SWFL Update - Cape Coral, Ft Myers, Lehigh, Naples

[Adam Bartomeo]

Here is what I sent to my owners 3 weeks ago...

SWFL We Have A Problem

A year and a half ago I sent an update with a warning that there were several factors that were potentially going to impact in SWFL real estate including immigration laws that were passed. A little less than a year ago I sent an update stating that there was a flood of inventory that hit the market and that it would impact sales prices and rental pricing in the future. And, 4 months ago I sent an update saying that the market has declined as predicted but we felt that it was starting to stabilize. Today's update is to let you know that it has not stabilized and is continuing to decline.

At Bartomeo Property Management we track several key metrics to not only assess the market but to help us understand our internal operations. We understand that vacancy is a true killer to an investor's portfolio, and we track multiple metrics to keep abreast of any potential concerns. The indicators that I will highlighting are total vacancies and total inquires.

An Explanation
Forgive me if this is elementary to some of you but it is necessary to explain for a better understanding.
There is a direct correlation between the number of vacancies one has and the amount of inquiries, showings, applications, and ultimately signed leases that one receives. As total vacancies go up so should inquires, showings, applications, and signed leases. For example, if you have zero vacancies then you will likely have zero inquiries, so, we will have to understand why we don’t have vacancies. Is it because the rent ready’s are taking too long, or we have very little turnover. Tracking these metrics is detrimental to understanding why a unit is not renting and what is broken in the system. We track these metrics and cover them in our weekly property management meetings in an effort have the lowest amount of vacancies AND to reduce the amount of time the units are vacant. There are multiple steps to filling an empty unit, each step trickles down to the other with the climax of having a signed lease. The first two steps are 1. having a vacancy marketed and 2. receiving inquiries. If you do not have these two steps than you will never get the unit filled.

The Problem
Below I included a chart and the raw data to help you understand our concern. As you can see from the chart, inquires have been steadily declining (there is fluctuation in the chart depending on how many vacancies we have). If we look at today's vacancies/inquires, we have had 9 vacancies for the month of May and have ONLY had 11 – 23 inquires per week. In contracts to Dec when we had 7 – 11 vacancies, we were having 60 – 81 inquires. This is extremely worrisome as there hasn't been anything on our end that changed, and this means that there is a shift in market conditions. There is a trickle effect that happens with lower inquiries... with lower inquires there are lower showings, applications, and leases. On average will need a minimum of 23 inquires to get 1 signed lease. Based on our current numbers the average vacancy will sit for 2+ months to get a qualified tenant and another 2 - 4 weeks for them to move in.

What Have We Been Doing
1. We put a big push on reducing turnover about 10 months ago which included:

• Speeding up rent ready’s to have less down time and pushing owners to complete their large rehabs. Some of you have had vacancies for a year due to large rehabs.
• Slowing down, stopping rent increases, and even lowering some rents. Some of our owners still have very low rents but the average rent increase right now is $0 - $50.
• Improving the work order response time which is a factor of customer service. We have 3 maintenance technicians that have increased response time and have saved our owner tens of thousands every month.
  • In June 2023, we were averaging 130 work orders every week. We are currently averaging 75 which is about a 40% reduction. This is with adding 30 units to our portfolio.
  • Last year we were averaging expenses of $150,000/mon. This year we are averaging $106,000/mon. About a 30% reduction in expenses for our owners. This is despite the higher turnover rate (creating more expenses) and adding 30 units to our portfolio.

• Increased customer service - The office and phone are maned 9a – 5p, M – F to give our tenants the ability to text, email, call, or walk-in.

2. We will need to get even more aggressive with our pricing strategies

• Not over pricing at the start.
• Weekly price reductions based on traffic.

3. Aggressive marketing

• We currently have a fairly aggressive marketing strategy but there is always room for improvement.
• With the current NAR settlement, we will no longer be able to market commissions to agents on the MLS. We are working on another form of communication with higher commissions.

The Future
All indications are showing that it will get worse before it will get better - sales inventory is still high, rental inventory is very high, more and more new construction apartment buildings are nearing and/or have been completed (at least 10 in Cape Coral that have hundreds of units are still being built), displaced homeowners are returning to their homes, and a host of other concerns.

We have gone through years of rapid rent growth and a lack of inventory. The market had adjusted accordingly but then over adjusted with over building. The market is correcting itself again and it will reach equilibrium at some point. We are here to answer any of your questions.

The chart below help you visualize the concern that we are having.

	31-Oct	7-Nov	14-Nov	21-Nov	28-Nov	5-Dec	12-Dec	19-Dec	2-Jan	9-Jan	16-Jan	23-Jan	30-Jan	6-Feb	13-Feb
Listed	8	11	11	12	10	7	9	11	8	6	6	4	4	3	3
Inquiries	26	48	101	123	133	82	94	61	60	77	42	61	67	55	44
Showings	8	10	34	33	48	31	37	16	23	35	14	16	27	19	12
Applications	4	2	16	10	9	18	15	5	12	11	8	7	7	3	8
Signed Leases	1	0	3	2	5	7	0	4	3	4	2	3	1	0	3

	20-Feb	27-Feb	5-Mar	12-Mar	19-Mar	26-Mar	2-Apr	9-Apr	16-Apr	23-Apr	30-Apr	7-May	14-May	21-May
Listed	7	9	9	6	5	5	5	2	8	8	7	9	9	9
Inquiries	41	78	90	81	43	33	80	29	30	28	19	20	23	11
Showings	19	23	29	29	8	12	34	11	13	7	5	6	9	6
Applications	3	10	11	11	12	5	22	7	7	8	2	1	1	3
Signed Leases	1	2	4	4	4	1	3	3	3	5	2	0	1	2

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