The Pathfinder team got together last month at a fun venue for a company event.  We rented out a couple of golf/sport simulator bays and engaged in some friendly, but competitive, competition.  Yes, a couple of our team members brought their own golf clubs and allegedly took a lesson before the event.  No, it didn’t seem to make a difference!

As our team spent the afternoon together swinging golf clubs, kicking soccer balls and laughing, I started to reflect on how long we had all been together.  We’ve been fortunate to have almost zero turnover at Pathfinder.  Most of our team has been working together for over ten years or more.  It took some time to find the right people but once we did, our leadership team knew it was important to keep the team together for the long term.  The cost of turnover is high – not just for our company but for our properties and our investors – so we’ve tried to create a culture and company that people want to stay a part of.  We’ve achieved this not just by holding fun company events, but treating our team with respect, giving them the resources they need to succeed and creating financial incentives that create an ownership mentality.

We’ve applied this same philosophy to our apartment properties.  The acquisition cost of a new tenant is high.   It’s not just the marketing costs and time spent by the manager on tours, applications and lease signing.  Finding a new tenant means we lost an old one.  That turnover is costly.   Industry research estimates that the cost to replace a single tenant can range from 50% to 150% of that tenant’s monthly rent. Why so high? Because turnover isn’t just about finding someone new. It involves cleaning, repairs, marketing, manager time, losing rent from downtime on a unit and sometimes offering concessions to attract new tenants.  It’s also not just about the measurable cost.  High turnover can make your apartment building look transient or lead to a negative online reputation.  That could hurt the process of finding new tenants, making the overall cost even higher.

Turnover in the apartment business is generally high with national averages hovering around 50%.  If an apartment owner increases tenant retention and beats the national average and the competition at reducing turnover, they can positively impact net operating income and investor returns.  Happy and engaged tenants tend to stay in their apartments longer and avoid moving across the street.  Here are some examples of what apartment owners can do to increase tenant retention:

• Organizing Community Events: Building community can look different depending on the size of the property, the type of property (garden style vs. mid-rise), tenant demographics and many other factors.  Management teams organize summer barbecues, food truck events, holiday parties and game nights to build community. These events help tenants get to know each other and create a sense of belonging.
• Personal Touches for Tenants: Small gestures can go a long way.  Sending birthday cards, recognizing milestones, or creating a “tenant of the month” program can help tenants feel appreciated and more part of the community.
• Open Communication and Solid Customer Service: When tenants feel heard, they’re more likely to remain loyal. Managers that make it easy for tenants to reach out with concerns and respond promptly tend to have higher retention.  One of the biggest impacts we have seen is having a solid maintenance team.  A quick fix on a maintenance issue often turns a tenant that might have complained into a raving fan.
• Family Atmosphere and Amenities:   We try to encourage a culture where neighbors look out for each other, just like family.  Most of our properties have a clubhouse where tenants can socialize.  We also find that many of our tenants have pets that they consider family.  We try to make sure that our properties have dedicated spaces such as dog parks for our tenants to spend time with their furry friends.
• Transparency and Honesty: Tenants like to know what is going on and trust is built through honesty.  We strive to keep tenants informed about policy changes, rent adjustments, and upcoming projects so they don’t feel like there are any surprises.

There is always going to be turnover that you can’t control.  Tenants may move for various reasons such as a new job.  We strive to reduce our overall turnover costs by using other tools such as providing referral bonuses to tenants to encourage them to refer their friends.  Word of mouth advertising is generally one of the most powerful tools to attract new customers.  At Pathfinder, we understand the cost of finding that next tenant and the benefit from keeping the ones we have.  We’re constantly measuring retention and work with our property management teams to implement strategies to retain good tenants so we don’t have to find new ones.

Whatever your business, keeping existing customers is usually preferable to finding replacements.

Brent Rivard is Managing Director and COO of Pathfinder Partners. Prior to joining Pathfinder in 2008, Brent was the President of a national wealth management firm and CFO/COO of one of southern California’s leading privately-held commercial real estate brokerage firms. He can be reached at brivard@pathfinderfunds.com