CHIA Talk #7: Rental Properties Management

Triplex, 6plex, a few apartment blocks or a large rental tower, what image do you have when someone talks to you about a rental building? Is managing 20 times 6plex the same workload as managing a tower of 120 apartments? What are the respective challenges for managing a new building or an aging building? What exactly are we managing? Management of the physical and financial health of a building, financing, sales, maintenance teams, management of leases and landlord-tenant relations... A whole field in rapid evolution in a dynamic city like Montreal which is in renewing its rental properties. The guest is the president and co-founder of Collection Équinoxe - real estate developer and manager of 1,200 luxury apartments in several locations in Montreal and Laval.

This episode aired on January 18, 2022 and is rebroadcasted on YouTube, here is its transcript:

Happy New Year! Hello everyone! I'm CHIA, your HappyBroker and also your host. So, listen, thank you, thank you for listening. This is... today is the fifth episode and seventh production because sometimes I do the interview with my guest, depending on their language or languages of the interview. So sometimes it's several interviews per episode. And today we're going to talk about rental property management. So, tell me in your head, when we talk about a rental building, what do you see? Do you see a triplex, a sixplex, a few blocks of apartments or an apartment tower, as is the case at Collection Équinoxe? So, to cover this subject which is relatively important, but very often discussed in public, I am pleased to invite Philippe MOURANI, the co-founder and president of Collection Équinoxe.

Hello CHIA-YI! Hello everyone! Hello ! Very happy to open the year together. To break the ice for a 2022. Yes, absolutely. And can Philippe maybe share with the audience how we met? Well, actually, it was a love match. Roughly speaking, we don't necessarily work together, but we're both in the real estate business.  But it was the eyes and the smile that charmed me in the first place. Thank you. Well, anyway, thank you very much for accepting my invitation that I extended a long time ago. More than a year ago. Yes, it's true. Well, I'm persistent. That's right. Aha! Perfect. So, first of all, for you who don't know Philippe, he's someone I really admire because he's multi-talented. In fact, he hasn't been in real estate long, neither have I, but he's really managed to create something extraordinary with his partners. I'm going to let him talk a little bit, maybe about your background, please, professionally. Yeah, actually professionally I worked with the family business, with my father for years. After the sale of the business, I went back into real estate through the opportunity that was presented to me by my senior partner, Dejacquot. So, we planned to build five sites, I jumped into real estate with both feet. It's a big learning curve in the early years, and now I'm in real estate full time. Whether it's development or property management, and today we're going to talk about property management because it's a point that, over time, [inaudible 03:24] increases. The more we increase the number of steps, the more we increase the complexity and the workload of rental management. So what did I do? I transitioned to doing management, then administration in a food factory, in a family business, then later on with my partners in real estate now. Yes. So, what are we learning here? Well, if I may summarize, there are two things: first, it's a completely different trajectory change. This is possible because we have a success story in front of us, of which I am very proud. And also, what is impressive to me? It's that in the end, you and André Toudhac Dejacquot have really been able to create your own brand. Like in the market, actually, when you build buildings, the big high-rise buildings, then a lot of times you see the developers, you see the developers, they're going to build and they're going to resell the units. But in the case of the Equinox Collection, it's quite different. They really did a rigorous business plan, they knew how to acquire land and create buildings for rental purposes. So, at that point, two birds with one stone, not only do they do development, construction, but they also manage their own buildings and increase the value of those future buildings. Yes. And then, why a brand in fact? What was the incentive to do all the sites under the same brand and the same name? It was also to create value in the same way that large grocery chains create value by having a large distribution system. We wanted to create value with volume, so value for our customers and indirectly for us. So it was really important to describe a brand value, but to bring real value, whether it was the size of the units or things like that. It was in that perspective to rub off on the long term as well. I have to say that it influences a lot of things too when you're doing your strategy, if it's more short term or long term. Yes.

In fact, you really don't have to convince me because I've been doing branding for almost 20 years and I deeply believe in its power. So thank you, thank you for sharing this great journey with us. Today we're going to talk more specifically about rental property management. So, first of all, it's because I work with different investors. So, there are people who like to buy multi-units of a few units, there are people who buy real estate parks of a few thousand units. I have clients who own 1,000 units, who own 6,000 units. So, at the end of the day, can you quickly share with us what the difference is between the workload of a property manager who manages say 20 sixplexes or a manager who manages a 120-unit tower? Actually, the big distinction I can really make, then as the crow flies, is people. If you're going to manage multiple buildings of multiple plexes in the same area, whether it's the tenants that are going to be living in those units or the staff that you have to have on your management team, are going to be very different.

