If you’re also lucky like me, and have the likes of Steve Lefkovits sending you those emails, you take notice that much more.

Aside from the fact that Steve is my boss and publisher, he’s also one of those professionals you come across who has an unsatiable curiosity for the industry he’s involved in, and an uncanny way of making you view the industry you thought you knew so well in a new way.

Today, I received one such email. It’s definitely a plug for the upcoming Apartment Revenue Management Conference, slated for Sept. 12-14 in Scotsdale, Ariz. But it’s also just really interesting, and I’ll bet you’ll find it interesting, too. So without further ado, here’s a view into my inbox. Enjoy.

Revenue Management and Short Stay Rentals

By Stephen Lefkovits

Single-night rentals of homes, apartments and rooms have become convenient thanks to sites like AirBnB.com, a three year-old website that matches those who want to rent a room for a night (or three or five) with housing owners who have extra rooms and empty homes for short periods. Suddenly, anyone – including apartment managers – can easily rent their empty space for short stays.

AirBnB.com has opened up a new micro-market that will enable apartment properties to arbitrage daily revenue on annual leases of $50-80 against pricing of $100 – 300 per one-day rental. While there are operational challenges (furnishing, key management and regulatory), it’s clear this new micro-market has the potential to provide more rental days, incremental revenue and dramatically greater opportunity in optimizing lease terms.​

Yield optimization is about to become a lot more important than it already is.

AirBnB.com attracts the renters, shows the homes, advertises availability, transacts the payments and monitors reputations on both sides of the transaction all in one website (Internet Listing Services take note.) This new market-maker puts the apartment industry on the threshold of a big breakthrough with the potential to create new, incremental asset value of 5-10% by renting units for short stays in between long-term leases. The discipline of revenue management will make it possible, and extend the yield of companies that pursue micro-leasing as a strategy.

A 200-unit property will rent 73,000 unit nights per year (200 x 365 days). A 5% average vacancy rate leaves 3,650 unrented nights of excess inventory per year. Revenue managers will immediately see the implications of this previously unsold inventory and its potential impact on the annual bottom line and as asset value.

In other words, AirBnB.com has given the apartment industry a way to to:

• Uncover hidden demand which allows opportunistic pricing
• Increase revenue without increasing asset investment
• Capture a “found” revenue opportunity
• Stake out a new niche markets with possible higher rents and varied utilization patterns.

As you know, revenue management is more than software. And this sure sounds like revenue management to me.

We’ll be discussing all kinds of topics around yield optimization and pricing including finding new micro-markets at the first annual Apartment Revenue Management Conference September 12-14 at the Westin Kierland in Scottsdale, Arizona. We hope to see you there. Check us out at APTrevenue.com.

RevMan Guru Bob Cross

Now, the inaugural Revenue Management Conference has announced that Bob Cross, author of the above mentioned title, subject of this recent article and the preeminent RevMan guru for any industry, period, will have the podium during the confab’s keynote speech.

 “As a first-wave innovator in revenue management, Mr. Cross helped to generate more than $10 billion in incremental revenue for the travel, lodging, automotive, communications, consumer goods and manufacturing industries,” said Stephen Lefkovits, the ARM conference’s executive producer and publisher of this Website. “We are deeply honored to announce his participation at this year’s ARM Conference.”

If you’re interested in RevMan in the apartment industry, and you haven’t signed up for this conference yet, Cross’s addition to the program should remove any hesitation you’ve had. Why? Because as our recent article points out, Cross has an uncanny knack for zeroing in on the unique characteristics that influence revenue management performance in industry-specific situations.

In other words, he’ll be able to tell you exactly what RevMan’s strong (and weaker) points are when used to help price apartments, maximize the revenue generated by your portfolio, and the strategies you can employ to get the best Rev bump possible.

The conference is slated for September 12-14, 2011 at the Westin Kierland Resort in Scottsdale, Ariz. Check out info for the event here.  

What Revenue Management is NOT

By Donald Davidoff

Note: The following are strictly the personal opinions of the author and do NOT represent any official opinion or position of Archstone or any other Archstone employees.

