Rich Anderson, Senior Equity Analyst at BMO Capital Markets once sarcastically asked Camden Property Trust CEO Ric Campo if Camden execs kneeled and bowed to the revenue management terminal each morning. (Don’t take our word for it, the exact exchange is quoted below.)
Since then, Anderson hasn’t lost his humorous edge, but he has come around and produced a very thoughtful and comprehensive report on revenue management in multifamily which is a very concise summary of the value proposition, as well as his insights into its impact on the business. The report includes great data on the revenue lift that revenue-managed properties have experienced. We think Anderson’s report deserves notice from the industry, and from investors as it contains important insights into operational value creation. He summarizes his view with:
“The bottom line is that we think multifamily revenue management, in
connection with a hands-on approach, is proving itself a worthy tool for the
industry – with revenue lift averaging something north of 1% depending on
how it is measured. And the more it is used, the better and more efficient the
overall business of apartments will become. In some cases it is a push –
using revenue management to set rents results in no meaningful upside. This
happens about 30% of the time, and is mainly a function of strong in-place
property management personnel. But the problem is, good employees tend to
leave (assuming 60%+ employee turnover) whereas revenue management
does not. So even in those cases where revenue lift from the software is
marginal, it still makes sense to consider utilizing revenue management.”
We will excerpt Anderson’s report from time to time and discuss additional elements of it. For now, it’s available for you to download and enjoy in its entirety at the link below.
BMO Revenue Management Summary
And here’s the original sarcastic exchange from Camden’s Q3 2007 analyst conference call:
Rich Anderson – BMO Capital Markets
Hi, good morning still for you guys. I guess, the first question is I listen to this and it is like Yield Star has been around for two years, has two years of history, and we’re really hanging our hat on something that doesn’t have the history that you guys have, as real estate professionals.
So, I mean is there a chance that it could be wrong?
Richard Campo
Rich, that is a very interesting question.
Rich Anderson – BMO Capital Markets
I’m picturing you guys going to work every morning and like kneeling in front of the Yield Star terminal and bowing to it or something.
Richard Campo
No, look, Yield Star is a tool, okay? It has to be managed by people. And people have to ask the question every day, on-site manager, your district managers and we have Yield Star pricing specialists that deal with issues that come up, and so it is in fact a tool, not a panacea.
It is not on autopilot. It is managed every single day by the people running their properties. The different in the past was you didn’t have an ability to forecast and you didn’t have an ability to run all of the numbers that Yield Star runs.
What it does simply is forecast and figure out all of the permutations that you need to understand as you’re marketing, as you’re running a property.