Let's just think about the repair of these units, someone who has to repair them all the time, the people who are in maintenance. Yes, you can have people living in each of the plexes, but usually with the volume, you're going to have to have people in vans going around. If you have buildings, I don't know, concrete towers like we do with 100 units and more, it becomes a community, so it's the tenants, they meet, it's really a community management of an entire building. So it's different, it's with more full-time people on site, so it's very different, whether it's for the types of tenants you're going to have and the type of management team and organizational structure you have to have to manage those buildings. Yes, absolutely. In fact, I really appreciate hearing the word community, because in the dailies, I actually see that you're actually doing within your team, you're doing different initiatives to really, really create a better community spirit to actually better serve your tenants, whether they're in one building or in another, still under the same name. In fact, it's because I believe in it, that's what makes the difference between a two-bedroom and a two-bedroom somewhere else. So, it's really when people talk about their neighborhood life, when people talk about their neighbors, so that's really what makes the difference, so whether it's the activities so that people are closer. Yeah, even as a Covid, it's still going to be possible. We've done activities through the web, so I'm a big believer in that. That's what makes the difference that someone wants to stay in a block for the long term always in the long term perspective. Yeah, that's a very good long-term perspective. Speaking of Covid, I know it's been almost three years with many, many changes in government measures, many restrictions. I imagine that building managers also go through ups and downs, I wonder quickly, what are the impacts that have happened in your daily life and also what are perhaps the measures that you have established temporarily, that according to you could become permanent? A big question. I'd love to hear from the government next year what it's going to look like. But basically, it's that, making a little bit of a distinction between running a six unit building or running a 150+ unit building, it's the community, so it's the building policies at the end and the communication that we do with the tenants because we get along. If the government changes their rules, we have a responsibility as building owners or managers to apply them. I'll give you an example right now: in terms of elevators, yes we could limit it to two people, but we try to limit it to a family bubble. So, if it's a lady with her two children, it's obvious that she can go down to the elevator, whereas a rule of having two people could mix up, then it becomes confusion. So in the end, property management is about managing people. For me, I always approach a lot of things in business from that perspective. So if the rules are well communicated, if the policies are well enforced, and if it's fair for everyone, I think it can only go well from there.

The long term question, I think telecommuting would certainly want to stay. The need to be close to work for commuting and we're thinking about downtown right now with vacancy rates, whether it's commercial, office or even rental because Montreal downtown is depopulating compared to regions that have very low vacancy rates. So I believe that in the long term, only telecommuting will remain. You see in some buildings, we have business centers where people can rent, it's like an extension of their apartment to be able to work in the quiet and not in the kitchen as many people do now. What else is going to stay? And I think the whole room booking thing...habits are formed. I just think the last few days we've had where people are trying to...you know, there was until Christmas to be able to meet, but they're meeting with smaller groups to book rooms.  So booking, we're seeing more and more something that's going to be pushed over time. So it's booking a time or with people a little bit more... with a lot less people, I'm looking for the words, but that's about what I see that there are not big changes, otherwise maybe other things will come back to normal, I hope so. I hope so. Me too...It's actually the government changes that are the most difficult for building managers. In many areas. Yeah, we're talking about closing commercial gyms for example, and then I think of my colleagues who are at CORPE, who are pulling their hair out about how do you translate that? Do we close gyms, if we are alone in a gym, should we close it or not? Should pools be closed or not? So, we have to process the information and make our own judgement too, which is not obvious in crisis areas.

Yes, it is. In any case, my hat is off to you.  Then actually, I wanted to talk about new and aging buildings. In the background, for example right now I'm in the process of selling a new rental building with 150 doors. So those 150 units, what do I see in terms of pressure on the building manager and owner? It's to be able to fill the building with 150 good tenants as quickly as possible and under the best possible conditions. So those are the challenges for a new building. So what are the challenges for an aging rental building? Are they different? And how do you approach it? It's certainly a maturity issue. Then, when we talk about a new building, it's following construction. Obviously, the developer needs to have filled their building as quickly as possible. It all depends on the financial ratios that are required by his lender.  So yes, there is a lot of pressure to fill the building to meet the revenue and expense targets in the first year. Then, it's a pressure that is normal, you have to fill the building, you have to make sure that the income can support all the costs of the mortgage, all that, the taxes, all that.  Absolutely, absolutely. In this period, there are two strategies that I see. There are two strategies, and between the two that exist, there are people who will sign leases at any cost. There are people who are more in a long-term view: do they have a perspective of reselling the building or keeping it for the next 40 years? This also changes the dynamic a little bit. There is a lot of rental construction, much more than before, so we see the environment. I think it's a good thing and I think it was fooled and that's why I got into rentals.