As revenue management is increasingly adopted by the industry, it’s interesting to see how various mythologies about what “revenue management is” have spread. Some are unintended, in that ideas form and get passed on from person to person without any real vetting and suddenly become “conventional wisdom.” Others have been carried out with intent, as vendors co-opt the term for marketing and sales purposes and multifamily housing operators co-opt the term to look like they’re doing something cutting edge. Both are actually avoiding the change necessary to implement a true revenue management system.

Here are three things revenue management is NOT:

Revenue Management is NOT just software and technology.

Instead, it’s a strategic program that happens to involve technology. Anyone viewing it as a technology project will be sorely disappointed. Revenue management is a way of thinking about the apartment business, and realizing that  a box is NOT a box is NOT a box. Rather, other important dimensions matter: when the box is rented, how long it is rented and whether it is renewed. Those aspects drive differences in value.

Revenue management fundamentally changes how you view your multifamily business. It will change not only how you price, but also how you budget, how you staff and what kind of reporting and business intelligence you need. And while it does affect your IT department and resources, that’s a necessary, albeit not sufficient, condition to succeed. Revenue management requires CEO or COO commitment – not  just involvement. A technology project, on the other hand, just needs money and a sponsor somewhere in the organization. Not sure of the difference between commitment and involvement? Just think about bacon and eggs: —while the chicken is involved, the pig is committed!

Revenue Management is NOT simply tracking and responding to your comps.

Knowledge of your comps’ pricing is important in setting rents, but it’s far from the most important piece of information for revenue management. Understanding your own value proposition, your own demand stream and your own supply behavior (e.g. what percentage of your leases will terminate early) are all more important, by a long shot. In fact, you can operate a good revenue management system with no comp data if you have to—we’ve done that at Archstone in places where it is very difficult to find reliable comps.

So while comp data can be useful — and a comp data tracking and response system is  better than nothing — it is NOT revenue management.

Revenue Management is NOT cheap.

It’s an alluring idea: maybe I can  get 70-80 percent of the benefit at a fraction of the cost. If you don’t really believe in RM, it sounds like an even better idea because, at least you’ll learn something along the way, right? Even if you ignore the fact that leaving 20-30 percent of your revenue lift on the table results in negative ROI, the simple fact is that the idea just isn’t true.

There is no such thing as a “poor man’s RM” because you can’t get most of the benefit with only simple tools. A good revenue management system involves sophisticated math that takes highly trained modelers (both RealPage and LRO have highly specialized staff for this very purpose) and programmers to develop the technology. That costs something. We all may want something for nothing, but it’s important to remember you get what you pay for. I know all multifamily companies need to be cost conscious, but I’m always surprised when an otherwise smart executive thinks  buying pricing software from a salesperson who emphasizes the low cost of their product is a good idea.

If you’re trying to maximize your own revenues, does it make sense to choose the option whose primary advantage is its low cost? A good system takes time, effort and money to develop. Just ask the two current software providers how many thousands of hours have gone into developing their systems. Execs in this industry, as in others, should be prepared to pay a fair price for them.

The author is Senior Vice President, Strategic Systems for Archstone.

For those of you looking for some great background on RevMan technology and how it evolved before making its entrance into multifamily, check out this interesting and easy-to-read article co-authored by RevMan guru Robert G. Cross. Cross, of course, is author of Revenue Management: Hard Core Tactics for Market Domination, another must-read for RevMan mavens.

Published in the Journal of Revenue and Pricing Management, the article (co-authored by Jon A. Higbie and Zachary N. Cross) traces the emergence of RevMan in the airline industry in the early to mid-1970s, as it rose to prevalence not out of the genius of forward-thinking technologists, but the necessity of competitive survival.  As low-cost operators came onto the scene and deregulation started changing the rules of how airlines could price their seats, American Airlines turned to a new, novel approach for pricing then known as “yield management.” In a wrinkle worth noting, American paired its RevMan practices directly with its marketing initiatives right from the beginning, rolling out what would become its ubiquitous “Super Saver Fares” as an integral part of its strategy. It’s a point we’ve been making on this site for years — that RevMan and Marketing are the same thing – and one the apartment industry is starting to wake up to, especially among progressive RevMan players like UDR.  

