDIT: For consistency in answers, I am focused on Class-A, Institutional properties. Feel free to answer for Class B/C or sub-institutional, but denote so the forum can distinguish.
You're thinking to much, just run it at 40% expense ratio and call it a day. Maybe 50% in Florida or Houston. If it A+ or Core, drop it down to 37%.
Just playing, but to be fair it's very asset type and location specific.
Canadian perspective:
Canada here also - this all varies depending on location and quality of product as well. Higher end rentals are going to be here per unit than 1970s value add.
That payroll number definitely feels like to me, we're closer to 800-900 PUPA. In major Canadian markets for mid-rise/high-rise, usually going to see a stabilized opex ratio of 28-34%.
OP - as somebody working at a sponsor, I just have to see I always think its laughable when a product generalist tries to come in and sound like they're smarter than us about the product types we specialize in. Feel free to explain macro trends to me and why they might make the deal I'm pitching undesirable, but don't tell me you have any clue how to budget appropriately for the project we're in together.
I'm not saying your sponsor isn't trash, I don't know, but 99.9% of LP comments on budgets are negative value add bunk from people who generally speaking have huge egos because they work in finance and see themselves as smarter than the operators they pay to actually do the leg work.
Is this a property in lease up or is it stabilized? The answers will change depending.
Nearly stabilized in the 80-85% percent range.
For a lease up of that size, we'd be staff it with a manager, leasing manager, two leasing agents, maintenance supervisor, maintenance tech, and a groundskeeper/second tech. Once we hit 95%, we'd cut one of the agents, one of the maintenance techs, and typically swap out the managers for lower compensated managers. Managers make a ton of money in lease ups, but you don't need your rockstars to keep the ship steady. Total payroll per unit around $1,500-$1,600 but then you add another $200-$250 for the "payroll related" expenses.
Advertising on a lease-up is massive - $500-$800 per unit, but then you can cut it way back into the $200/$300 range at stabilization, and a lot of that depends on location & comps (and if the boss's wife is your head of marketing...). You can get away with less, but sometimes you need more. Hopefully a lot of that is in the capital budget. R&M $200-250 per. Turnover about the same, maybe a little higher than R&M.
Love this question and hope it gets more replies.
My perspective is that you should look at T12 and average per unit costs in your portfolio (hopefully similar property types in similar locations).
R&m - $500-$1,000. Lower end if your doing a big rehab because r&m is essentially capitalized as rehab budget.
Payroll - $800-$1,500
Utilities $1,000-$1,700
G&a - $150-$300
This number starts to swing depending on how much retail / commercial and parking you have at a property. Also, payroll depending on security or affordable unit mix can drive things one way or the other. During lease up, payroll should be higher but things have shifted materially from 2-years ago! Payroll and insurance have jumped materially. Looking at expense weight doesn't always tell the story. Many west coast markets have properties with a mix of affordable and market rate with some tax abatement which drives expense weight to 20s or low 30s. So much to consider.
I'm a lender and spending more time now than ever on digging in to lease-up budgets since we are hyper-focused on interest reserves needed until stabilization. I have been brushing up on my budgeting skills and this discussion is very helpful!
Staffing: A good rule of thumb, I've always seen in the past has been annual cost/unit = avg. monthly rent (meaning if avg. monthly rent is $2,000, then annual cost/unit for payroll ~ $2,000)
I need the detailed op. statement with all the subaccounts so I can tell how many bodies are in there. During lease-up, there is usually an extra body or two doing just lease-up that will go away at ~90% occupancy.
If its ultra high-end property, I assume 2 in, 2 out (2 in the office, 2 in maintenance). I have a smaller property financed (108 units) that is a luxury property and they have 4 FTEs on staff.
Advertising: Usually assume $250-300/unit once stabilized. Usually guess lower end of scale for large projects (300-400 units) and higher end for smaller unit counts.
I'm seeing lots of extra $ on concessions, disguised as advertising these days. (i.e. $1,000 Amazon gift cards for new lease/renewals)
R&M: Lean heavily on avg. cost/unit during lease-up for occupied units. I'd say overall somewhere between $1,000-1,200/unit total including actual maintenance, contract services and turn-over (new carpet, flooring, painting etc.)
Turnover: Ballpark 60% of leases turning over and $500/unit turned.
Can confirm that this is a trick we've been playing for years. You'd be surprised how well it has worked. Funny that it has finally caught on.
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