Lessons in Build to Rent Lease-Up
As with so much of the new Build to Rent language the term ‘lease-up’ is one borrowed from our US multifamily counterparts.
As one of the most critical phases of any scheme it is surprising there is so little content on the subject. So what is it, why is it so important and what are the key things that need to be considered when working out your lease-up costs?
Back to Basics, What is Lease-Up?
The lease-up phase of a scheme is the period that starts before the building is delivered (pre-leasing) through to stabilisation (usually 95% occupancy).
Dependant on the size of the scheme and the expected date of delivery, pre-leasing can start up to 6 months before practical completion and occupancy targets set accordingly.
Before and throughout that time a number of critical elements need to be implemented including brand creation, staffing and marketing - all with the ultimate objective of moving as many residents in as quickly as possible.
What Makes a Successful Lease Up?
The importance of a successful lease up is fairly obvious. The more vacant units the less income there is, putting cash-flow and financing at risk, and at the same time owners try to rent each at the highest possible ERVs, in order to maximise the re-capitalisation potential in the future. However it’s not just about getting as many people into the property as quickly as possible, it’s about getting the right people as well. The first residents are key as these will be the ones who help establish the reputation of the property in the market. Getting the wrong residents in, getting bad reviews online, having residents break leases or not renew will not just have a negative impact on the effectiveness of lease-up, but can ultimately affect the long-term success of the entire scheme.
The challenges of leasing up a new scheme are very different to those in steady state. Analogous to the launch of any new product, being able to reach your target market and establishing demand are key.
As the BtR space becomes more competitive enticing residents to schemes which often have higher rents than the local market can be difficult (as outlined in our previous piece ‘The PRS Paradox’).
Cost to Acquire Customers
With so much riding on the lease-up period for new BtR schemes it is easy to see why it consumes a significant part of the budget. The cost to acquire a customer (CAC) can spiral as with many adopting a hybrid of multiple methods to try to achieve their targets.
This can prove very costly. On average a multi-branch agency will charge between 7%-15% and whilst their reach is the widest of the three options, in reality each branch will have its own objectives, often in conflict with prioritising the BtR development. Local Agencies can have a lower cost of around 4% - 8% but with limited reach and fewer applicants their impact is minimal.
Any in house method carries even higher costs with initial investment needed of anywhere from 5%-10%+. Add to that extensive marketing costs, resourcing, commissions, software etc. and the total cost can be north of 15%.
In house teams spending £200-£300k to acquire early tenants is not unusual but it is unnecessary.
Home Made’s unique operating model and unrivaled technology stack delivers a very different picture.
We don’t blanket market - we know which channels work best for which types of property and we optimise portal visibility. Our demand team build awareness with an unmatched cross channel marketing approach and our proprietary insights on tenant migration and whole of London coverage enable us to maximise reach. Our tech enabled process delivers cost efficiencies which reduce fees and reduce offer to move in time with our median time to place a unit just 1 week. (Click for case study).
We can guarantee full brand consistency and service standards with white labelled solutions which provide a dedicated channel for all enquiries which can be taken 24 hours a day 7 days a week. Fully ‘scheme trained’ staff to take and convert enquiries and viewings can be facilitated any time of day 7 days a week.
Stabilisation and Optimisation
Effectively managing lease-up costs with efficient technologies and processes and filling the community with residents that thrive in the space ensures the smooth transition from lease-up to stabilisation and, ultimately, the long term viability of the scheme.
With complete transparency Home Made works directly with investors throughout the entire lease-up process to diligently track your spend against forecast budgets and to be strategic about the growth and progression of the community over time. Our proprietary ‘Dynamic PRiSing’ technology enables us to advise on maximising rental values and deploying strategies to improve yields as an asset moves into steady state.
We're always eager to work with more clients to showcase the efficacy of our model and innovation of our proprietary tech tools. If you are looking to lease-up a large development scheme ahead of schedule and on-budget, reach out to us today to discuss how we can collaborate and support the delivery of your vision in the BtR space using our joint expertise.