CREJ - Property Management Quarterly - May 2015
In early March, the Apartment Association of Metro Denver published the results of a 2014 poll regarding on-site employee turnover. The results were staggering. Of the 26 companies surveyed, which collectively represent 67,987 multifamily units in Colorado, the average employee turnover for on-site teams was an exorbitant 35.9 percent. This report, while highlighting a major problem in our industry, also serves as a signpost to direct multifamily owners and operators toward incredible untapped value. By decreasing employee turnover at the site level, apartment owners can directly and positively impact net operating income in an unparalleled way. And they can do so without spending a penny. Employee turnover at the site has direct and indirect consequences for property NOI. Mis-hires and employee turnover can cost a company up to 10 times the employee’s salary in hard and soft costs, according to Bradford D. Smart, Ph.D., in his book, Topgrading. If this statistic is accurate, that means that every $50,000 employee you lose at your property could cost the property $500,000. While the statistic may be hard to believe at first glance, once you closely examine how employee turnover affects a property, you can start to accept its likely accuracy. First, you must consider that turnover requires training a new staff member. All the hours a new employee spends training, and the hours the remaining staff spends training the new employee, are hours that are not spent operating the property. As a result, phone calls from prospects don’t get returned, maintenance items are not followed up on, and vendor oversight and direction can suffer. Further, the new employee lacks specific property knowledge, which can harm property credibility as he interacts with current and prospective residents. All of these deficiencies in operations ultimately result in decreased demand for the property. Second, the decreased demand can be exacerbated if the situation is bad enough to cause online ratings to suffer. Lack of call backs, poor maintenance response times and a deficient curb appeal can damage a property’s online reputation, which is often the first place prospective tenants look to learn more about an asset. And if online ratings are suffering, you can be sure the property’s word-of-mouth reputation is suffering as well. Third, and perhaps most important, staff turnover can negatively impact renewals. If there is a constant churn of staff at a property, tenants are deprived of the opportunity to build a relationship with property staff, feel less secure and less stable in their home, and can become uneasy with their relationship to the property. The result is tenants become less likely to renew their lease, especially at prevailing market rates. This creates higher turnover costs at best, and increased vacancy and lower rental rates at worst. Here are a few strategies to help limit employee turnover. First, for new acquisitions, employ a strategy of maintaining the teams that are already in place when you take it over. New ownership disrupts the property enough; replacing the entire staff at closing only adds to that disruption. Instead, create a plan to retain current staff, while evaluating them over 60 to 90 days to decide if they are the right long-term fit. If certain employees are not the right fit for the property, make sure you take steps to minimize the impact of turnover by prepping your team to up-level their customer service during the transition. Second, invest in training programs and promote from within. Studies show that employees want to grow in their jobs, so train your staff, mentor them and help them succeed. By promoting from within, you not only accomplish the goal of helping your staff grow professionally, but you also create continuity at the property so that when you do have a staff member leave the property (for promotion or otherwise), the turnover is as minimally disruptive as possible.
Third, pay your employees competitively. Yes, you must focus on limiting expenses to keep NOI high, but employee salaries are not the place to skimp. Even a 5 percent increase in pay at another property could be enough to lure away a strong employee, so know where your pay stands relative to the competition and stay competitive to make sure that money doesn’t lure staff away. Fourth, and most important, employ a people-centered management approach. While entire courses of study are dedicated to peoplecentered management, in a nutshell this approach places great value on empowering and building up staff while supporting them and training them as and where needed. Adopting this approach creates staff who care, staff who are loyal and dedicated, and staff who stick with the property (and you) for years. While the need to limit turnover is and always has been important, with turnover levels at 35.9 percent, the need has reached a critical level. It is therefore now more important than ever to address the employee turnover problem once and for all.