The owner of a 216-unit apartment community in the Southwest analyzed the economic impact of a SageWater piping replacement project. The community had been suffering from frequent leaks in the interior water piping. The maintenance staff was stretched thin repairing leaks and water damage, while on-site managers were busy responding to resident complaints about lengthy water outages, water damage to personal belongings, and mold concerns.
Resident retention had also become a significant challenge. As a result of the ongoing leaks, the resident turnover rate climbed to 48%, which was far higher than the rate at similar properties that did not have leak problems. In order to maintain occupancy, the owner was forced to keep rental rates below market levels while nearly tripling the concession and advertising budgets to attract enough new traffic to replace the constant resident turnover.
The owner asked SageWater to provide a recommendation that would solve their problem while staying within a very strict capital improvement budget. After reviewing the issues, SageWater recommended replacing the existing interior water piping and upgrading to include a water submetering system. The proposal was turnkey, including all drywall and paint repair, and SageWater’s price was notably lower than other competitor bids.8
As a result, SageWater was awarded the contract, and the project was completed within budget in 72 working days. On-site property managers were pleased with the professionalism of the renovation crew and the very low level of inconvenience to residents. Residents stated that they welcomed the project and were relieved that the owner put an end to the water leaks.
Financial and operational analysis of the project concluded that:
- The hidden indirect costs associated with the old piping system (resident turnover, depressed rents, property reputation, negative online reviews, etc.) amounted to 9 times more than the actual cost of just the leak damage repair.
- Annual lease renewal rates increased by 60% after the project was completed.
- Occupancy rose to an effective rate of approximately 100%.
- The improvement in resident satisfaction enabled the property to increase rental rates by approximately 10%.
- Increased cash flow and the elimination of repair expenses yielded a 59% return on investment and paid for the project within 20 months.