Given the finance-starved state of development and the number of layoffs, abandoned projects and impairment charges that have hamstrung apartment companies this year, CAS Construction’s 80 percent reduction in workforce would appear to make good fiscal sense.
“Due to the economic times, capital projects can not get funded and at CAS Construction we had a cadre of people on the bench. So we went through and really right-sized the organization to current projects and current demand, yet I think we took a very conservative approach,”
CAS Partners CEO Toni Portman told MHP on May 22.
CAS Construction remains open, but 28 of its 35 employees are gone.
“It was a tough choice but, quite frankly, we just didn’t have the demand. What we’ve been able to do is take project managers and consolidate projects within our current regional maintenance team, or our CAS Construction team. We decided to keep the business unit viable because we think it’s really critical to the continuum of our services offerings, and, with our fingers and toes crossed, when the economy releases capital funding for projects, I think we’ll be nicely positioned with CAS Construction still operating,” she said.
Ironically, the cutbacks were made about a week after Riverstone Residential launched a Pink Slip Protection insurance product that will pay up to $500 rent for up to two months for residents in participating Riverstone-managed properties, if they lose their jobs.
But other than downsizing CAS Construction, Portmann said corporate level turnover has been the result of normal company and voluntary attrition. “As you can imagine our voluntary attrition is down, and our involuntary attrition is pretty solid,” she said.
Management’s time to shine
Skies are gloomy for developers and construction personnel this year and show no signs of near-term clearing, but property managers are having their day in the sun. The good news is that the multifamily industry has a keen and renewed focus on property management as a way to preserve NOI and drive owners’ overall ability to pay the loans on their property.
“In the past, management was a necessary evil. The big bucks came from transactions. Now that there are no transactions, we find our owners spending a lot more time on what’s going on from a management standpoint at the property level,” said Portmann.
That means business is booming for the second largest independently owned third-party property management company in the nation (according to the 2009 National Multi Housing Council’s top-50 list, and its six sister subsidiaries.
“We’re having a terrific year. Riverstone Residential added 90 new properties in the first quarter, right in line with our business plan, and a cadre of teams that go with that,” said Portmann.
Eleven of those 90 incremental new assets represented fresh portfolio clients that had never used Riverstone, or CAS Partners, as a third- party property management company, and 79 are owned by existing clients. “So we’re also growing organically and we’ve probably added 200 jobs at the property level,” she said.
And at corporate, a couple of chief execs from local Texas firms, Barbara Erhart and Michael G. Hoffman, joined CAS last month to head up financial and legal activities, respectively.
Dallas-based Riverstone Residential has come a long way since Consolidated American Services, formed by Nicholas and Peter Gould, bought a controlling interest in the company in July 2006 from then co- CEOs Christy Freeland and Terry Danner, the former Trammell Crow Residential execs who acquired their ex-employer’s property management division six months earlier.
Over the next three years, with the financial clout of CAS, the company expanded its national footprint through acquisitions, integrating the portfolios and absorbing the employees and resources of six regional management companies.
Riverstone Residential landed its largest outsourcing agreement to date last December — the 15,000-unit, 62-asset portfolio of Blackrock Realty Advisors, one of the world’s largest publicly traded investment management firms, folding in employees of BlackRock’s wholly owned subsidiary, Metric Property Management, which previously managed the properties.
While Riverstone Residential gained footholds in 32 markets across the country, CAS Partners was assembling a roster of multifamily real estate support services and recruiting top executive talent from throughout the apartment industry. The company has emerged a front runner for market share in what is widely recognized as a consolidating trend taking place in the fee-managed sector, with a portfolio of 181,928 units in 775 communities, poised to capitalize on the unique opportunities of the economic downturn favoring management.
New CEO, new direction
Hard times usually call for new direction, sometimes even a new captain. But hiring a CEO is a serious undertaking. The chief executive not only oversees operations, but sets tone, philosophy and long-term strategy for the entire business.
CAS Partners’ opportunistic parent had boldly grown into the largest provider of residential property management services (among other verticals) in the UK during the 1990’s recession, before selling that business in 2005. Then, because of a five-year, non-compete stipulation included in the terms of the sale, the company set its sights on the United States, bent on becoming the nation’s premier real estate services firm through consolidation of the property services sector.
