At the beginning of this series on consulting, I discussed the role of consultants in the rental housing industry and explained that interpreting information and formulating recommendations for clients can be a complex challenge that requires experience, knowledge, problem-solving, and professionalism, attributes which not every consultant possesses. In this post, the second in this series, I’m going to talk about knowledge.
What do I mean by a consultant’s knowledge? Knowledge is closely related to experience since knowledge is usually gained alongside experience. However, knowledge goes further than simple experience because it requires understanding how buildings, companies, and people in the industry actually work—you need to understand “why”, not just “who” or “what”. I’ll try to explain what I mean by this by focusing on specific parts of the industry.
To be familiar with a rental apartment building you need to know its unit mix, sizes, amenities, vacancies, and asking rents. But to truly understand a building, you need to understand why the developer chose to build that particular unit mix, why those unit sizes, and why those amenities. You need to understand what types of renters live there (incomes, number of people, etc.), which units are most popular among prospects, and how that building compares to its competitors in the neighbourhood. It’s not enough to know a building’s basic statistics, you must also know how it came to be and what its strengths and weaknesses are.
Property managers and asset managers are the people who operate rental properties and that means knowing everything about new leases and lease renewals, administration, legal stuff, human rights stuff, cleaning, maintenance, and customer service. Non-managers can learn about these tasks and know what they are how they work, but to truly understand them means learning the highly complex interaction between them and the challenges they present to managers and the trade-offs and prioritization they require managers to make.
Understanding renters—known as prospects when searching for a rental and tenants after leasing a rental—requires more than knowing the number of persons in their household and their household income. Household size will help you know what number of bedrooms they need and income helps you know how much they can afford. But if as a consultant you’re going to recommend to clients the number of units they should build, size, amenities, and other things, plus guide marketing and leasing strategies, then you need to understand how renters choose between housing options (buy or rent? apartment or townhouse?), how they value amenities and features, how long they intend to rent, and how they calculate what rent they can afford.
Lenders have always played a key role in the rental housing industry but in recent years they have assumed a much greater prominence, reflecting the ever-increasing prices of buying, developing, and managing rental properties. It’s relatively straightforward to know what types of projects and what kinds of transactions they prefer to lend money into, but for consultants, who often work for lenders directly or at the request of lenders, it is essential to understand why they prefer certain types of projects and some developers, and what they hope to get out of their involvement. Armed with this level of understanding, consultants can advise their clients better and help shape projects so they are investment-friendly.
Knowing what developers want to develop and where they want to do it is one thing, but, because developers play such a fundamentally important role in the industry’s future, it is essential to understand them from the perspectives of their profit goals, debt load, risk profile, financing limitations, short/long hold, construction capabilities, general contractor capabilities, project management skills, leasing skills, reputation, etc. These perspectives are different for each developer, so, unlike with lenders which are relatively few in number, with developers consultants need to understand dozens and dozens of them.
I realize a lot of what I’ve talked about in this post might seem a bit pie-in-the-sky, and it’s true that no consultant is going to be able to acquire detailed knowledge of “how things work” for so broad a range of rental housing assets, activities, and participants. But, to paraphrase what I said in my post about experience, for consultants, gaining detailed knowledge and understanding of at least some aspects of the industry will be invaluable in the long run. Simply knowing things is not enough; you need to understand how they work. That’s the difference between information and knowledge, and of the two only knowledge allows consultants to help their clients solve problems.