Third-Party Makeover
A look at how developer Mark-Taylor succeeds in fee-based apartment management
Dec 3, 2007
by By Michael Russo, Contributing Editor

In June of 2006, award-winning apartment developer Mark-Taylor Residential had seven communities sell in a single transaction, closing 2,200 units almost overnight. Third-party management was always a company goal - now it became a requirement.

In one of the most impressive re-focusing efforts ever seen in the multi-housing business, Mark-Taylor acquired 11 fee-based properties totaling more than 3,000 units in a matter of 18 months. Today, third-party management makes up 95 percent of the Phoenix-based company's business, and it has added almost a property a month to its portfolio in the last year.

"Third-party was a goal for us, as we had always managed a number of properties," says Asset Manager John Carlson, who was a key player in Mark-Taylor's transition. "The question became, how do we accelerate this growth?"

In hindsight, the big sale that helped force Mark-Taylor's hand couldn't have come at a better time. The multifamily acquisition/disposition market was highly active in Phoenix at the time, and today, build-to-sell developers are suffering in many parts of the country.

"We started more as a developer and actually have a new project that will open at the end of next year," says CFO Clay Demara. "We're still active, but the cost of construction has hindered our ability in general, and land costs and availability in Phoenix make it tougher to get the job done. Underwriting has become more expensive, and the good deals are more difficult to make. These factors have allowed us to prosper on the third-party management side."

The company's success also illustrates what other developers can accomplish, provided they have a strong leadership position and pay keen attention to ethics, innovation, quality and service.

More than anything else, Mark-Taylor executives attribute the company's growth to products and people, as well as retaining the best and brightest talent in the business. For example, Kathleen Danuser, an 11-year company veteran, took the firm's dramatic re-focusing efforts in stride. Before the big move, Danuser managed three properties. Today, she oversees nine communities and 2,600 units.

"Fortunately, I have two large properties totaling 1,256 units, which helps me from a logistical perspective," Danuser says. "It's still a juggling act, but over time you learn how to add another ball to your act."

In fact, Mark-Taylor continues to grow so quickly that two new communities joined its portfolio during the few days it took to write this article.

"The biggest things on the financial side with all this growth in third-party management are back-office challenges," says Demara. "You must be ready to take on new accounts, handle different software and understand each owner's needs. Flexibility is key."

Smaller is Tougher
As many MHN readers know, the smaller properties are often the most demanding when serving as a third-party manager. "The smaller the community, the more work involved," Danuser agrees. "It's about managing your time and getting through the 80-hour work week during budget season. Even if I had just three properties again, that aspect wouldn't change."

Despite the fact that development had been Mark-Taylor's primary focus, the company has displayed an uncanny ability to adapt. Its employees have played a large part in smoothing out any rough edges. "Third party is unique, and we probably embrace it in a different way than other companies," says Danuser. "Some managers assume that owners will keep a property forever, or the manager will improve the property to an extent that they will work themselves out of a job when it is sold at a profit. Short or long term, we do our best because we know other clients are shopping the market and see our dedication."

Asset Manager Carlson was willing to share a few of the company's management strategies with MHN, and he breaks them down into four categories:

. Growing your business
In Phoenix and almost everywhere else, potential buyers travel the submarkets and visit competitive sites. First impressions are critical, Carlson notes, so the service team and on site personnel must concentrate on curb appeal and cleanliness of the grounds to be ready for unannounced visits.

"From the initial handshake to holding open the exit door, our goal is to show them a consistent, high level of service in all our properties," emphasizes Carlson. "Nine out of 10 potential buyers will notice this consistency, and if they are impressed, they will call the corporate office. It's really the on site people who generate business."

. Building broker relationships
In almost every market in the U.S., brokers will interact with multiple clients during the acquisition phase. In a perfect scenario, 10 buyers will inspect a property, and companies like Mark-Taylor will retain management, as well as start up relationships with the other nine brokers who didn't buy.

"Our goal is to get in contact with every broker on the multifamily level, and we've done that," adds Carlson. "Brokers have questions when visiting a new market, and we will answer them. We'll even meet them at a property that isn't ours. Any time a community is up for sale, we conduct superior broker tours, and assist with the disposition at the highest level using our market knowledge."

These strategies have convinced third-party managers from outside the Phoenix area to let Mark-Taylor handle their properties locally.

"That's the highest compliment we could get," says Carlson. "We know we can manage it better, and we have properties in every Phoenix submarket to prove it. We always send a follow-up email with a description of the submarket and pass the leads on to our team."

. Due diligence
It's important for every third-party manager to streamline the due diligence and take-over process. Mark-Taylor provides a comprehensive list of unit turn needs, as well as a clean and concise narrative soon after the physical inspection.

"We tell them what we believe they will need to do, based on their goals and mindset," explains Carlson. "A thorough unit and property inspection allows us to determine a per-unit turn cost. Interaction with the client after providing the data is critical in determining a mutual strategy once operations begin. We'll even waive the due diligence fee if we retain management, which is quite an incentive."