The article opens by painting a dramatic picture of what was at stake for the airlines, and the intractable inertia they set in motion by unleashing this new form of business-meets-science to fill empty seats.

“It started as a desperate strategy for struggling airlines faced with the chaos of deregulation. They had only hoped to stem the losses. Instead, they inadvertently created a revolutionary way for all companies to boost revenue and profits by using data and analytics to predict customer behavior and optimize the price and availability of products,” the article opens.

The authors then detail the spread of revenue management into the hospitality industry, and how the de-centralized business models of hoteliers like Marriott called for both regional and global support and oversight, with the main driver for implementation coming from the corporate level. (Sound familiar?)

From there, you’ll learn about how the specifics of RevMan have been applied to rental car fleets, theatre tickets, parcel services and shipping, even financial services and wealth management. It details how Ford Motor Company generated an extra $3 billion in additional profits without making more cars. And it touches on developing customers for life, something UDR CEO Tom Toomey talked to us about last summer.   

(A close reading will also lead you to a citation of this article on RevMan in Multifamily Executive from 2008. Maybe that’s what it is to know you’ve arrived: when someone with Cross’s clout gives you a shout out in his own original work. Or maybe it just shows how new and relatively small RevMan still is in our close-knit industry.)     

The article closes by re-capping the quest of each industry’s RevMan pioneers, and what drove them.

“They knew that they were embarking on a new journey, and they expected to succeed,” the authors write. “They occasionally established new metrics. They invariably measured outcomes and eliminated obstacles to success. Their achievements have been inspirational for others and illustrative of the fact that advances in Pricing and Revenue Management have no boundaries.”

Sounds like they could have been talking about multifamily.

Tom Toomey, UDR’s president and chief executive officer, characterized that acceptance rate as “phenomenal,” especially in the relatively short, 9-month time span the company has had the system in place. The news comes as further affirmation of the spreading influence of technology not just on the marketing side of the apartment game, but in operations, as well.

What’s more, at properties where residents had a high propensity to renew online, UDR cut turnover by 2 percent, while boosting rents by 3 percent. The kicker at those outperforming communities? Ninety to 95 percent of residents who live there accepted UDR’s initial rental increase offer, no questions asked.

“Residents can make faster buying decisions and more are choosing to stay with our communities,” Toomey said.

The announcement came on the heals of a simmering debate in the industry, one that’s been trying to pinpoint the exact cost of “churn” in an apartment portfolio, to focus in on the sweet-spot, from a revenue management perspective, of pushing rents versus renewing existing residents.

Satisfacts Research estimates that the average cost for turning an apartment is $4,100, after taking into account average vacancy loss days, concessions, marketing, leasing staff time and repairs. At a company such as UDR, which owns more than 59,000 apartments, those costs can add up to real money, real quick.

UDR was able to push its online renewals by tying offers to its YieldStar Price Optimizer revenue management system, which it used to help generate keep-living-here offers to existing residents. By incenting residents to renew within a pre-determined window of time, or offering add-on amenities such as a color accent wall or custom closet, UDR has been able to introduce an element of the marketing-meets-customer-loyalty programs seen in the airline and hospitality industries.

The initiative helped lead Carrollton, Texas-based multifamily software giant RealPage, which owns YieldStar, to launch a new product line that it’s calling Online Renewals.

“UDR has been outstanding in working with us to develop Online Renewals. Their insight and innovation have created a game-changing product for the multifamily industry,” said Dirk Wakeham, president of RealPage. “Traditional online leasing has been a valuable tool for years. Now, for the first time, RealPage is extending the technology and strategy into the area of lease renewals, enabling property managers to retain the residents they currently have. This should create costs savings associated with marketing to new residents and allow leasing staff to devote more time to other site-level operations.”



Dubbed Market Comps, it’s the latest offering from the real-time availability experts at Scottsdale, Ariz.-based VautWare, and is powered by listings data from more than 25,000 properties who advertise on Rent.com.

With an interface that’s way more simple than the firm’s PadZing offering, which touted itself as the Zillow for multifamily before Zillow starting doing multifamily, Market Comps offers community managers a single-screen view into their competitors’ pricing. It shows them where their own properties stack up on average rent and rent per square foot, even unit-specific pricing for different floor plans.

