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An analysis of demand for service amenities.

Property managers of multifamily properties may be overlooking a key ingredient to their marketing package. By focusing on the physical amenities they can provide to residents and ignoring the "service amenities," the property manager may be missing an opportunity to increase profits.

Service amenities can contribute to a prospective resident's decision to lease a unit and convince a current tenant to renew. Services can contribute to the net operating income by allowing higher rents to be charged. However, the service amenities must be carefully selected to meet the needs of the current tenant mix and the targeted market segment.

This article illustrates how a property manager can perform market research to evaluate and customize service amenities for his or her property. By conducting a simple survey of the current tenants, the property manager can determine which services are in demand and the price tenants are willing to pay for the services.

Mothodology

The survey questionnaire was designed so that the respondents could complete the instrument in approximately five minutes. Thus the respondents would not become bored. A pretest of the questionnaire indicated that responses would fall within a relevant range and could be answered usefully.

Three apartment complexes located equal distances from the central business district were selected. Units within each complex were randomly selected. The average monthly rent from these complexes was $390. The sizes of the individual units ranged from one to three bedrooms. A demographic profile of the sample is given in Figure 1.
Demographic Profile of Sample
Variable Number of
 Responses
Age:
 Under 30 88
 30 to 39 60
 Over 40 49
Monthly Income:
 Under $1,500 65
 $1,501 to $ 2,500 78
 Over $2,500 49
Marital Status:
 Single 150
 Married 60
Sex:
 Male 120
 Female 89


Each delineated response serves as a reference point for finding the market segment that makes up the majority of the current tenant mix and allows the property manager to expound upon the survey information and implement a profitable service amenity program.

The services included in the questionnaire were:

* Trash pickup at door.

* Dry-cleaning pickup in the property manager's office.

* Maid service once a week.

* Car washed once a week.

* Phone jacks in bathroom.

* 24-hour guard on duty.

* Video rental on site.

The respondents were asked to state how much more per month they would be willing to pay for each of these services. This was an open ended question; therefore each respondent was free to choose any amount that he or she would be willing to pay. Figure 2 contains the descriptive statistics for the service amenities.

[TABULAR DATA OMITTED]

Results

Trash pickup at door. Overall, half (52 percent) of the tenants at the three properties surveyed stated that having their trash picked up at their door was not worth any extra rent. However, 23 percent answered that the service was worth $5 extra per month, and 13 percent answered that trash pickup was worth $10 more per month.

An analysis of the demand for the trash pickup for different demographic segments provides additional insight for the property manager. In reviewing the responses by rent category, it was found that tenants paying over $500 per month were willing to pay on average the highest amount for trash pickup. Interestingly, tenants paying between $350 and $500 were least willing to pay an additional amount for trash pickup. Segmentation by age showed that older (over-40) tenants were more averse to paying more for the service than the younger (under-30) tenants.

The presence or absence of children living in the apartment did seem to affect the demand for trash pickup. Tenants that had children were willing to pay $3.91, while tenants without children were willing to pay only $3.34. The survey also revealed only a small difference between men and women for this particular service. The average among the male respondents was $4.25 and among the female respondents was $4.06.

The tenant's monthly income made a difference in the demand for at-door trash pickup. The mean ranged from $3.15 to $4.65, with the lower income group (under $1,500) and the higher income group (over $2,500) showing only a $.04 difference. In addition, there was a distinct difference between the demand of this service between single and married tenants. Single tenants were shown to be willing to pay an average of $4.55 versus the married tenants paying an average of $3.15.

In a large complex, where daily grounds upkeep is carried out by employees at close to minimum wages, the fact that 36 per-cent of the respondents were willing to pay at least $5 extra per month should be justification to provide this service as an option to tenants. A complex with 300 units would have 108 units providing an additional $540 per month revenue.

