The Multi-family Market

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Working in apartment buildings requires both residential and commercial expertise.

For most of its 36 years in business, Alltek Energy Systems, Inc., has worked in the multifamily housing market within a 100-mile radius of its headquarters in Waterford, NY. The best way to characterize that market during the last three decades is “ebb and flow,” says Michael O’Connor, Alltek’s president.

“Multi-family housing comes and goes, along with the economy,” says O’Connor, whose company specializes in new construction of apartment buildings, hotels, and large commercial spaces. “Right now it’s a bull market in our area, although the developers will probably overbuild. Then there will be a void of activity for five years or so, and then everything will kick up again.”

With the nation’s housing inventory still low, rental units remain a hot commodity for now. The National Multifamily Housing Council (NMHC) in Washington, D.C., reports that nearly two out of five U.S. households (37%) currently occupy rented quarters—a percentage that has risen as home ownership dropped in the wake of the 2008 recession and the foreclosures it prompted. More than half (52%) of those rentals are in multiple-unit structures according to NMHC, which represents developers, owners, and managers of apartment buildings.

If you decide to pursue the multifamily market, O’Connor advises, “You have to be prepared for the ups and downs by being financially sound and having a multiply trained workforce capable of handling various projects.” Alltek, for example, often designs an apartment building’s heating system, forms the sheet metal needed, and puts in gas or refrigeration lines. And, after completing construction, Alltek always attempts to sell a service contract and handle HVAC maintenance work for the building.

While multifamily housing sounds similar to the residential market, the work itself tends to be more commercial, says Laurita Parker, office manager for Spectrum Maintenance & Services, LLC. Over the last 15 years the company, based in Denton, TX, has worked in numerous residential structures that feature commercial-type equipment, such as a boiler/chiller system. “You don’t know if the problem is being caused by a specific piece of equipment for an individual apartment, like the coil, or something further back in the line related to the chiller itself or the condenser,” Parker explains. “Sometimes we have to check six different condensers to figure out the problem for just one apartment—and that can take time.”

Typically Spectrum is contacted either by individual owners of rental apartments or the management company hired to handle general maintenance tasks and rent collection for a building or complex. Parker notes, “A management company will have regular maintenance staff to change filters and make sure drains aren’t clogged. They’ll call us for the jobs that are more difficult or that they aren’t licensed to do, like checking the refrigerant levels.” She tracks Spectrum’s work in apartment buildings as a separate business category because, in Texas, multifamily work is considered residential for tax purposes but classified as commercial for insurance purposes.

Getting Ready

For Parker, a defining characteristic of apartment owners and managers is their focus on minimizing costs. For example, don’t expect them to show much interest in investing in more energy efficient equipment—particularly if renters will be paying the utility bills. “Individual owners are less likely to do the necessary repairs and more likely to put the cost on the tenant, if possible,” Parker says. “And management companies often try to get away with a once-a-year inspection rather than one for heating and one for cooling.”

In addition to keeping in mind that emphasis on economy, here are three suggested steps to take before moving into the multifamily housing market:

Research the local supply and demand for apartments. Statistics compiled by the National Multifamily Housing Council show the geographic diversity of the apartment rental market. In New York City, for example, apartments represent 50 percent of all housing, compared to 42 percent in Washington, D.C., and just 15 percent in Philadelphia. State or regional associations that represent the multifamily housing industry can also provide data related to the age of apartment stock, planned construction of new apartments, and ownership and management characteristics.

Depending on your service area, a sizable multifamily market may already exist. Spectrum, for instance, is located in the same city as Texas Women’s University and the University of North Texas. As Parker notes, “College towns tend to be overrun by apartment buildings.”

In terms of new construction, apartments are increasingly being built as part of multi-use developments that also include retail or office space. A developer’s construction manager or general contractor often prefers to work with one HVAC contractor on the project’s various components, says Michael O’Connor. As an example, Alltek recently completed work on a five-story building that features retail space topped by student housing. “The retail was all concrete up to the deck, and then it was wooden frame for the four floors above,” O’Connor explains. “We had to accommodate getting ventilation and refrigeration lines from the roof of the building down to the first floor.”

Allow for the unexpected. Could your company survive a 90-day wait for its first payment after starting work on an apartment building under construction? It’s been known to happen, says O’Connor. In fact, he knows of one multifamily housing project where the HVAC contractor and other subcontractors didn’t receive their last 20 percent of payment because the developer and general contractor were at odds.

“We’ve had projects that are 80 percent through and the owner ran out of funding or a major catastrophe happened to the building. You have to be prepared to weather a storm like that, like having a good line of credit with your bank,” observes O’Connor. “I’ve also learned that you have to be aggressive—but polite—about collecting your money so you can make payroll and pay your bills on time.”

Getting paid by management companies often depends on having a purchase order in hand before entering an individual apartment, adds Laurita Parker. Plus, you might need to obtain the manager’s permission before starting any maintenance or repair work that will exceed an established limit, such as $250.

“Another surprise can come in scheduling, because you never know if the tenant will be home when you go to an apartment,” says Parker. “It’s not unusual to have to wait for the tenant to come home, go to the apartment offices to get a key, or reschedule the appointment. That can really send a day’s schedule out the window.” To minimize schedule disruptions, Spectrum uses appointment windows, rather than specific times, for its work in multifamily housing.

Build and nourish business relationships. Parker and O’Connor agree that much of their companies’ work in the multifamily housing market comes from the reputations for quality they’ve built and the community connections they’ve made through the years. “People who own or manage apartment buildings tend to hang out in the same circles, so once you’ve developed a good relationship with one, that person will recommend you to others,” Parker says. She also recommends being active in the local chamber of commerce and community events—especially those that attract management companies in search of tenants for their apartments.

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