Market Comps' baseline property comparison screen.

Not only does that hold the promise of taking a big load off leasing agents who spend at least part of their jobs calling the competition for current rents, it’s a first step toward automated pricing for smaller operators. What’s more, it provides an alternative to full-blown software packages costing tens of thousands of dollars. Multifamily RevMan watchers have often pointed to the price points of those solutions as one of the major impediments to wider-scale adoption of the technology by small and mid-size operators.

“At a minimum, its a first cut of a poor man’s revenue management system,” said Mike Mueller, VaultWare’s CEO. “It’s property specific and takes just minutes to set up. We made it super simple for our industry.”

After fielding feedback from users that PadZing was complicated and confusing to use, VaultWare developed Market Comps to do one thing well: show you the actual pricing at your comps, updated once a week, and where you stack up against them, on one screen. Gone are PadZing’s cumbersome mapping tools, or the myriad filters you could apply to the wealth of data there.

No, instead of giving you too much, Market Comps gives you more by giving you less. The tool has two basic views, graphing your property against your immediate comps, and comparing your property to those around it by unit type. You can pull down tabs for average rent, by unit type, for the last 1 to 24 months, and you can export any of it to Excel for a property-by-property comparison of how you’re doing against your peers. Click here for a video tour of the tool.

Market Comps' floor plan comparisons and reports exported to Excel.

Finally, you can set up e-mail alerts to receive notification when your own rents hit a pre-determined trigger against your competition. For example, if you want to know when your 1 bedrooms fall outside of a range within $25 of your nearest comp, Market Comps will send you an email telling you so.

“Most other sources are expensive and already out of date when purchased,” said Mike Cornell, VaultWare’s president. “Market Comps does the work for the properties and ensures they are aware of changes to their market conditions as they happen rather than reacting to a trend that happened weeks or months ago.”

Market Comps' email alert tool

Perhaps most compelling about the offering is price: the basic version is free for VaultWare and Rent.com customers, while the Premium offering – which allows you to see your property-by-property comp report, export floor plans and set alerts – is $300 a year. At this time, the product is only available to customers of the those two firms.

Given the past couple of years in the apartment market, the first quarter of 2011 could have gotten pretty scary. A lot of leases written in early 2010, when prices were still relatively sluggish, were set to renew right in the teeth of 2011′s newly rising rents.

That’s kept apartment pros up at night lately, fearing that their recent rebounds in occupancy might be snatched away if renewing residents took flight in a sticker-shock- induced panic.

But, like most things we worry about, nothing really happened at all.

MPF Research, the number-crunching dataticians that back up RealPage’s YieldStar Price Optimizer revenue management tool, put out results for first quarter 2011, and mostly, not much has changed: occupancy and rents continue to rise, if marginally, and people aren’t buying condos and houses.

U.S. Apartment Occupancy. MPF Research.

Which is all good news for apartment world.

“As you look across calendar 2011, first quarter really was our point of vulnerability,” said Greg Willett, vice president of research and analysis at MPF Research. He explained how a surge in activity early last year led to bulging occupancies that had the potential to deflate in the face of higher pricing now.

“We had huge leasing activity in early 2010, because that’s when the economy really started turning around, so that meant a lot of renewing, 12-month leases were coming up,” Willett said. “Also, those folks signed leases right at the bottom of the cycle in terms of pricing, so there was definitely going to be some sticker shock involved. The question becomes, did we hold onto those residents, and did we manage to continue to have some solid rent growth as those people renewed?”

The answer, thankfully, is yes. Occupancy made a minuscule, but positive 0.1 percentage point gain in the quarter to reach 93.6 percent. That’s 0.8 percentage points higher than last year. More appealing, however, is the fact that rents kept climbing, up another 1.1 percent for the quarter, and 3.3 percent for the year.

U.S. Annual Rent Change. MPF Research.

With that momentum, MPF Research is projecting an overall rent growth of 5.1 percent in calendar 2011.

That will be achieved, in part, at the expense of the for-sale housing market, which is still lost in a forest of foreclosures, with no clear path home. “Most of the households with leases up for renewal in the first quarter continued renting apartments, rather than leasing rental condos or single-family homes or choosing to make housing purchases,” Willett said.