If a grounds worker is paid $4 per hour for three hours a day to check these specific units, the total monthly increased salary expense is only $360. The annual NOI could be increased by approximately $2,160. If capitalized at 10 percent, this one service addition would increase value by over $20,000, with no capital outlay or risk. Therefore, it appears that at-door trash pickup should be considered as a possible service amenity.

Dry-cleaning pickup in manager's office. A large majority of tenants (72 percent) answered that they would not be wiring to pay an extra sum for this service. The 20 percent who were willing to pay extra for the service indicated that they would pay between $5 and $10 more per month. No distinct variations were observed among the various segmented groups.

Using the same 300-unit complex, 60 units would be willing to pay at least $5 more per month, providing a $300 increase in revenue. However, the employee costs, transportation costs to the cleaners, and liability risk easily outweigh the monetary increase.

Maid service once a week. Only 42 percent of the tenants surveyed expressed a willingness to pay extra for maid service. Of the respondents who were willing to pay for this service, the prices varied from $1 to 100. Approximately 28 percent of the tenants surveyed valued the service at $10 to $20 per month.

The survey shows that the amount the tenant pays for rent does affect the demand for this service. Delineated by rents, the mean price ranged from $16.50 to $22.53. Tenants belonging to the higher income group (over $2,500) show the highest demand for this service. As to the significance of age, the results for the demand of this service ranged from $2.14 to $18.36. The wide range is attributed to a subgroup that did not state their age in the survey. Otherwise, the results showed a steady increase in demand for this service as the surveyed tenant progressed in age.

The results from the survey delineating the tenants with children from the tenants without children showed tenants without children (mean $14.37) were willing to pay more for this service than the surveyed tenants with children (mean $11.55). The mean prices that surveyed tenants were willing to pay for this service varied from $11.55 to $20.29.

The income level of the tenants surveyed was found to be the strongest variable for this service. The mean prices ranged from 10.39 to $19.90 and showed that the high-income group (over $2,500) was willing to pay almost twice as much for this service as the lower-income group (under $1,500).

The survey also showed that men have a higher demand for this service than women. Men surveyed stated they would be willing to pay a mean price of $17.36, while women stated they would only pay a mean price of $12.00.

Based on marital status, the demand for this service varied only slightly. Single tenants expressed they would pay a mean price of $15.40, and married tenants stated they would be willing to pay a mean price of $14.00 for the service.

Depending on the tenant mix, this service could be a viable service amenity to increase the value of the property. In this example, 86 units of a 300-unit complex would provide an extra 1,720 (86 x $20.00). Assuming it would take a maid 45 minutes to clean each unit, the property manager could hire two maids to work just over 32 hours a week at $5.00 per hour for a monthly expense of $1,290. This would result in a $5,160 a year increase in the net operating income, adding over $50,000 in property value at a 10-percent cap rate.

Car washed once a week. The survey showed that 52.9 percent of the tenants expressed an unwillingness to pay any extra rent for this service. But just over 27 percent expressed a willingness to pay between $10 and $20 extra per month.

The two strongest variables in the delineated groups were by income and sex. The higher income group (over $2,500) showed an average price of $9.32, compared to the lower income group (under $1,500) of $4.64. In a surprising result, men (mean price $781) were shown to be willing to pay just under twice as much for the car wash service as women (mean price $4.98).

In a 300-unit complex, 81 units would provide an increase in revenue of 810 at $10 extra a month. The cost, assuming it would take a worker 49 minutes to wash each car, would be $1,215. This would seem to suggest that, in this particular survey, this service is not a viable option.

Phone jacks in bathroom. Almost 71 percent of the tenants surveyed said they would not pay any extra rent per month for this service. But 17 percent said they would be willing to pay $5 more, and almost 6 percent said they would pay $10 more. There were no distinct demand changes among the various delineated groups.

In our hypothetical apartment complex, 69 units would produce revenue of $345 (69 x $5). The local telephone company charges $16.65 per unit for each installation order, $62 for the first 30 minutes of installation, and $16 for each additional 15 minutes. They also estimated a 25-minute installation time on each jack. The installation orders would cost $1,148. The service charge for the time spent installing the jacks would be $2,956. This would put the total cost of installing the jacks at $4,104.