It's that there was really the environment, you can see it on the highway, the number of cranes that are building rental right now.  So there are several new rental buildings right now that are all trying to get tenants, to fill their buildings, to have good tenants obviously, it's always very important. Yes, that's right, when we were talking about tenants, we were talking about filling the building, whether it's an aging building or an old one, basically it's a question of increasing the rents, optimizing the rents, getting the highest net income possible to increase the value of the buildings. For my part, in real estate brokerage, what I see as a trend is that with the pandemic in the construction sector, there is a lack of materials and a lack of manpower. So it's becoming exceedingly difficult to manage renovations, building optimizations, and at the same time...It's also management, it's staffing, materials, it's the same problems really. Yeah, right, that's it. Then, at the same time, it's that in terms of the regulations of the Régie logement du bâtiment, it also has an impact on encouraging investors to buy new rental buildings. Because in the first 5 years, rents can easily be increased without too many constraints. Exactly, can you... Yeah, it comes back to your question, and what about the buildings of a certain age? Beyond 5 years precisely, the Régie du logement, a tenant has a recourse to discuss his increase. I appeal to everyone that it is not necessarily an absolute rule to follow the recommendations of the Régie du logement, if you want to increase by such and such a percentage, it is feasible. On the other hand, ...Yeah. Can you give us some examples please in terms of increases?  The challenge is that there is a grid recognized by the Régie du logement, you can go on the Régie du logement website. The Régie du logement is now in court, but roughly speaking, we can refer to this grid to establish the increases, you can give to the tenants. Then if there is going to be work, major work on the whole building, work specific to the unit that you can, but we are talking about a return on 43 years there. 43 years. Wow! That's what makes the impact of these rules so that we have an aging building stock. In part, this is one of the major reasons. So, if you renovate a home, it's not necessarily that easy to put it back on the market and to be able to come back on your investment basically. So yes, there's a lot of search for new rental properties, partly for that reason. So now, I guess before you really put together the business plan for Equinox Collections, you probably did the market research. So I'd like to be able to like actually get inside the head of a consumer. Why does a consumer choose to buy a condo versus rent a luxury apartment? When we did our studies Mont, André Toudhac and I, one of the aspects that seemed clear was that there was not in the rental what is offered now with several common spaces. Thinking about the seniors' residences, they have been doing this for years with several activities, all that. So there wasn't that offer, there wasn't the offer like in the student residences, so there was a real need, I'm talking to you in 2015-2016-2017, for this type of product.

People who are in condominiums today, they have certain advantages: they own their condos, all that, but there are many disadvantages to that: they are tied down either with their condo and the condo fees, which with the new norms are also starting to increase a lot. So it becomes a choice for some. Let's think about the older people, who are at a certain stage of life, looking for freedom, all that. So renting offers this freedom, offers the freedom to rent just for a year. You can go to Florida for six months, there is no problem if there is someone who is always at the building, who can always check. Indeed. I think about people with homes too because that's many of our tenants right now, whatever product he's selling you right now, when you see that it's 55 and over who... who are migrating to rental. Yes. I see, thank you. But speaking of all these condos opposite luxury apartments, in fact, is managing rental buildings and managing condominiums different? And how is it different? Yes, there are many different aspects, and there are many similar aspects as well. The similar aspects are that when you talk about maintaining the infrastructure, the exterior siding, the roofing, all those aspects, they can be similar. When you get into rental management, it's the management of the people who move in, the people who move out, the resale, and then the unit. When you're talking about selling condos, it's not the same dynamic or that there's an attack, a bin in the process. It's the new owner that takes care of the repairs if there are any. So, it's really very different. Rental management sees very, very, very far into people's personal lives actually. I'm thinking about re-renting a unit, but you have to have the option to show potential new tenants. You have to get the person to cooperate. So, if you're really into the dynamic that's different than with owners who occupy their condos are often there for a decade, it's really not the same dynamic. Then the condominium management policies, it's completely different too. Yes, it is. So really, what fascinates me is that when we talk about the word management OK, we're basically managing all sorts of things. It's pretty complex. We're managing our management team who are already managing the financing of the building, the physical health of the building. So we talk about maintenance, so we have a maintenance team. We also have a sales team because we need leasing consultants to show the buildings and manage the leases. We are talking about lease management because each person does not arrive on the same date and does not leave on the same date, their conditions quoted in the leases are not the same. So you have to manage all that. You have to manage the relationship between the landlord and the tenants. So so many tasks, I'm wondering how you guys manage to meet that daunting challenge? From my personal point of view, and then I think of the whole team as well that works on a day to day basis. I think that the common thread of all the people I work with, then I think of my partners who do the property management, I think of the whole team that works on a day-to-day basis, with Collections Equinoxe, you have to love people from the start.

