The student housing industry obsesses over occupancy rates, but Teddy Abdelmalek argues we’re measuring the wrong thing. As Senior Vice President of Business Development at HH Red Stone, he’s built the company’s model around performance-based fees tied to NOI rather than physical occupancy, challenging conventional property management wisdom.
“Are we measuring the wrong things? Yes,” Abdelmalek states plainly. “Everyone is always worried about occupancy, and I can get you to 100% if all the beds were priced at $1. Occupancy does not measure success, economic occupancy and rental rate growth is key.”
Understanding Economic vs. Physical Occupancy
The distinction Abdelmalek emphasizes centers on economic occupancy, a metric showing how much of a property’s potential income is actually being collected after accounting for bad debt, vacancy, and other losses.
“Physical occupancy is how many units or beds are occupied, but economic occupancy is how much revenue you are actually capturing from those units,” he explains.
The formula is straightforward: economic occupancy equals collected rent divided by gross potential rent. The results can be surprising.
Consider a property with 100 beds at $1000 per bed, creating $100,000 in gross potential rent. If the property gives concessions and charges only $800 per bed to drive occupancy, it collects $80,000. “You’re 100% occupied, but 80 times 100 is $80,000, and you take $80,000 and divide by the $100,000 you could have made. You’re actually at 80% economically each month even though you’re occupied at 100%,” Abdelmalek illustrates.
The reverse also holds true. A property at 90% physical occupancy charging premium rates might achieve 120% economic occupancy by collecting more than budgeted rent. “You could literally be sitting at 90% occupied, but still have a higher economic occupancy because you’re actually charging more than what you said you were going to charge,” he notes.
The Performance-Based Management Model
This understanding drives HH Red Stone‘s approach to third-party management. Rather than collecting standard 3.5 to 4% management fees regardless of performance, the company structures deals with base fees plus performance incentives tied to achieving budgeted NOI.
“Why should an owner pay full management fees on a property that’s only 75 to 80% occupied?” Abdelmalek questions. “Some companies are still collecting three and a half and 4% on gross potential rent even when they only get to 80%. They’re collecting on $4 million, which is still a lot of money, rather than what they should be collecting.”
HH Red Stone’s model combines a base fee with performance bonuses triggered when properties match or exceed budgeted NOI. “I’m going to collect a base fee, and when I get to the NOI that’s budgeted, if I match or exceed it, you pay me handsomely because I got you to the Promised Land,” he explains.
The Danger of Chasing Physical Occupancy
Focusing solely on filling beds creates long-term problems. Properties that slash rates to achieve 100% occupancy face resident expectations that prevent rate recovery in subsequent years.
“If you walk into a store expecting to pay $99 for a product but it’s listed for $19.99, your first reaction isn’t excitement – it’s suspicion. You start wondering, ‘What’s wrong with this? Is it expired? Is the quality not there?’” Abdelmalek explains.
“The same dynamic plays out in student housing. When operators discount too aggressively, they don’t just solve a short-term leasing problem – they create a long-term one. If a resident signed at $799, it becomes very difficult to ask that same resident to renew at $1,000 the following year. In effect, you’ve created a pricing precedent that resets expectations in the market and makes future rent growth much harder to achieve.”
This approach also dilutes brand value. “You create this perpetual cycle where you’re engaging the consumer to think one way when you want them to think the other,” he notes. “You’re trying to solve a short-term issue versus addressing the long-term brand positioning.”
Alternative Strategies to Maintain Value
Rather than dropping rental rates, Abdelmalek recommends incentivizing action through value-adds that don’t dilute pricing. “Sign your lease today and get $1,000 or one month free, and spread that month across the entire lease term,” he suggests. “Or incentivize them with something they need, whether it be free textbooks, free parking, something that is not necessarily going to dilute your rental rate growth overall.”
This preserves the property’s rate positioning while still driving leasing velocity. The revenue impact might be similar in the short term, but the long-term brand value remains intact.
What Metrics Actually Predict Success
For Abdelmalek, long-term property success comes from focusing on economic occupancy alongside metrics that operators can directly control: leasing velocity, resident retention, operational efficiency, and revenue generation.
“Economic occupancy is how much did you collect versus how much did you say you were going to collect,” he emphasizes. “Those numbers sometimes are very, very different, and that’s what we should be measuring.”
This philosophy extends throughout HH Red Stone’s approach. After a decade managing exclusively its own portfolio, the company launched its third-party vertical with clear conviction: align management success with property success, measure what actually matters, and never confuse activity with achievement.
“We only benefit if the property benefits,” Abdelmalek concludes. “That’s true owner alignment.” Teddy Abdelmalek is Senior Vice President of Business Development at HH Red Stone. HH Red Stone is the property management arm of HH Group, managing approximately 10,000 beds across multiple asset classes, including student housing, multifamily, affordable, and mixed-use properties nationwide. After a decade of exclusively managing HH Group’s owned portfolio, the company launched its third-party management vertical to serve other owners with the same institutional-grade approach it applies to its own assets.
Disclosure: Individuals or companies mentioned may have a commercial relationship with KeyCrew.