On a market-by-market basis, San Jose, Calif., and New York had the biggest year-over-year price increases, jumping 7.8 percent and 7.4 percent, respectively. Las Vegas continued to be multifamily’s biggest – and only – loser. Prices there were down 3 percent for the year, the only market that recorded a 12-month drop.

There was strength in some of the places you’d least expect it: rents rose in down-and-out Detroit by 4.6 percent, and between 3.8 and 4.2 percent in Cleveland, Chicago and Pittsburgh.

“If there are any surprises emerging in metro-level results, they’re coming in the Midwest and the Rust Belt,” Willett said. “Rebounding manufacturing job growth is creating enough apartment demand to allow rents to rise faster than the national average.”

Metro                                Annual Rent Growth
1. San Jose, Calif.                          7.8%
2. New York                                    7.4%
3. Greenville, S.C.                         6.9%
4. Miami                                           6.8%
5. El Paso, Texas                           6.3%
6. San Francisco                           6.2%
7. Portland, Ore.                           5.7%
8. Oakland, Calif.                           5.4%
9. (tie) Baltimore                          5.3%
9. (tie) Washington, D.C.           5.3%
10. (tie) Seattle                             5.1%
10. (tie) Minneapolis                  5.1%

Source: MPF Research

What do you think? What surprised you during Q1 2011? Email me, or join the discussion on the LinkedIn Apartment Pricing Professionals page.

Whatever your thoughts are, get ready to share them at at AIM 2011, set for May 2-4 at the Hyatt Regency in Huntington Beach. Then, get the story behind the numbers at the  inaugural Apartment Revenue Management Conference, slated for September 12-14.

Not all of these firms are at the same point in the adoption curve. Some are multi-year veterans who long-ago rolled RevMan out to their entire portfolio. Others may still be in pilots, with just one or two properties online. Then there are those who are still conducting “head-to-head” tests of various solutions at multiple communities.

Regular readers will notice that we’re not tracking the specific solution each company is using.

We’ve made this adjustment for a few reasons. First, what once was a fledging collection of RevMan pioneers in multifamily has now expanded enough for the term “universe” to rightly apply to it.

Yet, just like counting the stars, it’s nearly impossible to keep up with every company using this technology. The subsequent task of accurately tracking which solution each is using has now grown beyond this humble blog’s resources.

The overall goal of MFR.com has always been to track, cover and highlight the use of RevMan in multifamily, and we will continue to do exactly that.

But if you’re shopping for a solution and you want to know which one would be best for you, you’ll still be better served by doing it the old-fashioned way: get on the phone, press the flesh and get out to as many meetings as possible. Ask your colleagues, associates and peers about their experiences. There’s not a Yelp! for multifamily solutions – yet — but we’d wager you can find all the answers you need in your phone’s contact list.

Our goal in the future will be to determine how many units are actually being priced using all flavors of RevMan in the industry, and we’ll be talking with third-party providers who are better suited to gather and track that sort of data.

In the meantime, we will continue to track firms using RevMan, and maintain a broad, if not all-inclusive list. Which means if you fit here, but aren’t listed and would like to be, we’d love to hear from you.

Likewise, if you’re included, but would prefer not to be, email me.

And remember, make sure to get the latest on this and all of multifamily’s tech trends at AIM 2011, set for May 2-4 at the Hyatt Regency in Huntington Beach. And to get the focused download on all things RevMan, keep September 12-14 open for the inaugural Apartment Revenue Management Conference.

