[Note: To follow is an excerpt of an interview with Doug Miller, founder and president of SatisFacts Research, and author of the industry benchmark, The SatisFacts Index. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/030409.]

Mosca: I just love the, "If you measure it, they will manage it" phrase on your Web site. Can you tell us what your primary focus is at Satisfacts and how do those who use your products and services stack up against the competition?

Miller: Basically, we see ourselves as lumberjacks. We cut down some trees so folks can see the forest and see what matters. With all of the challenges going on, bottom line is you have to hug your current residents more than ever if you want to have a shot at staying whole. While we do residents satisfaction research, both annual programs and ongoing touch point programs, we think of ourselves as retention partners. Research is relatively easy. It's what you do with that research and through the various products that we have, we work with, between all of our modules, close to half a million units nationally.

The focal point is the data, but then the critical second part is the support we leverage for our clients with a variety of tools and programs so that they can take those results and action plan against the things that matter. In our most recent client satisfaction survey, our clients' average 9.5 lower turnover rate than the National Apartment Association published national average. A 9.5 lower turnover, for a 5000 unit portfolio, means NOI (net operating income) is going to be $1.5 million higher and asset value is going to be, I'd have to do the calculation but about $20-30 million higher. That's what it is all about. It's opening up the doors of communication and finding out what the issues are, how to focus on the most important things, how to leverage that information and how to reduce turnover and grow NOI and asset value.

Mosca: What impact are the economic conditions having on asset values and cap rates?

Miller: There is a perfect storm in the economy. You've got job losses, residents being understandably uncertain about the future, questioning everything that is going on. You've got the shadow market of apartments taken off the market and turned into condos that are now back on the market as rentals. The issue is loans on major acquisitions in the industry in the last three to five years and the assets purchased during a hot market. Cap rates have gone up and lowered asset values. A simple example: someone buys 2500 units and the loan is maturing or getting ready to reset because of the cap rate increase. Asset value has dropped significantly. Now, you are 'upside down' on that 2500 unit portfolio by maybe $10-$12 million.

Where are you going to come up with that money? Unless you have a lot of money stored under the mattress you have to look at NOI and again buying a less expensive door handle is not going to be how you're going to raise NLI in that portfolio by 6, 7, $800,000 a year. You're not going to be able to move rents because of the recession and you're not going to be able to reposition a property, renovate, and jack up the rents. You've got to look at retention. It costs about $4,500 every time somebody moves out. If you can reduce that turnover 6 to7 points you make up the lion's share of that upside down all by just doing some pretty basic things. I've learned the lesson years ago from a consultant that I was blessed to get to have time to learn under and it was during times like this that the first thing you have to do is maximize use of internal resources. You have to hold on to what you have.

Mosca: Can communications help to reduce turnover?

Miller: The backbone of retention is communication. One of the challenges is that as a whole the industry puts a prospective resident at the top of the heap and residents, the people that are paying rent, tend to be moved down. What our findings show is the number one thing that impacts renewal likelihood is promptly responding to residents' calls and e-mails. If you don't, that will push them out the door. Promptly responding to residents is number one. The work order process is when your residents really become customers. Most of the time you don't hear from them. When they have a need, it is critical for detailed work orders so the maintenance staff knows exactly what to do.

Maintenance must talk to the office staff when there are delays getting the work order done and the critical need to let that customer know , "Hey Mr. Jones, sorry we could not get your refrigerator taking care of. The part is out of stock. We've ordered it. It is scheduled to be delivered tomorrow. We will get that taken care of." Lastly, following up to make sure the resident customer is happy is critical and one of the great challenges. Why? The typical community is not able to communicate with the residents because most communities have at best 50% of the residents' phone numbers, and they are quite often out of date. Most properties don't have more than 10 or 15% of the residents e-mail addresses and that's a huge issue. It's all about communication. There is nothing more critical in making the resident the number one priority.

Published: April 2, 2009

Use of this article without permission is a violation of federal copyright laws.