If the Goulds were looking for a like-minded leader to steer the business through the worst market since the Great Depression, Portmann’s resume and experience fit the job.
A mother of five, she helped out on her father’s dude ranch in Montana, where she was born and raised, and worked her way through college breaking horses. She is a graduate of executive development programs at both Wharton School of Business and Case-Western University and chalked up 25 years of leadership experience at companies like IBM and Diebold, a services company providing integrated technology solutions to financial institutions, as well as government agencies, commercial enterprises and various retail outlets.
Most recently as president and CEO of Stream, she transformed a $65 million contact center outsourcing company with 1,500 employees into a $500 million global front-runner with more than 15,000 employees and contact call centers in 16 countries, before selling the firm in a public offering in July 2008. Believing it is much quicker to buy than to build from the ground up, she built the contact call center giant by merging her original company ECE with the larger Stream.
In early October, the CAS board was recruiting a new CEO and defining a reorganization of Riverstone Residential. Christy Freeland assumed the CEO role at Riverstone Residential and Danner became CEO of the newly created Riverstone Group Client Services and Business Development, focused on client relations and new business development, working closely with leading institutions, developers, pension funds and other major owners.
Portmann took the helm of CAS Partners. She answers directly to owners Peter and Nicholas Gould of CAS Capital, the North American division of UK-based Regis Capital Ltd.
She brought with her a lineup of best practices and processes and a number of personnel. Eight employees from Stream made the transition with Portmann, including Chief Marketing Officer Katherin Dockerill.
Her first task was to unite six disparate real estate services units, each with its own moniker and logo, under a new name, CAS Partners, and to create a new corporate identity and complementary brand identities for each of its individual service offerings.
Overseen by Managing Director of CAS Business Services Gardner Rees, they include CAS Insurance Services, CAS Construction Management Services, CAS Utility Services, CAS Purchasing Services and CAS Screening and Riverstone Receivables.
Riverstone Residential, the company’s flagship brand, retained its name but also reflects the new look. As part of the branding campaign, new Web sites for CAS and Riverstone Residential were created.
The final piece in the unifying effort was accomplished last month with the rebranding of the company’s financial advisory services and asset management business unit, formerly known as Recap Advisors.
Headed for two decades by CEO David Smith, CAS Financial Advisory Services currently oversees $4 billion in multifamily assets in four major asset classes; condominium loans, bonds and loans, including tax- exempt financings, sponsor equity and mezzanine loans.
Nick Gould, CEO of CAS Capital, said of Portmann in May, “To bring world-class service delivery to an industry, that before CAS Partners had been fragmented, requires an experienced CEO with a profound understanding of the benefits that process and people management can bring. Toni has that experience. She has done a marvelous job re- engineering our model to provide the very best for customers, clients and stakeholders. CAS looks forward to building on this strong foundation.”
No business is immune to the fallout from the credit crisis. This year, Portmann is taking recessionary measures, initiating an executive merit program she brought with her from Stream that makes merit increases performance-based. “It’s an incentive program that I’ve used for years and years, kind of like the old-school MBO, management by objective, where instead of giving merit increases to management, we placed four to five percent of salary into an incentive- based compensation,” she said “Every quarter, you sit down with your manager and you say, ‘Here’s what I want to get accomplished in the upcoming quarter, and, at the end of that quarter you sit down with them again and evaluate how well you did on those three to five strategic initiatives and then you get a portion of that pay as a result of your performance. I’ve found that it drives behavior. It’s based on ‘what get measured gets managed’ and ‘what gets rewarded gets repeated,'” she said.
With owners and developers stuck on the sidelines and looking for ways to protect their bottom line, Portmann is investing in net incremental resources for business development, while others in the industry are divesting.
“Because only 13 or 14 percent of the market is third-party outsourced property management, we think this is the time to invest in business development, leverage our business services and continue to drive the programs that give a property owner and manager the opportunity to maximize NOI and drive occupancy. We think this is, I hate to say it, almost a good thing that’s happened to us in our business. Outsourcing becomes a very compelling value proposition when times are tough,” she said.
