Searching for peak leasing performance

Poor leasing is one of the reasons owners fire their property management companies (PMCs). When a unit sits vacant, it is natural to suspect that the leasing team just isn’t cutting it. But how much of the outcome belongs to the team, and how much belongs to the market?

Owners face two different questions: whether the leasing strategy is producing good economics, and whether the team is executing it competently. We often use evidence of the second to answer the first.

At its core, leasing involves balancing price, speed, and cost. Holding out for more rent may extend the vacancy. Faster leasing may require concessions, more advertising, or a broker’s commission. Occupancy alone cannot tell us whether those tradeoffs were worthwhile.

To compare the economics, start with a common measurement period, such as the same twelve calendar months for each unit. I’ll call the rental contribution over that period net lease value:

Scheduled rent means the gross rent the unit would earn over the period if occupied throughout, using the applicable or assumed rents. Vacancy loss removes the rent attributable to empty days. Leasing costs include advertising, commissions, and allocated staffing costs. Count each cost once, and use the same accounting treatment across units and periods.

For a simplified example, assume a twelve-month window, $3,000 monthly rent, one full month vacant, $1,500 in concessions, and $1,000 in leasing costs. Net lease value is $36,000 − $3,000 − $1,500 − $1,000 = $30,500. A twelve-month lease signed after that vacancy still runs for twelve months; rent earned beyond the evaluation window belongs to the next period.

This is a measure of leasing contribution, not total property profit or a complete valuation model. It also leaves out several important considerations.

Additional Considerations

• Collections: Contractual rent is not always collected. Bad debt and collection costs need to be deducted for a fuller measure; a high quoted rent is worth little if it goes unpaid.

• Regulatory Constraints: Where future increases depend on an established rent, today’s decision may have consequences beyond the measurement period. Those consequences need separate analysis under the applicable rules.

• Major Financial Events: An approaching sale or refinancing may change the owner’s priorities. Any claimed benefit from higher face rents should account for concessions and vacancy, rather than assuming a higher asking rent translates into greater value.

• Renewal Likelihood: A strong result this year may come at the expense of retention, creating turnover costs and vacancy next year.

We now have a way to compare the economics. Attributing those results to the manager is harder.

Impossible Counterfactuals

During a weekly leasing meeting, stakeholders debate various tradeoffs in their attempt to unblock the leasing funnel. Should we spend more money on Apartments.com? Should we increase the concessions from 4 weeks free to 8 weeks free?

We cannot observe what would have happened to the same unit, at the same time, under every alternative strategy. Reacting quickly to market feedback seems like a virtue, but we risk praising whoever cuts the price first. Patience might have produced a better result.

A common industry solution is to rely on comps to judge performance relative to one’s peers. By looking at things like pricing, occupancy, concessions, etc., one can begin to piece together a picture of what competing net lease value looks like. While certain data vendors such as HelloData are improving how managers can use comps to benchmark performance, there are still far too many factors that are either unknowable or highly subjective. For instance, the competing property that’s more occupied may simply be spending an egregious amount of money on digital advertising and staffing, yet none of that data appears in the comp.

But that’s just one half of the picture. Apartments are not particularly fungible. A view, the quality of the light, or a building’s reputation can matter in ways a comp sheet fails to capture. Vibes swing pricing. Two apartments that look interchangeable in a spreadsheet may feel very different to the renter.

Seeking Alpha

One useful diagnostic is what I’ll call Net Lease Alpha: the year-over-year percentage change in net lease value for the same unit, less rent growth in a relevant market benchmark. Comparing the same unit reduces some of the differences between properties. A metropolitan statistical area (MSA) rent index provides a starting benchmark, though a credible submarket or property-class index may fit better.

Suppose the unit’s net lease value rises from $30,000 to $31,500, a 5% increase, while benchmark rents rise 3%. Net Lease Alpha is two percentage points. That is a reason to investigate what went well, not proof that the manager generated two points of skill.

The comparison still needs interpretation. Renovations, leasing season, local competition, and an unusually weak prior year can change the result. Net lease value also includes costs and vacancy, while the benchmark measures rents. Equal rent growth need not produce equal growth in net lease value.

Use consistent periods and cost allocations, flag material changes to the unit, and look for patterns across multiple units and years. Net Lease Alpha can organize the investigation. It cannot reveal exactly what a different manager would have achieved.

So Why Are PMCs Getting Fired?

If poor leasing is so hard to quantify, why are owners often frustrated with their PMC’s leasing efforts? Let’s explore three possible reasons:

Blaming the PMC for Market Issues

When faced with market volatility, some owners are effectively “selling everything that is not bolted down,” unfairly attributing market-driven challenges to the PMC.

Instinctual (or Potentially Irrational) Behavior

Owners also develop a feel for whether a team is in control: whether it knows why a unit is struggling, follows up on commitments, and learns from results. Some of that judgment is useful pattern recognition; some may simply reflect frustration with a weak market.

Leasing Mistakes by the PMC

A process failure is more specific than a disappointing outcome. Examples include leaving inquiries unanswered beyond an agreed response standard, failing to publish a listing on the agreed date, or repeatedly missing scheduled tours. These are commitments the team can be held accountable for directly.

Having no leads after seven days is different. It is a signal to investigate pricing, exposure, and demand. It does not, by itself, prove negligence. Likewise, weekend availability involves a staffing tradeoff that should be agreed in advance and evaluated against the results.

Repeated execution failures erode trust because they are visible evidence that the agreed process is not being followed. A weak market can explain fewer inquiries. It does not explain why the inquiries that did arrive went unanswered.

Conclusion

I would evaluate a PMC on two tracks: the economics of its results and the reliability of its execution. Use net lease value and market comparisons to ask better questions about strategy. Use response standards, listing accuracy, tour delivery, and follow-through to establish whether the team is doing the job it agreed to do.

Weak results deserve investigation. Repeated, uncorrected process failures provide a clearer basis for replacing the manager. Owners do not need a perfect counterfactual to demand competent execution, but they should be careful about treating every vacancy as evidence of incompetence.