Resident retention and the “friendship factor"

Nick: Welcome home, multifamily pros, to The Resident Experience Podcast, episode one, where we'll be talking with Pete Kelly from Apartment Life on the connection between the friendship factor and increasing resident satisfaction and retention, which reduces operating costs. What is the cost of resident turnover? How do friendships within a community impact lease renewals? How can community events impact resident engagement interaction? Well, today we answer those questions and more. I'm Nick Latz, your host, and I'm talking with Pete Kelly, CEO of Apartment Life, a nonprofit that serves the multifamily industry as experts in building community. They're helping redefine the resident experience to increase resident satisfaction and retention. Pete, welcome to the show.

Pete: Hey, thanks for having me, Nick.

Nick: So let's start at the beginning. Can you tell us a little bit about Apartment Life and the problem within the apartment industry that you guys are solving for?

Pete: Yeah. So Apartment Life, we've been around for about 21 years in the apartment industry. And we're addressing one of the felt needs that have increased in the United States over the last 20 years, which is the problem of loneliness. The insurance company, Cigna, came out with a study about a year ago, pre-pandemic, that said, "Over 60% of Americans would describe themselves as feeling lonely," which if you're an apartment owner, that's a big problem because when your renters are lonely, they don't really have deep roots. And they're just as likely to live in the apartment community down the street that's offering a good enough incentive that they would just move on a dime.

And so we help address that issue. We have a program that helps people get to know their neighbors and build friendships. And it creates this sticky community where people feel known. They feel like they're connected. And they want to stay, even when the rent goes up.

Nick: Yeah, that makes sense. And how long have you guys been working within multifamily?

Pete: We've been, this month, it's 21 years exactly this month.

Nick: Great. That's fantastic. One of the things that I've noticed, and the way that we actually found out about your organization, Pete, is that you guys have published some really interesting thought leadership around resident engagement and retention.

Pete: Yes. For many years, we have been operating off of what I would call an anecdotal premise, which it just makes sense that when you know your neighbors, you're going to be happier. You're going to stay longer. You're going to be a better tenant, even when rent goes up. But a number of years ago, we contracted with Witten Advisors, and they are an economic research firm that operates in the multifamily industry, and they did a couple of studies. And what they found, they did one study in particular called The Friendship Factor, and it actually quantified what we were experiencing intuitively, that the more friends you have in an apartment community, it increases your likeliness to stay.

So if somebody, the average renter, really doesn't know any of their neighbors, so they're 29% likely to renew their lease. But if you know seven or more people in your community, you are 47% likely to renew your lease. So it goes up incredibly based on the number of friends you have. And we've experienced that for years, but it was fun to actually quantify that in a study.

Nick: Wow, that's really interesting, 47%. When I talk to apartment operators about this notion of retention and engagement, they fundamentally believe that premise, that residents, that engaged residents are more likely to renew. But your organization is the first I've seen to publish a comprehensive research study on resident relationships. What led you guys to do that research? And what's the reaction you get from multifamily owners and operators when you walk them through that data?

Pete: Yeah. Well, as I mentioned, for years, I think we had that anecdotal sense. And we would hear that from the people that we're serving. We would do focus groups with residents. And I remember one group, one focus group out of South Carolina, we said, "How important is a sense of community for you to stick around?" And one of the residents said, "Well, our rent went up by 18% last year, and we're still here, so that's got to tell you something." So we'd heard stories like that consistently over our 20 years. But putting it into a study just quantified and legitimized what everybody else would intuitively guess would be true.

Nick: Got it. Yep, that makes sense. So that's the friendship factor research. I noticed on your website that you guys have also done some blogs and some thinking around just the overall resident experience. Can you touch on any of the best practices or learnings that you guys have developed around the overall resident experience?

Pete: Yeah. So one of the things that we've realized over our 21-year history is that a lot of residents either consciously or subconsciously are making their decision whether or not they're going to renew within the first 30 days. And sometimes, it shows up in really subtle ways that they're not going to report back to the management. So I had a friend that moved to Dallas a couple of years ago. And he stayed for the first six months in an apartment community. And I asked him about his move-in experience. He goes, "You know, it was okay." But he goes, "I was a little bit disappointed that there was this spot on the carpet that they could've easily cleaned up, but they didn't bother to."