“Today it’s all about heads on beds, so our two strategies for our clients are to increase at the property level — resident retention, of course, because it costs to turn — and then, increase your marketing because your occupancy is the name of the game. We tell our clients it is the right time to outsource, because you get lower cost. You get the leverage we have already invested in relation to client accounting and bulk purchasing,” she said.
An example is the company’s first-party receivables business, which assumes renters’ bad debt accounts as soon as they vacate a Riverstone- managed property. By acting within 24 hours, CAS teams are collecting 40 percent, compared with the industry average of 11 percent, said Portmann.
Another service helping to drive NOI to clients’ bottom line is CAS Utility Services’ all inclusive bill-back service and cost recovery, which, along with convergent billing, covers every aspect of the billing operation for all major utilities — water, trash, gas and electric.
“We combine utility payments that go right on the rent bill, so residents pay their utilities and rent at the same time and we are collecting 100 percent. We are saving our clients tons of money and adding to their NOI with the business services that we are implementing,” she said.
Heads on beds
Portmann is especially proud of a new Marketing Watch List program that Riverstone Residential began piloting a couple of months ago.
“We are taking any property that any owner has that goes under 90 percent occupancy and we are putting a full swat team of marketing and leasing talent on it and crafting specific strategies for increasing leads and leases,” she said.
Regional marketing managers then consult, through biweekly conference calls, with small groups of properties in the program, teaching the onsite managers easy-to-implement marketing strategies and tactics to increase traffic and boost occupancy.
When a client’s 196-unit community in downtown Santa Ana, Calif., fell to 85.2 percent occupancy during a period of slow traffic, it was placed in the pilot program. After eight weeks, occupancy at the property increased nine percent to 94.4 percent, a net gain of 18 new leases, when onsite managers followed the recommendations of the Marketing Watch List team.
Those strategies included refining focused advertising toward the urban culture in a downtown Santa Ana, Calif., community; increasing craigslist.com postings to four times daily; hosting prospects, residents and local businesses at a weekend open house; targeting employees of local businesses (with 110+ employees) with a Preferred Employer Program; implementing a hot sheet program to better monitor vacant readies, and revising a resident referral program offering tiered incentives at $500, $750 and $1,000.
Likewise, occupancy at a 378-unit garden-style community in Spring, Texas, just 20 miles north of Houston, climbed to 93.9 percent from 87.2 percent after two months on the Marketing Watch List.
On the grow
In a rapidly consolidating industry, Riverstone Residential’s closest competitors are independently-owned fee managers Greystar, which rose to the fifth spot on the NMHC’s top-50 list this year after gaining 42,000 units in the acquisition of JPI Management Services, and Pinnacle, at the top of list with 185,219 managed units.
Portmann believes what sets Riverstone and CAS Partners apart from its competitors is the company’s solitary focus on third-party multifamily management and outsourcing an array of business services to save its clients money and drive NOI.
“We just launched 19 process teams, and we have over 85 people dedicated to working on business processing engineering because our intention is to be the world-class producer of third-party property management. In that strategic direction, it’s been a huge investment of time and resource for us,” said Portman.
“I have been fortunate to have had the Stream experience for seven years, and really what Stream was, was outsourcing, just outsourcing a different business service. Now I’m blessed to have the opportunity to pursue a similar model with business outsource processing at CAS and to apply those concepts today,” she said.
Over the next couple of years, she believes Riverstone and CAS Partners will transform the industry and completely re-engineer the price points of third-party property management, as they get cost down and efficiency up.
“I’ve been in meetings over the past 60 days with some of our largest clients and prospects and they are saying, ‘Toni, nobody is doing this. You guys are really re-writing history in the marketplace.’
“We are one of the big three third-party managers, but you know, if you think about the market being only 13 percent outsourced, I see the big internally managed market as the area of opportunity; Really looking at outsourcing as a core competency and saying, ‘Should you be doing this, and how? Should you really be doing this, or should you stick to your knitting and get cost out?’ Because the very fact of outsourcing, if I can leverage what we do over 180,000 units, even the big guys can’t compete with that from a buying power process management standpoint,” she said.