And now, the list:

• Abacus Capital Group
• AIMCO
• Alliance Residential
• Allison-Shelton Real Estate Services
• Altman Management Companies
• Amerimar Enterprises
• AMLI Residential
• Apogee Residential, LLC
• Archon Group
• Archstone
• Associated Estates Realty Corporation
• AvalonBay Communities
• B & M Management Company, LLC
• Babcock Brown Residential
• The Bascom Group, LLC
• The Bainbridge Companies
• Barrett & Stokely, Inc.
• Bell Partners
• Berkshire Property Advisors
• BH Management Services, Inc.
• BlackRock
• Blue Ridge Companies
• Bonaventure Realty Group, LLC
• The Bozzuto Group
• Capstone Real Estate Services, Inc.
• The Carlyle Group
• Carmel Partners
• Camden Property Trust
• Carter-Haston Real Estate Services
• Centennial Holding Company, LLC
• CIM Group, Inc.
• Cohen-Esrey Real Estate Services, LLC
• Colonial Properties Trust
• ConAm Management Company
• Continental Properties Company
• Corcoran Management Company
• Crawford Communities
• CWS Apartment Homes
• David Drye Company, LLC
• DEI Communities
• Dominion Management, LLC
• DRA Advisors, LLC
• Dunes Residential Services
• E&S Ring Management Corporation
• ECI Group
• Edgewood Management Corporation
• Epic Asset Management
• Essex Property Trust
• Equity Residential
• Ferebee Properties
• First Choice Management Group, Inc.
• First Communities
• First Montgomery Group
• Flournoy Properties
• Fogelman Management Group
• Forest City Residential Management, Inc.
• Forest Property Management
• FPI Management, Inc.
• Freeman Webb Company
• Gannon Management Group
• General Investment & Development
• GF Properties Group, LLC
• GMH Capital Partners
• Grand Peaks Property Management
• Greystar Real Estate Partners
• Griffis/Blessing, Inc.
• Grubb & Ellis Company
• Gumenick Management Co., LLC
• Hamilton Zanze & Company
• Henderson Global Investors
• HHHUNT
• Hirschfeld Properties, LLC
• Holland Residential
• Home Properties
• IMT Residential
• Interland Corporation
• The Irvine Company
• JBG Residential
• J.C. Hart Company
• JPI
• Julian LeCraw Company
• Jupiter Communities
• The Kamson Corporation
• KBS Companies
• Korman Residential
• Landmark Residential
• Laramar Group
• LaSalle Investment Management
• Legacy Partners
• Lewis Operating Corporation
• Lincoln Properties
• Madison Apartment Group
• Mark-Taylor Residential, Inc.
• MC Companies
• MEB Management Services
• Mid-America Apartment Communities
• Mission Residential
• Morgan Group
• Morgan Properties
• NOI Capital Partners
• Noland Real Estate Services
• Northland Investment Corporation
• Olympic Investors
• Orion Real Estate Services, Inc.
• Ovation Property Management
• Pacific Living Properties, Inc.
• PASSCO Companies, LLC
• PEM Real Estate Group
• Pinnacle — American Management Services
• The Prime Group, Inc.
• Prometheus Real Estate Group, Inc.
• Post Properties
• PRG Real Estate Management
• Regional Investment & Management (RIM)
• Renaissance Property Group, LLC
• Resource Residential
• Riverstone Residential Group
• RREEF
• Sack Properties
• Sagebrush Capital Management
• Sares-Regis
• Sentinel Real Estate Corporation
• Sequoia Equities, Inc.
• Shea Properties
• Sidal Realty Company
• Simpson Property Group
• The Sobrato Organization
• Sterling American Property, Inc.
• Steven D. Bell & Company
• Stockbridge Real Estate Funds
• Stonemark Management
• Sunrise Management
• Switzenbaum & Associates
• TIAA-CREF
• Trammel Crow Residential
• Transwestern
• UDR, Inc.
• Univesco
• Verde Apartment Communities
• Walton Communities
• Washington Real Estate Investment Trust
• Waterton Residential
• Weinstein Properties
• West Coast Redevelopment
• Westcorp Management Group
• Westdale Asset Management
• Western Rim Property Services
• Wilkinson Real Estate Advisors, Inc.
• Woodmont Real Estate Services
• The Worthing Companies
• ZRS Management, LLC

With the spring lease up season upon us, MFR.com was lucky enough to huddle with Waterton Residential’s Barney Pullam. With 15,000 units in markets from Washington, D.C. to Southern California, and the core of his portfolio in Chicago, he’s got a balanced, diversified view on what’s happening with rents now, and how revenue management tools are gaming the recovery.

