Multi-Family Operating Margins

It is my understanding , that operating margins for multifamily range from 50% to 70% given variables such as number of units, payroll, tax rate, etc.

I'm looking at a deal where the GPs operating margin is slightly north of the high end of the range listed above. This GP has a fantastic track record so I want to take what they're giving at face value, but this operating margin seems far too aggressive.

Has anyone, either personally or anecdotally achieved margins north of 70%...? Would love to hear people's thoughts on this.

Comments (6)

 
Jun 30,2017

i've seen closer to 60% , 70 sounds aggressive

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Jun 30,2017
JimboUSC:

i've seen closer to 60% , 70 sounds aggressive

This is the best I've seen. I'm skeptical when I get margins this high. The only time I'm seeing assets achieve ~60% margins is when the utilities are all paid by the tenants. If you have an asset with >40 Units and you're below $1,600/door across payroll, R&M (including TO and all service contracts), and SG&A I'm usually calling bs.

 
Jun 30,2017

North of 70% seems aggressive. Typically I see that type of operating margin with an operator that has a large portfolio of assets in a location where they can split up payroll costs and save on maintenance as well (buy repair items or maintenance contracts in bulk).

 
Jun 30,2017

That's the case in this instance. They have several properties in a major city so that is how a lot of their cost savings are justified.

 
Jun 30,2017

I've seen it with value add once stabilized, usually involving some sort of combination of operating efficiency as mentioned above (green building/solar panels, tenant direct bill, low management/payroll costs, portfolio level admin/sg&a). Not out of the question but tough. I think 70%-75% is OK as long as they can provide some backup/detail, anything above that would be ludicrous.

"Who am I? I'm the guy that does his job. You must be the other guy."

 
Jun 30,2017