You have to like to accompany them, you have to like to do customer service, you have to understand, you have to be able to listen to them. So that's really one of the aspects that you have to like to have more staff. But there is also being able to manage several aspects, I think you mentioned it, it's not a very sharp type of management. You really have to go from the knowledge of the building to the mechanical, electrical, ventilation, all that. You have to know all these aspects because otherwise, you're not necessarily able to answer questions for the tenants or to make the right repairs. Even customer service, and then pure marketing as we do it. So, the range is very, very wide, and that's what I actually like. That's what I love a lot... of what I've been busy with now since 2017 there. It's true, it's thrilling.  That's it, that's it, it's growing. I love it. Precisely with so many tasks and then so many varieties, responsibilities, how do you pay a building manager in a context where you know, we shout everywhere, we find nobody? So, what are the current working conditions for a relatively experienced building manager in terms of salary? If we're talking about a landlord who is looking for a company that is going to want to take care of his portfolio, for example: a landlord of several plexes spread out in a territory like we talked about a little earlier. Then we also have owners who have towers of 150 units, so the billing structure that a manager will usually bring will differ. Often with portfolios of plexes or things like that and then usually it's really the management company that has all their staff on their payroll, on their [inaudible 24:55] and will rebill with materials, all that, will take care of the collection of those calls. And then the rental sometimes it's included in the management contract, sometimes it's excluded. Sometimes it's the owner himself who takes care of the rentals or he'll subcontract to brokers or he'll have someone who takes care of the rentals. So there's all that, the range is very... everything is done. It's often agreements, and then everyone has their own business plan.  Otherwise, I'm a little more in the institutional business, I'm a partner with institutions. Usually, it's based on revenue. So we're going to have a fee, a percentage on the gross income that's going to make us have a portion of the fees paid for the management company and some fees that are directly to the building. So absolutely, there are days, again I use the terms there of paying internally for... there within the company owns the building.

So we agree on another level. If you want there are direct costs to the building, then there are indirect costs that are covered by the management fee. That's fine. At that point, it's a business model question according to... Yes, it's all negotiated at the end. Yes, it does. Absolutely, absolutely. In closing, since you have a very, very strong HR, human resources background, I'd love for you to be able to talk to us, what are the standout qualities of a property manager? Very good question. Is it on his attitude, mainly his values or on his skills? But that's a really good question. If I look at people who like to grow, you have to like, you have to like your job. I think that's true in anything. Like you Chia, you love what you do, so that's fine on your end. Property management you just have to be multidisciplinary, you have to love being multidisciplinary, you have to love having emergencies and contingencies. OK, I'm just going to... Water damage can happen anywhere... But that's it, I'm just going to give you an example: sometimes you go to sleep, and then the phone rings because there's a fire, there's a fire in the building. Who do we call at that time? The manager of the building, then you are not the only one to call the night at that moment because it rings everywhere in the building. Yes, that's right, many, many unforeseen events. There are a lot of unexpected things. You have to be able to have a good expertise to be able to prevent because you don't want to manage fires every day, so it's really planning, preventive maintenance that will help all these aspects. So you have to be able to be very multidisciplinary. You have to be familiar with the rules of the court, the Régie du logement, the building code, all the technical aspects are important. But you don't just have to be a numbers person and a technical person. There are people, there are staff, lots of staff to manage. There are a lot of tenants with...they all have a different story. That's true. They all have different apprehensions, different expectations. Absolutely. For sure, if you're renting a $4,000 unit versus an $800 unit...It's not the same expectations.... expectations are not the same. So, there's all that to manage. Of course, when you want to come in with a 3 to 5 percent increase, you have to manage that too. So I think that these two aspects, you really have to like people fundamentally. Then the technical aspect is very important to be able to evolve well, so that you don't have to manage fires every day. Exactly. Thank you very much, Philippe, for answering all my questions. In summary, in fact, what I would like to share is that I think that the management of rental buildings like what we discussed in the show, is that there is more and more construction of rental buildings that the developers, for themselves, want to keep the buildings. So at that point, you really need to be well surrounded by good property managers. So it's a high growth area, in my opinion. So, if you want to learn more, maybe we could continue another show to do a second round of questions on that.

Thanks for listening. See you next time.