. The takeover
After conducting due diligence, the management contract is signed. This is a critical juncture for all parties, and Mark-Taylor has the process down to a science. The company compiles a vast checklist of office and maintenance items beforehand, including tour path locations, pricing, landscaping, painting curbs, cleaning windows, etc.

"Despite all the madness going on, the goal is simple and clear: leasing at least one unit that very first day," says Carlson. "Residents will leave in the morning and return at night to a completely different community."

The impact on residents and the owner is not limited to physical improvements. A resident meeting is held, with a single Mark-Taylor representative responsible for all customer issues. Carlson advises managers to be prepared beforehand, understand the model path, and create price sheets before takeover. "We were always a good management company," he says. "You just need to transplant that sense of ownership to third party."

A Changing Market
Phoenix is an ever-changing market-almost like one huge resort community-and it experiences seasonal cycles that are markedly different from what many multi-housing managers are familiar with. One thing common to all companies, however, is a concern for the bottom line.

"Like everyone else, we have to make decisions every day on expenses that will impact our bottom line," says Danuser. "But in third-party management, every client and every property is unique. Sometimes, you just have to focus on what will make a good community great."

In a period when expenses for multi-housing owners and managers are inordinately high, the decision to invest in a property is even tougher. Danuser advises managers on a tight budget to first evaluate each property and perform a cost analysis. "The decision isn't always just to spend," she says. "But even in tough times, if you don't do an analysis, you could be missing some great opportunities for growth."

The initial failure of a recent condo project in Phoenix is a case in point. The owner considered three different management firms, and Mark-Taylor wasn't even one of them.

However, when the owner"s representatives toured the submarket, they were "blown away" by one of Mark-Taylor's properties and immediately sent a follow-up email to the owner on her Blackberry," according to Carlson. Despite the tough market, Mark-Taylor management had had the confidence to invest in this marginal property.

Even though condos were not selling in Phoenix at the time, Mark-Taylor personnel recognized this particular opportunity and took it. "They had been moving out renters and trying to sell the units as condos," recalls Carlson. "And they got stuck. In this case, we focused on a lease-up mentality and went from 55 to 95 percent occupancy in a five-month window and exceeded the owner's initial budget expectations.

"Basically, we took the time to understand what both new and existing customers needed," Carlson explains. "We improved the response time, customer service and quality of the maintenance work," he says. "You can't put a dollar amount on customer service, but it's amazing what it gives back."

How to Market Third-Party Management
By late 2006, Mark-Taylor had succeeded in turning its focus from mostly development to 90 percent fee-based management. There was only one small problem: many of the brokers, owners, investors and others in the multi-housing industry didn't realize how the company had changed.

"We were always thought of as a fantastic developer, but we needed to set out on a mission to educate the industry on our changing capabilities," says Kim Atkinson, director of marketing and public relations. Atkinson joined the company last year at an opportune moment, but had to hit the ground running.

"When President Dale Phillips and I met in 2006, we were poised for even greater growth," recalls Atkinson. "But first we had to beef up our presence in the industry as a management company. We needed to show people that we could handle their properties as well as we handle our own."

Because the company's business is limited to the Phoenix area, Atkinson had an edge that national multifamily managers didn't-she could focus locally and not be overly concerned about regional variances. Still, more than a few management companies can learn from the path the company took.

Pooling Marketing Dollars
One of the most important tactics Atkinson applied to her job was pooling the resources of all Mark-Taylor's communities into one consistent marketing message. "Having one community doing a mobile billboard or promotion is not going to be cost-efficient for anyone," says Atkinson. "But with well over 20 communities working together, the cost comes down significantly." This allowed the company to spend the bigger bucks on business-to-business magazine advertising, along with radio and sports team sponsorships.

"Things fell into place when we began to target the industry and let owners know we can help reposition their communities to get a higher return on investment," Atkinson says.

In addition to owners, the company had to attract the attention of renters in the Phoenix market. The plan featured a variety of hooks, including leasing discounts, a free iPod during the company's "summer of love" last year, and a holiday gift-giving operation.

"We were fortunate in that we had already developed a strong brand identity," says Atkinson. "With Mark-Taylor, renters knew they would be getting great service, nice people, well-maintained properties and help when they need it. The company has worked for years to send those messages through the Web, print ads and promotions." Of course, it certainly helped when renters received thoughtful gifts from the company when renewing their leases.

Mark-Taylor is also one of the few companies that incorporate branded promotions with every property in the portfolio, instead of advertising a special for just one community. "Admittedly, the apartment industry hasn't always had the ability to do this, but with our size and presence in the market, it made it a little bit easier for us," concludes Atkinson.

Mark-Taylor Residential
What: Property management firm
Founded: 1990
Headquarters: Scottsdale, Ariz.
Leadership: Dale Phillips, president
Market served: Phoenix metro
Units managed: 7,200-plus
Units developed: 13,000
Employees: 260
Notable: Known for developing employees and retaining leasing associates. Emphasizes customer service and strives to provide a resort-style experience at its properties. Also develops multifamily properties. 
To comment on the article, e-mail Teresa O'Dea Hein at thein@multi-housingnews.com