In the long run, this service might provide additional income to the complex. However, with a lease term of only 12 months, a manager might have difficulty if future tenants were not willing to pay the extra rent.

24-hour guard on duty. The responses collected showed a strong demand for this service. just over 68 percent of tenants surveyed said they would be willing to pay between $5 and $30 more per month. The mean price surveyed tenants said they would be willing to pay per month was $14.66.

The survey showed that tenants that pay more for rent are also more willing to pay more for a guard. The mean increase in rents that the tenants are willing to pay ranged from $13.14 to $15.33.

Segmented by age group, the results of the survey showed the younger age group (under 30) was willing to pay a mean increase of $15.17. The middle age group (30 to 39) showed a willingness to pay a mean increase of 17.10. Lastly, the older group over 40) said they would pay on the average $12.35.

The survey shows no significant difference in demand between the group of tenants who had children (mean $12.76) compared to those who did not have children (mean $13.62). However, there was a subgroup who did not report on their child status that expressed a willingness to pay an average of $21.03 more per month. This would give evidence to a property manager that perhaps a more thorough survey should be conducted before making a decision on this subject.

Segmented by income level, the results showed an increasing willingness to pay more for the guard service as income increased. The mean price increases ranged from $13.73 for the lowincome group (under $1,500), $14.19 for the middle-income group ($1,501 to $2,500), and $17.40 for the high-income group (over $2,500).

The results of the survey show a relationship between gender and the amount tenants are willing to pay extra per month for this service. Women said they would pay an average $16.39 compared to the surveyed men who said they would be willing to pay $13.45.

Lastly, the survey showed the married tenants were willing to pay an average of $17.20 for guard service while the single tenants were only willing to pay an average of $13.79.

In a 300-unit apartment complex (using the overall average price of $14.66), 204 units would provide a monthly revenue increase of $2,990. Local security companies quoted an hourly charge of $8, which would make the monthly costs 5,760. This approach would not be justified with this survey data.

However, ff an apartment manager were willing to trade free rent to off-duty police or security officers, this service does seem justified. If four units were set aside for barter to these officers and a monthly rate of $425 is estimated, the cost per month would be $1,700. This would result in a net gain of $15,480, again with a substantial increase in property value.

Video rental on site. Nearly 73 percent of the tenants surveyed said they would not be willing to pay any extra rent to have video rental on site. The average per-month increase that tenants said they would pay was only $2.44. But almost 22 percent said they would be willing to pay between $5 and $10 for this service.

The survey showed no marked differences among the segmented groups. The results of this survey show that this service is not justified. Using our hypothetical complex and a cost of $5, the 66 units that would participate would provide only $330. Local video wholesalers placed the cost of a single video at $59. Considering that the movies would have to be replaced as time passes, this service would not increase the net income of the property.

Conclusion

The purpose of this article has been to give an example of how property managers can perform marketing research to evaluate service amenities and customize them for their specific property. As the results of this survey have shown, there can be distinct differences between one demographic group and another.

This survey and subsequent report was not designed to guide the individual property manager, but to encourage him or her to perform marketing research to best determine the special needs of each specific complex.

Charles Smith has a Ph.d. degree in urban and regional science from Texas A&M University He is the coordinator of the real estate program in the Department of Business Management and Administration Services at the University of Houston-downtown.

Madeline Johnson has a J.D. degree from the University of Texas. She is an associate professor of law at the University of Houston-Downtown. She is also the author of the book Texas Real Estate Law.

Gregory E. Hill is a senior at the University of Houston-downtown, majoring in real estate.
COPYRIGHT 1991 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Smith, Charles; Johnson, Madeline; Hill, Gregory
Publication:Journal of Property Management
Date:May 1, 1991
Words:2591
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