Top five risks to multifamily property management

In an industry that moves as rapidly as multifamily real estate, emerging risks will always pose significant challenges for owners, developers and asset managers. Digital transformation accelerates these challenges as resident expectations shift, requiring a critical approach to safeguard investments and improve your property performance.

To protect your assets, it’s essential to remain realistic about these risks and adopt a proactive approach to developing a powerful growth strategy. Here, we’ve identified five key risk trends and strategies that’ll allow you to stay ahead of the curve and mitigate them effectively.

In the digital age, rental fraud and cybersecurity threats are prominent concerns for multifamily operators. In fact, three-fourths of multifamily owners have seen rising cases of rental fraud within their portfolios over the last 12 months, according to a survey from the National Multifamily Housing Council, a multifamily advocacy group in D.C..

Fraudulent applications, often involving false documents or identities, and phishing scams can lead to substantial financial losses and reputational damage. The rise in rental fraud not only threatens revenue streams but also puts resident data at risk, potentially leading to breaches that could expose sensitive information. This dual threat underscores the importance of strong cybersecurity measures and thorough screening processes.

Owners and developers should prioritize the implementation of advanced screening technologies that address secure online payments and controlled WiFi access, such as AI-driven verification tools and firewalls, to detect and prevent fraud. It’s also essential to ensure that these technologies comply with state and local regulations, which can vary significantly. Regular cybersecurity audits, employee training on data protection and a strong partnership with technology providers who are experts in this field can help fortify defenses against these growing threats.

Sustainability is no longer just an industry buzzword. Building Performance Standards (BPS) are increasingly becoming a critical aspect of multifamily development and often a legal expectation and the risks associated with not adopting sustainable practices or doing so inadequately are growing.

Regulatory pressures and shifting market expectations make sustainability a key focus area for asset managers. Failure to integrate sustainable practices can lead to higher operating costs, non-compliance with evolving regulations, and potential depreciation in property value. Moreover, residents are increasingly prioritizing environmentally friendly living spaces, and properties that lag in this area may face challenges in attracting and retaining tenants.

To lessen these risks, it’s important to incorporate energy-efficient building systems, water conservation measures and sustainable materials into your properties. Keeping abreast of local and federal sustainability regulations will help ensure compliance and avoid penalties. Investing in green certifications and regularly updating your sustainability strategy can also enhance the appeal and long-term value of your assets.

Rising operating expenses are impacting net operating income (NOI) and compressing property values across the multifamily sector. This issue is particularly acute for properties with variable-rate debt, where increasing interest rates can significantly impact financial performance. Relying solely on the hope that interest rates will drop to alleviate financial stress is a risky strategy. Ignoring the broader operational and market challenges can lead to missed opportunities for enhancing property performance and maintaining profitability.

Taking a proactive approach to property management is essential to managing expenses, protecting NOI, and the physical property. Conducting a thorough analysis of your operating costs can identify areas where efficiencies can be gained without compromising property condition or service quality. Additionally, exploring new revenue streams, such as enhancing amenities or adjusting rent pricing strategies, can help counteract the effects of rising expenses. Regularly reviewing your capital structure to align with market conditions is also critical to ensure the financial stability of your assets.

There’s no denying it: the world runs on digital. Residents expect a seamless, tech-enabled experience that can adapt quickly to meet the latest releases, which means having an outdated technology strategy can lead to resident dissatisfaction, higher turnover rates and a competitive disadvantage in the market. Properties that fail to adopt is technology solutions risk operational inefficiencies and may struggle to meet the evolving needs of their residents, leading to reduced tenant retention and a weaker market position.

Investing in smart building technologies, such as energy management systems, digital payment platforms and smart home features can significantly enhance the resident experience. Tapping into data analytics to understand and anticipate resident needs allows for more personalized and efficient service delivery. Regularly updating your technology infrastructure ensures that your properties remain competitive and attractive to both current and prospective residents.

Data isn't just numbers; it's the lifeblood of strategic decision-making in multifamily management. Without it, you’re flying blind in a market that demands precision, and ignoring it is a risk no asset manager can afford to take.

Data is increasingly becoming a differentiator in the multifamily industry. Failing to collect the right data or not using it strategically can leave you out of touch with resident needs and market trends. Without accurate data, decision-making becomes reactive rather than proactive, potentially leading to missed opportunities to improve resident satisfaction and increase your property’s performance. Additionally, poor data management can result in inefficiencies and increased operational costs.

Owners should invest in comprehensive data collection and analysis systems that provide insights into resident behavior, preferences and satisfaction levels. This data can be used to fine-tune property management strategies, enhance service offerings, eliminate underperforming amenities and improve operational efficiency. Regularly reviewing and updating data management practices will ensure that your properties remain aligned with resident expectations and market dynamics.

Staying ahead of emerging risks is essential for the long-term success of multifamily assets in a dynamic and challenging market. By addressing the critical areas of cybersecurity, sustainability, expense management, technology adoption, and data utilization, you can not only lessen your risks but also unlock new opportunities for growth. Proactive planning, informed decision-making and strategic investment are the cornerstones of navigating these challenges and securing a prosperous future for your multifamily assets.

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Want even more? Listen to the JLL podcast “How to safeguard against rent fraud in multifamily properties."