Searching for peak leasing performance
Are property owners justified when they fire their management companies for poor leasing performance?
Overview
Poor leasing is one of the major reasons owners fire their property management companies (PMCs). And since leasing is one of the few controllable variables in property management, it seems reasonable to hold PMCs to a high standard. Of course, whenever the leasing market cools, owners often harbor the sneaking suspicion that their leasing team just isn’t cutting it. But to what degree is that frustration actually justified?
Let’s start by defining the objective in multifamily leasing. At its core, leasing involves striving to find the optimal balance between price, speed, and cost to optimize revenue. For example, if you increase the unit’s price, you sacrifice speed through increased days-to-lease. You might try to counterbalance that by increasing costs: more concessions, a greater advertising spend, or higher broker’s commissions. We can neatly summarize the financial tradeoffs of a lease with the formula below, balancing revenue against losses from vacancy, concessions, and other costs. This gives us a clear framework for maximizing leasing profitability in the form of net lease value.
While the variables are fairly self explanatory, I’ll note that daily costs should include the staffing expenses incurred by the property to run the leasing program. Before we go further, let’s also consider a few other variables that are not fully encompassed by the formula.
Additional Considerations
Tenant Quality: Tenant quality or creditworthiness should boost net lease value by reducing default risk. However, achieving this may also increase the number of days vacant or concessions/marketing costs. While this should probably be integrated into the formula, finding the right methodology is complex and outside the scope of this post.
Regulatory Constraints: In rent-stabilized markets such as New York or Los Angeles, the formula misses the strategic need to secure a higher gross rent, even at the cost of more days vacant, concessions, etc.
Major Financial Events: The formula also does not consider the broader context of financial events such as refinancings or sales, where more days vacant or concessions may be strategic to achieve elevated rents, boosting NOI and cap rates for better debt terms or exit multiples.
Renewal Likelihood: The formula does not consider tenant retention, where above-market rents or heavy concessions may deter renewals, increasing future turnover costs and vacancies.
Now, at the very least, we have a rudimentary quantitative method to measure the leasing team’s ability to balance these economic tradeoffs. Can we use this formula to evaluate the PMC’s leasing performance? Let’s first face the major epistemic hurdle in benchmarking it head on.
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?
Titrating the inputs of a complex, multivariate equation involving conflated and unknowable variables is certainly more art than science. And while reacting quickly and decisively to market feedback certainly seems like a virtue, we risk praising whoever is first to drop their pants. Patience and persistence in the face of disappointing short-term results may prove to have been the right move after all.
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. My core thesis on comps is that apartments are just not particularly fungible. This was recently evidenced by a 2025 RealPage Analytics report showing that seemingly identical units in the same submarket can have rent variations of up to 20% due to subjective factors like views, design, or building reputation. The reality is that vibes swing pricing, and a unit which appears identical in every way to a comp might be eight percent better on a vibes basis.
Seeking Alpha
Since counterfactuals are unknowable and comps unreliable, let’s pivot to an alternative method: Net Lease Alpha. This approach tracks the year-over-year increase in net lease value for the same unit, measured against MSA rent growth. For example, if a unit achieved a net lease value of $1,000 last year and MSA rents grew by 3%, the PMC should target $1,030 this year. Exceeding this signals outperformance, while falling short indicates underperformance—much like a fund manager measured against the S&P 500.
Net Lease Alpha avoids several of the pitfalls of traditional methods: the problem of fungibility and the limitation with counterfactuals. All other KPIs, such as occupancy, gross revenue growth, average days-to-lease, or cost-per-lease, are simply inputs that involve potential tradeoffs made at the expense of another factor. But what about drilling deeper, say, benchmarking against Class A apartments in Austin, TX? While tightening the benchmark could be helpful for accuracy, it runs the risk of falling back into the same issue of imperfect comparisons.
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
Given that leasing is incredibly difficult to quantify, smart owners likely develop a gut instinct for recognizing skill. This is akin to Justice Potter Stewart’s famous opinion: “I know good leasing when I see it.” Effective owners observe patterns that result in better leasing outcomes and expect these from their teams.
Leasing Mistakes by the PMC
Leasing mistakes are errors that are so objectively bad that there is no possible way to justify them as part of an economic tradeoff. Common examples of leasing mistakes include failing to respond to inquiries within 24 hours, not posting units to listing sites after they become vacant, not offering weekend tour availability, and having no leads on a listing after seven days. At best, one might attempt to justify a few of these as part of a cost-minimization strategy, i.e. sacrificing performance for reduced staffing costs, but there is effectively no reason to believe they contribute to net lease value.
While mistakes are unavoidable, they severely erode owners’ trust in management’s competence. I also believe that they form most of an owner’s “gut feel” about their PMC’s leasing performance. Leasing mistakes not only can justify terminations in cases of clear incompetence but also offer an opportunity for PMCs to build trust through consistent execution.
Conclusion
While Net Lease Alpha offers an alternative framework for evaluating performance, I believe most owners will continue to evaluate managers by their leasing mistakes. In my next post, I will share a more comprehensive list of leasing mistakes and procedures to avoid them.