A Block Manager Moving Into BTR Needs To Get These Things Right
Property managers looking to transition from block management to the build-to-rent space can choose from several routes. They can build on existing relationships with developers, for example, or acquire a lettings business. Whatever the entry, there are challenges to overcome, not least in the area of technology, MRI Software Investor Solutions Team Manager Dan Foryszewski said.
“While BTR presents an excellent opportunity for block managers, they need to take a sustainable approach to diversifying into this area,” he said. “There are several factors they need to consider from the beginning to make sure they have the correct toolset and framework to expand into this space successfully.”
The Draw Of BTR
It is no surprise that block managers are being drawn to the possibilities BTR presents. For a start, it’s a rapidly growing industry. In Q1 2022, the BTR sector had grown by 14% year-on-year to reach 225,000 homes either delivered or in planning. This follows years of continued rapid growth. The number of BTR schemes completed clearly increases the opportunities for those looking to manage them.
Foryszewski said that as well as providing opportunities, BTR also offers the potential for agents to achieve better margins than traditional block management. While block management generally focuses on controlling costs and compliance, BTR management focuses on key performance indicators such as yields and internal rates of return, so an income maximisation approach to managing an asset can be taken.
“In BTR, residents want specific services and will pay a higher rent for this,” Foryszewski said. “It’s an upsell model, with optional extras driven by amenity space and value-add services. In the leasehold world, these opportunities are far less present, and cost reduction is often the main pressure from clients which can result in the leaseholder receiving fewer services.”
In a recent roundtable hosted by MRI Software and News on the Block, Paul Noble, head of PRS at HLM, mentioned the benefits of the alignment between tenant and client when it comes to providing services, which can sometimes be a mismatch in leasehold management.
“It is refreshing to see with BTR that what is good for the BTR investor is actually good for the customer; more satisfaction means less voids and higher rent,” he said. “If you can justify spending money with a client because it will cause tenants to stay longer, then it’s quite an easy conversation.”
The relationship a BTR manager might have with residents can also on the surface appear more positive that the relationship a block manager might have with leaseholders. Rather than being seen as a cost centre by residents, in BTR an agent can focus on community creation, placemaking and delivering value-add services to drive resident satisfaction.
“Leaseholders’ relationships with block managers can often be adversarial, as communicating the makeup of a service charge can be tricky,” Foryszewski said. “A combination of a lack of appropriate expectation setting at sale and lack of education for new leaseholders creates a situation where leaseholders might not appreciate why a service charge is regularly increasing. The cladding crisis and fire safety changes have put additional stressors on this relationship.”
In BTR, there is a much higher expectation of the level of service. In a market with lots of choice, if a provider isn’t providing the best resident experience, then retaining tenants can prove difficult.
Foryszewski said that any organisation making the step into this world will attest that a strong digital experience for residents is essential. Often, a technology upgrade is driven by resident requirements, rather than providers trying to introduce their tenants to new tech, as seen in the leasehold world.
“Several of the leading organisations in attendance at the roundtable event agreed that client relationships are generally exceedingly positive in the BTR space,” he said. “Unlike residential management companies, BTR clients often have a great deal of focus on brand perception, which drives a completely different type of discussion around service level offering to the tenants. Where a leaseholder cannot stop paying service charges if they want to remain in their flat, a BTR tenant can leave if the service isn’t up to scratch.”
Block Management And BTR: Key Differences
However tempting the move to BTR might be, a block manager needs to be aware of the differences between the two asset classes, Foryszewski said. First up, it’s a competitive space. Many elements of the property industry are interested in BTR, including housebuilders, investment funds, housing associations and a growing number of agents looking to manage these assets, and it’s a business where market differentiation is key to attracting tenants.
“Competition and saturation have increased to the point where we are seeing BTR operators with multiple sites in the same city,” he said. “It’s imperative that an agent can demonstrate their understanding and knowledge of the demographics within the area to ensure they can help clients tailor their products to fit the market. This is difficult without a robust, data-rich platform.”
In block management, residents aren’t generally buying into the same concept of a brand or service offering that a BTR asset commands. As a result, block managers will need to upskill their teams rapidly to be able to deliver quality marketing and ensure there is a solution in place to find and secure the best tenants.
However, Foryszewski said that block managers’ main challenge is they often do not have an end-to-end solution in place. Block management generally encompasses property management and accounting so it is likely that a block manager won’t have invested in the front-end technology that a BTR operator requires to offer a streamlined lettings journey.
“Block managers often have a solution to deal with service charge accounting and property management,” he said. “But if they don’t also have a lettings arm, they’re unlikely to have the tools to deal with marketing and tenancy progression, both of which are critical for stabilising a BTR site. In addition, few possess the portals and apps that can deliver a cutting-edge digital resident experience that moves past self-service and into value-add social engagement.”
The right technology provider should be able to support the needs of the business as well as tenants, Foryszewski said. It will provide a consolidated view of data and help an agent manage all elements of leasing apartments while operating a potentially complex mixed-use site. It is also critical that operators have the flexibility to integrate additional technologies into their system where needed, ensuring they can meet specific demands for their clients.
While block managers are moving into BTR, there are already operators that are diversifying further into sub-elements of BTR, such as single-family rental. The market is only going to continue to grow and products will evolve. For a block manager keen to enter the market now, at scale, getting the basics right is essential.
This article was produced in collaboration between MRI Software and Studio B. Bisnow news staff was not involved in the production of this content.
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