And I asked him, I said, "Well, did you ever tell your manager about that experience?" He goes, "Nah, I didn't want to hassle him with that." But it's the little things that often set subconsciously whether or not this is a place that you want to stick around, which is one of the reasons that we do welcome visits for our clients. We welcome every new resident when they move in, and we assess their initial move-in experience because we want to be able to give our clients a heads up if there's something small like that, that they could correct, that would make a big difference in that resident's experience. So I would say that would be one of the things is being very mindful that your residents have a remarkable initial experience when they move in.

The second thing I would say is the power of having consistent events. Now when I first moved to Dallas, I also lived in an apartment community. And the place that we lived would have, periodically, they would have events. They would have a brunch on Sunday, which basically meant that they put out some fast food sandwiches, some biscuits, chicken and biscuits, out on the table. And they would just send out an email, and residents would come. They'd get the free food, and they'd either sit there in the leasing office, or they would take the food back to their apartment. And in my nine months of living in that apartment community, I would go to those events, but I would never get to know any of my neighbors at those events because even though they were hosting an event, there wasn't an intentional design to create that sense of community.

And I wonder: How would that experience have been different for me and for other residents had they had one person who was playing host? And they greeted everyone when they came in for that event, and they said, "Hey, tell me. Where do you live? When did you move into our community? Where'd you come from?" And as they got to know people, "Oh, have you met so and so? They just moved in too, and they're also from Florida like you guys have just moved." And so I think that's one of the things that's missing in the industry, is people are doing events, but they're not connective events. The average American would be a self-described introvert. And so it takes somebody being that catalyst, being that host, to actually create that family environment. And that's what we seek to do with our program.

Nick: Sure. That makes sense. It's like being at a good dinner party. Right? If you've got that connector in there that's able to facilitate the, hey, you're similar to this person because of this, or tell me a little bit more about that, it gets the conversation going. It gets the engagement going.

Pete: Nick, that's a great example. Can you imagine having a dinner party, and somebody invites you over, and they lay the food out, but nobody talks to you? You'd go, "This is a really kind of awkward experience. I want to get out of here pretty quick." And that's what those events are often like in apartment communities.

Nick: And so that's a good segue, Pete. And maybe let's drill into apartment life a little bit and the services that you guys provide in and around this notion of resident engagement and friendships.

Pete: Yeah. So we have a couple of different models of how we do this, but our most traditional model, our model that's 21 years old, we place two people who live in that apartment community on behalf of management, and they are like the welcome wagon. They greet every new resident when they move in. They do a welcome visit. They throw all of the parties and events, and they act as a host to make sure people are connected. They look for opportunities to care for people. So sometimes people, hooray, they got a child, they got a baby, so they'll drop off a gift. Or maybe somebody got laid off, and they want to send, hey, a condolence gift card or something like that, so they look for opportunities to care for people.

And then 90 to 120 days before that resident's lease is set to renew, they'll come back, and they'll do what we call a renewal visit. And they'll check in on that resident's experience. And how has your experience been? Are you thinking about sticking around? We sure would love for you to continue in the community. As they do that, it creates this sticky community where people really feel like they know their neighbors and they really feel connected. And actually, they post great online reviews, and so not only does it save in turnover costs and marketing costs, it actually boosts the online reputation of that community.

Nick: Wow, that's really interesting. And you touched on those notions of turnover costs, saving marketing expenses, and the improved score. Have you guys ever had any clients, Pete, that have tried to quantify those benefits?

Pete: Yeah. So a number of years ago, again, we went back to Witten Advisors, who's been a close partner of ours, and over the years, they've done what they call Witten impact studies on specific communities that we're serving. And they're pretty intensive, so it takes a number of hours for them to pull off one of these. But as they've done these over the years and aggregated the data, they would say on average that we're saving our clients $188,000 a year on turnover costs, marketing costs, staff retention. That's what we're adding to the annual bottom line per year. And so, if you divide that by the cap rate, that can be millions of dollars of value right there. They also looked at our ORA scores, so if you're familiar with J. Turner and the Online Reputation Assessment score that they do, they compared ORA scores for communities that had apartment life and similar communities that didn't and found that on average, we were seven points higher in terms of ORA score.