A 20-year vet in multifamily, he gave us the inside scoop on pushing rents as much as 20 percent, the incremental mind-shift that comes with implementing revenue management, and how to toe the line with renewing residents in today’s rising market.

MultifamilyRevenue.com: Waterton’s been using revenue management for the last two years, which I imagine was an interesting window of time to implement this technology. I understand you use the LRO solution from the Rainmaker Group. How has it performed in the current environment? What did you see on the way down, and what are you seeing now?

Barney Pullam, VP of Business Process, Waterton Residential: That’s right, we began implementing LRO in Q1 of 2009, and had it fully deployed by Q3.

As you can imagine, most of our markets at the time were caught up in the slow economy, and had higher exposures. What was interesting was that LRO started reducing rents in an effort to get those exposures down, but it did it in an incremental way, testing each level of lower rents as it went.

The result was that it started moving our rates more often, but by a lesser degree. Prior to LRO we would adjust effective rents by adding or reducing the amount of the concession. Concessions might increase from one month free to two months free as our vacancy increased. In actuality, that meant a swing in revenue of about 8.5 percent.

LRO, on the other hand, came in and adjusted rental rates just 2 or 2.5 percent during a given week, and then gauged any resulting change in occupancy before setting the next week’s prices. Basically, it took baby steps, which was interesting.

The other lesson learned we’ve learned from running revenue management is that it puts greater emphasis on the availability of a specific unit type. I really think that helps you to see the trend early, and react and capitalize on the changing market.

On the way back up, LRO did substantially the same thing: it made lots of little adjustments in the range of 2 to 3 percent per week. If those new rents were well received, then it pushed rents higher in an effort to maximize the overall income.

Regardless of the direction, we found the adjustments to be more frequent but at smaller increments than our prior approach. It tests the waters, figures out what the market is willing to accept and goes from there. It gives you a very systematic approach to pricing.

MFR.com: What are you seeing in terms of renewal rates using your revenue management tools today? Leases priced a year ago were presumably much lower.

Pullam: We implemented a more aggressive renewal pricing strategy in Q4 of 2010. Renewal rates have varied by market, of course, and we’ve seen a broad range. We’ve seen renewal offers of just 3 percent in our softer markets, but up to and over 17 percent in our stronger regions.

MFR.com: What’s the average renewal increase that your revenue management tools are recommending across your portfolio now? Are you following them? Are you going beyond them?

Pullam: For our most recent renewal offers on leases expiring in June, we are seeing average increases at 6 percent or better. In general, our communities have been following the renewal offers generated from LRO; any deviations from what the tool recommends have to be approved by the regional manager.

What’s interesting, though, is on new move-ins. In some instances, we have seen our communities push new rents even beyond what the tool recommends.

MFR.com: How is turnover tracking compared to past periods? Are residents “stickier” today? Why do you think we’re seeing this trend now?

Pullam: We have noticed turnover remaining relatively flat. Waterton has averaged a retention rate between 43 and 46 percent of our expiring leases.

I think residents are stickier, and are more accepting to renew at the higher rent levels today. We’ve even seen residents renew leases at rates 20 percent higher than what they had been paying. That’s pretty encouraging.

Of course, we’re also seeing some turnover as residents shop for a lower rate. But that’s fine, we can’t meet everyone’s price point.

I think there are a few reasons why residents are staying put. The first point is that they’re taking their time to shop and understand the going rate for apartments in their respective market. Also, I do think most people realize they received a better deal last year as a result of the economy and therefore are willing to accept a reasonable increase.

From there, it’s really just this economy we’re in. There’s been minimal job growth, and fewer opportunities for advancement at the jobs they have. In a growing economy, you would see people move in because of a new job. Today, they’re not moving out until that opportunity comes along.

MFR.com: You wrote a recent article for your company newsletter that was pretty interesting. You wrote, “We don’t want to be 98 percent occupied as those higher occupancies are reached by compressing rents; nor do we want to achieve a renewal conversion percentage greater than 60 percent.” Can you expand on that? How do you determine the right mix of renewals vs. new leases?

Pullam: It’s interesting. When you start using revenue management, you’ve got to break away from managing toward occupancy. Instead, it’s all about the overall availability of that specific unit type.

