The Year was 1999 and the Los Angeles Lakers just moved from the Great Western Forum in Inglewood to Staples Center in Downtown L.A. They had a shiny new home for their brand new superstars Shaq and Kobe. The Lakers hadn’t won a playoff game past the second round in eight years and they were finally ready to change that. They also brought in Phil Jackson from Chicago to right the ship and bring the trophy back to Los Angeles.
That same year, I bought my first apartment building. It was a 12 unit building with mostly two bedrooms, built in 1975. This was very different from what I knew, as our family traditionally bought industrial warehouses, but I was enthusiastic to learn a new type of real estate. I understood that managing an apartment building would be different, but I was excited for the challenge.
Staples Center was a state of the art building, with all the bells and whistles. Located right in the center of Downtown and it had a seating capacity of over 19,000 fans. The bars and concession stands were upgraded from the Forum. They added three levels of Luxury Suites around the arena, making it a great venue for executive and business meetings. The locker rooms, arena clubs and the rest of the facilities were all state of the art. The great team on the floor matched the great arena and services off the floor.
I decided that I, like the Lakers, needed a great launch for my first apartment building. I was planning on painting the building, upgrading the common areas and remodeling the interior of the units. I wanted this building to be the nicest on the block to attract great tenants and give them a great place to live. I wanted this to be a place that I would be proud to call home, which in its current condition, it wasn’t. My dream was to transform it into something amazing. Much like the Lakers had done.
To pay for the new arena, new superstars and the new coach, it did not come as surprise that the team needed to raise prices for these upgrades. So they increased ticket prices, and continued to do so for many years. They also increased the prices for drinks and food for the new restaurant choices. To offset the increased costs, the team raised prices, which is what any business would do. Most season ticket holders didn’t mind because they got a much better venue and with a much better team.
I, too, got ready to increase my prices to help pay for all the upgraded services I was planning to offer and that is when I learned about rent control. Even if I made all of these upgrades, I couldn’t charge any more rent than I was charging until then. The law actually forbade me from signing a new lease with a tenant unless they actually moved out. Unlike the Lakers, I was not allowed to increase my prices to pay for the cost of the upgrades. That severely handcuffed my efforts to improve the tenant’s experience in the building, as I simply couldn’t pay for them. When my investors heard that the L.A. market was so regulated, they stopped investing with me to invest their money in areas with fewer restrictions.
Anyone can see how not being able to increase prices in line with increased services (not to mention increased costs) will result in not caring about customer service, which is offering the best experience for your customer.
The Alternate Universe
Now let’s enter an alternate universe, where property owners are free from rental restrictions and the Lakers are now subject to “Ticket Price” control.
The Lakers would not be allowed to increase ticket prices more than 3% a year regardless of the upgrades to the arena or the quality of the team on the court. Jack Nicholson would be sitting courtside at a cost of $187 a ticket, with the person next to him having just bought tickets for $2,500 a ticket.
They would still be playing in the Forum, but after years of disrepair due to lack of money to make upgrades, it is now dubbed the Below Average Western Forum. The concession stands are loved by Baby Boomers because it still feels like the 1970’s from the old décor to the same menu, since prices on hot dogs and beer could only rise 3%.
The locker rooms and bathrooms have a mildew smell that just gets worse each year.
Most of the players are past their prime because they can’t afford to pay for top quality. Any younger players they do have are only there to prove themselves to other teams because only the Lakers have these restrictions. They can’t afford to pay top salaries because ticket prices are what pays the salaries, so without the ability to increase prices, they can’t pay the players. The same would go for the quality of coach.
The Lakers would be playing in a rundown arena, with a team that hopes to just not be the worst each year and fans enjoying (or rather, not enjoying) the same foods and souvenirs for 20 years. I would be surprised if anyone shows up for this type of customer experience.
Now I have the ability to charge any rent that the market is willing to pay. So I am constantly looking for ways to create a better experience while trying to turn a profit. I take the Silicon Valley approach and see what service I can offer my clients. I start with upgrading the common areas with swimming pools or fire pits. In some buildings, where the residents want better security, we may choose to offer a doorman. We can offer the newest in smart home technology to control everything inside your home. Or offer concierge services to help maintain your home while you are at work. The possibilities are endless on how we can improve our customer service because we can make a profit.
I recognize that my product may not be for everyone, but that is the beauty of free markets, people have the ability to choose. You can choose to eat at McDonald’s or Wolfgang Puck. Stay at a Motel 6 or the Ritz Carlton. Go to a Lakers game or watch it in TV.
When business owners can focus on the customer (while trying to make money doing it) the entire market benefits, and people can now choose whether they want it or not.
Restrictions work against people’s self-interests because who will put in the time or money to make improvements if they can’t even pay for them?
Whether it’s the Lakers, a restaurant, or a property owner, when limitations on profit are put in place, it leads to the death of customer service.
Shaya Stauber is with Ratner Property Management and may be reached at Shaya@RatnerPM.com.