Nick: Wow, so that's meaningful. As you mentioned, if you factor in the cap rates, about $200,000 of savings at a 5% or a 6% cap rate, you can pretty quickly get to a million dollars of value, I would think, just from those data points, so that's significant. Have you guys ever thought about that? Or have you seen any data at the unit level? What's the cost of turnover at the unit level as one resident moves out?

Pete: Yeah. Obviously, that varies market by market. And it depends on what the rent and how long units are staying open. But I recently saw a turnover calculator that is by SatisFacts and Multifamily Insiders. And it said that the average for the US would be $4,047 of turn costs per unit. Now obviously, that varies market by market. But I'll send you the link to that, and if you want to put that in the show notes for your listeners, they can look at that. But I thought that was pretty astounding, $4000 turn cost.

Nick: That's really interesting because that $4000 to $5000 that really resonates with the data points we've seen and heard too when you factor in the physical costs of repairs and maintenance on the property, the cost of cleaning the property, the indirect cost of sales and marketing to refill that unit, $4000 or $5000 definitely resonates. And at that cost, you can see why these economics around resident retention really make a difference, especially when you start to think about that revenue leakage and those costs across a full apartment building or a full portfolio. Right? That really adds up.

And so for our listeners today, Pete, I'd argue that everyone should think about the Apartment Life service, that service that you guys are providing, having someone on-site, and it makes sense. Right? Those numbers that you cited around the more friends that you have in the community, the friendship factor, the more that you're willing to renew. But my guess is there's a bunch of operators out there, there's a bunch of owners out there that aren't yet willing to take the plunge, that isn’t yet willing to dive into that full program. And so for anybody like that, what would be one proof point? Or how would you think about building a business case around this notion of resident engagement? And what would you suggest that maybe folks start with?

Pete: Yeah, well, in terms of the case, I think the data's out there, and they can go to apartmentlife.org, or I'm sure your website's got similar data, and see the case for it. But if, for whatever reason, they don't want to use Apartment Life, I'd say a simple step that any management company could take is to intentionally plan two events per month for their residents that are well advertised, that vary, so it's not always tapping into the same level of interests. And here's the key, assign one of the management staff to play host and to think intentionally about: How do I not just throw an event that looks good and has good food? But how do I actually connect residents to one another? Because that's the key right there. When residents know their neighbors, they're much more likely to stay. They may or may not care about knowing the management staff, but if they know their neighbors, they have friends in the community, it's going to feel like home. And that is the key difference.

Nick: That's great advice. Final question for you. Who are a couple of podcast guests that we should consider having on this show, The Resident Experience Podcast?

Pete: It would be interesting to hear from an owner's perspective that really values this. And there are two owners that come to mind that I would be happy to introduce you to if you don't already know. One is Doug Chestnut, who is the CEO of Streetlights Residential. And Doug, this is one of their core values in their company, is helping these not just be apartment complexes, but truly apartment communities. And he thinks about that even in the architectural design. How do we foster a sense of community? So Doug Chestnut would be one. And the other would be Mary Gwyn with Apartment Dynamics. Both of them have a high value in this area and would be wonderful guests on your podcast.

Nick: Fantastic. Pete, thank you so much for joining our first episode of the Resident Experience Podcast. We've touched on a lot of great, valuable conversation points. I've jotted down a bunch of notes. I think the one thing I'm going to circle and pull out of this one is the figure that you cited around seven friends in a community, and you're two times more likely to renew. That, to me, just jumps off the page, and it makes intuitive sense.

Pete: Well, Nick, thank you again for having me. And I'm honored to be part of your inaugural podcast.

Nick: Thanks so much, Pete. And thank you to our audience for listening. Now is your move-in the start of a splendid relationship? Catch episode two on March 10th as I talk with Melinda Howard from PLK Communities about how they're creating excellence in the move-in process that creates happy new residents and a positive multifamily resident experience. Thanks for listening.