Larger Properties In Novogradac Operating Expenses Database Benefit in Some Expense Categories

Published by H. Blair Kincer on Monday, November 22, 2021 - 12:00am

When it comes to operating expenses for affordable housing properties, bigger properties in 2020 appeared to benefit from the economy of scale in certain expense categories.

That’s one of the takeaways from the 2021 Novogradac Multifamily Rental Housing Operating Expenses Report, which provides information on expenses (and income) for affordable housing properties financed by low-income housing tax credit (LIHTC) equity.

The 2021 report focuses on same-store properties–the approximately 1,200 apartment properties in Novogradac’s database with expense and income data included in both the 2019 and 2020 data sets. That allowed Novogradac to use and apples-to-apples comparison for properties during a year that was affected greatly by the COVID-19 pandemic.

Blog Graphic: Large Properties Saw Bigger Difference in Administration, Repairs
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The report provides cost-per-unit expense totals for LIHTC property and breaks the data into comparison subsets such as new construction vs. acquisition rehabilitation; senior vs. family housing; large metropolitan, small metropolitan, micropolitan and non-metropolitan areas; high-rise, mid-rise and low-rise properties; buildings of different ages; and more.

While same-store affordable housing properties with 200 to 499 units saw a 5.8% increase in overall expenses and all properties saw a 5.4% increase, there were some categories that were significantly less expensive for the large properties.

Novogradac breaks down the size of properties into five categories: fewer than 50 units, 50-99 units, 100-199 units, 200-499 units and 500-plus units. For purposes of this comparison, “large properties” means properties with 200-499 units, since there are very few in the 500-plus category, making that data less reliable.

The size of the property often is a result of whether it is located in an urban or rural area. Large properties are generally in more-populated regions, so examining “large” properties expenses may sometimes really be “large, metropolitan” properties.

Novogradac used data from nearly 100 properties in the 200-499-unit category, comprising more than 25,000 units. Among those properties, administration costs dropped 6.5% in pandemic-affected 2020, a significantly larger decrease than the overall 0.8% drop among all same-store properties. In dollar figures, large-property complexes saw a decrease in administration expenses of $48, compared to the overall drop of $7 per unit.

The bigger decrease in the larger properties may be attributed to the fact that pandemic restrictions on interactions between residents and property management allowed operators of larger properties to decrease staff. For example, a 30-unit LIHTC property might need to retain its small staffing levels even in the pandemic, while a 450-unit property could handle 2020 with a reduction in its staff.

Similarly, the repairs and maintenance expense category saw a very slight 0.3% increase for properties with 200-499 units, compared to the 2.2% increase for all same-store properties. Both figures were significant decreases from the growth rate in that category in recent years, but the gap between the largest properties and all properties is significant. For greater contrast, there was a dramatic shift for the smallest properties. Properties with fewer than 50 units saw a 7.0% increase in repairs and maintenance expenses, while those with 50 to 99 units saw a 3.6% increase.

In dollar figures, repairs and maintenance expenses increased $3 per unit for the large properties, while they increased $63 per unit for properties with fewer than 50 units and by $35 per unit for properties with 50 to 99 units.

The lower rate of repairs and maintenance expenditures for larger properties may again be attributable to the economy of scale, particularly if larger properties were able to maintain a small staff to do repairs, while smaller properties still had to find contractors to do the work.

For more specific details, purchase the 2021 Novogradac Multifamily Rental Housing Operating Expense Report.