The end of the construction process of your multifamily building is an exciting moment. You’ve gotten through the challenges of the real estate development timeline, which is no small feat. Still, you’ll have to save some energy for lease-up, a key part of the closing process, and the milestone that ensures you’ll have enough tenants to generate income and good returns on your investment.
What Is a Lease-Up?
Apartment lease-ups are common across both residential and commercial real estate. The term refers to the period between the launch of a property and when that building reaches stabilization: the occupancy level required to start generating income, usually around 90-95%, with tenants signing leases agreeing to pay at or above market rent. As Bob Pinnegar, President and CEO of the National Apartment Association told Leverage.com, “lease-ups are ‘coming soon’ and ‘now open’ properties.”
Challenges of Apartment Lease-Ups
Lease-ups come with their own unique challenges. Understanding them will help you overcome them and get more qualified tenants in the door.
Building a Reputation, Online and In Person
A building undergoing lease-up is a blank slate. Prospective tenants can’t talk to current tenants, read online reviews of the building or contact the property manager. You need to build its history and reputation, both among tenants and online.
Property management companies with established reputations can help with this.
Construction May Not Be 100% Finished
Sure you’re technically at the end, but builders may still be putting the finishing touches on some apartments, which can make it harder to host tours for prospective tenants.
Pinnegar also said pandemic-era supply chain delays make it more difficult for teams to stay on schedule with their property. You might need to get more creative with scheduling and be open to showing apartments that aren’t completely finished.
Staffing Marketing and Leasing Teams
A marketing team has to design, build and distribute physical and virtual collateral, and ensure they’re getting in front of potential tenants. This brand awareness is key to building the online and word of mouth reputation that will keep your building occupied well into the future. That means websites, brochures, renderings, and social media profiles, to name a few.
When your intended audience is intrigued enough to move forward, you’ll need a team of leasing agents to set up appointments, arrange tours and open houses (virtual or in-person), answer questions, and transform potential customers to tenants. Look for marketing management companies that specialize in real estate in your local market.
Finding a Property Manager
In addition to completing the building and signing leases, lease-up teams also have to find property managers and establish long-term property management systems. These systems handle all of the processes that make a building successful: resident questions, repairs, rent collection and more.
7 Ways to Lease-Up Fast
The best way to lease up fast is to ensure you’re offering plenty of opportunities for prospective tenants to connect with the property, visualize their futures in it, and finally decide to live there. Here are some options to make that happen:
1. Start a Referral Program
Once you’ve started attracting a few tenants, consider asking them to share their enthusiasm about the property with their friends and family. Create a referral program that will give tenants a reward when they refer a future tenant. It can be cash, a physical prize, a break on rent or anything else that appeals to your prospective customer base.
2. Help Tenants Visualize Themselves in Their Future Homes
How do you sell an apartment before it’s complete? According to MarketApts.com, “you will have to enable prospective residents to fully experience your apartments before they’re finished.”
Pinnegar emphasized the importance of including these visual elements in your marketing plan, taking advantage of 3-D rendering software and videos of the floor plans to make the experience even more realistic for potential tenants. He explained, “Luckily, advances in technology and marketing have given way to more clear and realistic visuals, but it still remains an obstacle to consider for lease-up teams.”
3. Have an Open House
Give prospective residents a chance to experience your property with an open house where they tour apartments, speak with leasing agents, explore the neighborhood and generally envision what it might be like to live there. It’s more informal than a personal tour, and people can come and go throughout the timeframe at their convenience. The property doesn’t have to be entirely finished before the grand opening, but a few apartments should be furnished.
4. Host In-Person Tours
For those who can’t make the open house — or for key prospects you’d like to specially accommodate — offer building tours. This is a more personalized experience than an open house. While it covers fewer prospects at once, it’s a chance to really target your sales pitch to a smaller audience. As with the open house, you can start offering tours before the building is finished, instead choosing model furnished apartments to show.
5. Host Virtual Tours
During the pandemic, many brokers and leasing agents began offering virtual tours of buildings. The agents should ensure they have appropriate internet connections and a phone or tablet camera that accurately shows the space, and it’s an even more convenient option for prospective residents. Pinnegar said that this option also helps reach new audiences more quickly than if they had to travel. As the COVID situation evolves, a virtual tour is also a way for tenants to screen the space before they devote time to an in-person tour.
6. Use Social Media to Build Community Before Residents Even Move In
Twitter, Instagram, Facebook and even Tik Tok are excellent spaces to begin introducing your property. You can highlight amenities, give bitesize tours, host live Q and As with leasing agents, promote events, and other tactics to make your audience feel connected. When tenants start signing leases, you can even use quotes from them to show others what it’s like to live in your property and why they’re happy they chose it.
7. Offer Rent Concessions or Other Move In Specials
Whether it’s rent concession — like a month of free rent or access to building amenities that would otherwise require extra fees — there are plenty of ways to encourage prospective tenants to move in. Compare your offerings to those of other similar buildings in your community and see what you can offer new tenants that sets your building apart.
Lease-Up and Apartment Marketing FAQs
Here’s what you need to know about lease-up timing and costs.
What Is a Lease-Up Schedule?
Lease-up schedules vary depending on the product type, location and price point. Typically, Pinnegar said, “a lease-up is funded as part of the underwriting for the project. That can vary, however, depending on if the property is being stabilized prior to sale or if the builder is simply building and selling as is.”
The goal is to have a high occupancy rate soon after the property is open, but the amount of time that takes depends on the asset class, how many tenants you need, and whether you have dedicated sales and marketing teams to accomplish your occupancy goals. For multifamily buildings however, it’s usually 10-12 months.
What Are Lease-Up Expenses?
These are all of the costs you’ll incur during the lease-up period from the activities discussed above. Realtytrac estimates that because of the pressure during this period to meet occupancy goals, lease-up costs can be 3X a stabilized asset’s budget, especially with marketing costs.
This statistic doesn’t mean you have to bow to pressure to overspend even more. Make sure your team is strategic about their goals, and continually track your spend against the forecast budgets in coordination with ownership. That way you can stay within a reasonable range and ensure a smooth transition from lease up to stabilization.
Lease-Up Is a Critical Time for Your New Building
The success of the lease-up period is the difference between an income generating building and one behind on its debts.
As Realync wrote, “without a successful lease-up period, the cashflow, financing, and longevity of the community will be at risk.” With the right teams in place, however, you’ll be well on your way to building a lasting and profitable multifamily community.