Multifamily Housing Organizations Maintain Momentum

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Revenue Management Strategies and Technologies Make Good Partners in Today's Economy

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I attribute that almost 100 percent to the LRO system. We were 80 percent committed to it when we did the system pilot test study and we are 110 percent committed to it now. Lease/rent optimization technology is an integral part of our business practices, regardless of market conditions.

Like a person who adopts intelligent fitness practices in the spring and summer and then finds it easier to stay healthy when cold weather strikes, leading multifamily housing organizations are faring well in today's economy. Operators say the effective revenue management strategies and profit optimization technology implemented over the past few years are helping them ward off the financial challenges other industries are experiencing.

Multifamily executives explain that the decline in job growth nationally has impacted their business, but the loss is offset in part by homeowners entering the rental market in record numbers to cut household expenses and the increased number of renters that are postponing buying their first home. This is a constantly changing market and many multifamily property operators are relying on lease/rent strategies based on comprehensive revenue management technology that evaluates the erratic demand dynamics and provides lease/rent pricing recommendations based on more accurate forecasting.

Take emotion out of the lease/rent decision
A good example is David S. Santee, executive vice president of property operations for Equity Residential, who said his company is coping with a changing market by keeping a level head. "We are right on track with where we were last year with occupancy and 'left to lease.' Even our down markets were not as 'down' in the second quarter this year as those of our competitors." Equity is the largest publicly traded owner, operator and developer of multifamily housing in the United States, with nearly 160,000 apartment units nationwide.

Equity implemented The Rainmaker Group's revolution LRO™ revenue management system in 2006. Santee said the system helps:

  •     Control inflection points within the business cycle
  •     Avoid rate-dropping and other knee-jerk reactions to market changes
  •     Support decisions based on facts and data, not emotion
  •     Create a customized process and discipline for price-setting

Drew Taylor, executive vice president of asset management for Mid-America Apartment Communities, agrees with Santee that the discipline provided by revenue management technology is a key factor in helping the company maximize revenues--regardless of economic conditions. "Effective revenue management strategy backed up by a solid system forces a management process that prevents over correcting in leaner times. It has helped us in boom times too, when managers might have been content with good occupancy and perhaps were slow to push rents higher." Mid-America was named one of five top REIT performers earlier this year by the Wall Street Journal.

Taylor said revenue management systems also help the company:

  •     Provide managers with price-setting guidelines
  •     Enable strong collaboration between corporate pricing teams and communities
  •     Increase revenues through clear visibility across optimized new and renewal price-setting practices
  •     Gather and quantify real-time competitive information
  •     Build an internal compliance program to protect against fair housing discrimination claims

B-level properties holding steady
Laramar Communities, LLC, whose core business is to turn C-level properties into B-level properties and manage them in 15 major markets nationwide, is seeing many single families return to the rental scene, although in troubled markets like Florida, condos and single family homes rentals are a growing competitor. "The B product is still a fairly safe place to be, even though we're seeing rent growth flatten in some markets," said David B. Woodward, managing partner and CEO for Laramar. "We are carefully watching all our markets, continuing to do acquisitions, and working to maximize occupancy and maximize revenue."

Over the years, the industry has relied on various models for measuring performance:

  •     Physical occupancy
  •     Economic occupancy
  •     And now a new paradigm of maximizing revenue

Woodward has seen this shift firsthand and understands the value revenue management systems bring to the new paradigm. "An important value of using lease rent optimization technology is that it requires we track competitors and watch our renewals more carefully so we can generate daily rents more in tune with our markets. It also stabilizes our renewal pace."

Brains are essential
Woodward and other multifamily operators agree that revenue management systems are having the opposite effect on multifamily companies naysayers predicted. "People mistakenly believe that when you implement a revenue management system you flip a few switches and everyone turns off their brains," said Woodward. The truth is revenue management systems are at their best when used in an advisory capacity for staff, providing valuable information for weekly pricing calls between community managers and the corporate pricing office. "Laramar's pricing optimization system requires that our entire team be more engaged with the market and our strategies on a daily basis."

One of the oldest multifamily firms in the U.S. was one of the first to implement revenue management technology four years ago, and appreciates the decision even more today. Simpson Property Group LP is a 60-year-old firm that builds and operates high quality residential communities throughout the U.S. "We track our results every year against industry advisers' REIT indexes, and have consistently beat the REIT revenue growth numbers every year," said Todd Pope, Simpson's president. "I attribute that almost 100 percent to the LRO system. We were 80 percent committed to it when we did the system pilot test study and we are 110 percent committed to it now. Lease/rent optimization technology is an integral part of our business practices, regardless of market conditions."

By Bruce Barfield, principal and president of The Rainmaker Group, a world leader in profit optimization software and services for casino gaming hotels, multifamily housing and other industries. Please contact Bruce at bbarfield@letitrain.com.

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Phone: 678-578-5800
http://www.letitrain.com/?Campaign=PRWebMFHMomentumAug202008

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