Marketing and Sales Tips

A Borrowed Marketing Lesson

by Marvin Levin

It has been a little over a decade since my friend Bill dropped by our office with a set of apartment keys. Bill said that he was off on a quick trip and requested that I call the lender on his apartment project and offer to deed the property to the lender in lieu of foreclosure. He said that his colleague had built one of the most deluxe apartment buildings imaginable, and he claimed (and I later agreed) that it was a fabulous value. But, it would not rent.

The building contained 30 units, and was a mix of one and two-bedroom apartments, extremely well designed, with adequate parking. The project was located in a middle-income district in Oakland, California.

The bad news was that the building had never experienced better than 15 out of 30 units occupied. It was not a matter of short-term tenancy, but rather it seemed that they could only rent one or two units per month. After awhile, the exits equaled the new rentals and, thus, the occupancy seemed stuck at around 15.

Bill said he wouldn’t mind if I tried an experiment before turning over the keys and delivering a deed. Well, we made a few changes and, after two months, the building was full and had a short waiting list.

Management of the property had been taken over by Bill’s colleague, and he had made a fundamental mistake. Can you guess what it was?

The property was advertised in considerable detail in a local newspaper and in an apartment house guide. The problem was that the advertisements disclosed the rent. And, the advertised rent was approximately twice the market rent in the area. As a result, almost no one visited the property. The manager told me that sometimes a whole week would go by without seeing one prospect.

This real estate tip is entitled “A Borrowed Marketing Lesson.” Consider the difference between real estate and automobile marketing. It is an example of “business Darwinism.” If an automobile dealer makes a small marketing mistake, he/she will not be around for very long. Especially in California, one could make a real estate marketing mistake and for much of the past several decades, inflation would rescue one from the marketing error. Well, in this case the marketing error was simply too extreme and the results were too quick.

Let’s go back to the automobile dealer. If the dealer has an affordable automobile, it might be advertised as a “$13,900 special.” But, if the dealer is offering a Cadillac or a Lexus, the dealer will never mention the price in the ad because he knows that it diminishes traffic. I suppose that many of the people who visit a Cadillac showroom are shocked at the driver-away price and they walk away. However, on the margin, a few of them want to own the Cadillac and they rationalize paying that little bit extra every month to have what they want.

Is that a lesson that we can borrow and apply to the subject deluxe apartment project? Well, we did. We changed the ad to say something like: “One of the most deluxe apartments in the East Bay. You have to see it to appreciate it!” We also took the phone number out of the ad. Now, we had a large number of people driving to the address because they were simply curious about this deluxe apartment and couldn’t make the telephone call. The overwhelming majority of them were somewhere between irritated and angry when they heard the rent, and they walked away. However, a couple of people each week decided to stretch the budget and became tenants. The rest is history.

A few years later, our friend Bill sold the property for a major profit.

This example illustrates out the difference between a salesperson and an order taker. An order taker really wants someone to appear and say: “I’ll take it.” A salesperson suspects that very little will be purchased from an advertisement, and the purpose of the advertisement is to create traffic. Of course, we think the advertisement should be honest. A Cadillac and a Lexus are deluxe cars, and Bill’s property was also deluxe. There is no misrepresentation.

We have seen some on-site apartment managers resign over this issue. I was gratified when Bill’s apartment manager in the subject case did not resign, but rather was able to help promote the apartment value, save it from a pending foreclosure, and make a major profit.

If you know of an apartment with substantial vacancy, please contact me.