If you have a few one bedrooms sitting vacant for a little while, but your overall availability is under 7 percent for one bedrooms, there is no reason to lower the price. Instead, you’ve got to trust it, and let the tool do its job, which is to maximize rents.

If you do that and the apartments still don’t lease, LRO will adjust the pricing down. In some ways, it’s a hands-off exercise.

But in regards to the mix of renewals versus new leases, we don’t have a hard and fast rule. Our experience shows that when retention rates push north of 60 percent, we’re not being aggressive enough.

The challenge with renewals is that you’re putting those offers out 90 days before the lease expires, so you’re really selling a future rate, and that becomes even more challenging when you’re coming out of a slow season and going into a busy one. Sometimes, you need to take that leap of faith and push the higher renewal offer.

We like LRO because it give us the ability to set close to 200 parameters to maximize pricing. We pay a lot of attention to exposure, and leasing velocity and of course, we always have our eye on the competition. But one of our favorite features is looking at the aggressiveness parameter in LRO. It basically helps determines how aggressive LRO will be in pushing your rents, and can be a very useful tool.

MFR.com: We’ve been having an interesting discussion on the site and the LinkedIn Apartment Pricing Professionals group lately about factoring turn costs into your RevMan tools. Are you factoring in turn and marketing costs when you’re setting goals for pricing? How do you determine the point when a new lease starts paying for the cost of turning the unit?

Pullam: We do consider turn costs. LRO allows the user the ability to factor in turnover and marketing costs when establishing pricing for both move ins and renewals. We look at all costs associated with turning the apartment, including marketing, maintenance and vacancy, and input that value into to model.

MFR.com: What are the best practices you’re using to explain the market to residents now, while remaining firm on price?

Pullam: You know, one of our community managers was talking about this recently, and what she said was pretty straight forward, but it made sense to me. She’s really emphasizing the importance of taking the time to speak with the resident regarding the renewal increase. You really can’t just send a renewal letter. You’ve got to call and speak with the resident about the offer. It’s pretty fundamental, but it’s so true, too. Site teams need to sit down and talk with residents about what’s happening in the industry.

We’re reminding them that rents were lower when they moved in because the economy was pretty bad. Now that things are getting better, rents are increasing. We also encourage our residents to shop around to confirm that our prices are in line with the market.

MFR.com: What trends do you anticipate for the rest of 2011?

Pullam: We think the remainder of 2011 is going to show continued, solid growth in both new leases and renewal rates. We’re going to focus on continuing to push rents until we find the ceiling. Once we get there, we’ll focus on maintaining those higher levels.

MFR.com: Thank you for your time.

Pullam: You’re welcome, thanks for the opportunity.

Well, while not quite TMZ material, our very own Steve Lefkovits seems to have spurred quite a bit of discussion himself, at least among those who follow revenue management in the multifamily space.

It started on the Apartment Pricing Professionals page on LinkedIn when Steve asked a seemingly straight-forward question: “Are there revenue managers or pricing executives out there who factor in the cost of new leases when optimizing pricing?”

Steve explained that he had a recent discussion on revenue management and customer acquisition costs. He was wondering whether companies factor that into their systems when optimizing their rents.

“When we look at the expense of marketing to a new renter ($500 – 1000 or more) and the cost of turning a unit ($1500 – 2500) it seems like it’s worthwhile to factor in the relative value of new leases vs. renewal leases,” Steve explained to the group.

The post, as they say in Internet parlance, had traction.

Over the next week, Steve’s question spurred one of the most in-depth discussions of the inner workings and assumptions for using revenue management in the multifamily industry that we’ve seen.

It attracted some of the most respected names in the industry, including Archstone’s Donald Davidoff, AMLI’s Rich Hughes and SatisFacts’ Doug Miller. Finally, it spurred the genesis for not one but two panel sessions, one at the annual Apartment Internet Marketing Conference in Huntington Beach in May, and an in-depth discussion for the Apartment Revenue Management Conference this fall.

It’s no wonder. Steve’s underlying point harkens back to the value of renewals versus new leases in the apartment industry, a topic that perpetually garners attention among operators. If you’re interested in how revenue management works in multifamily, and some of the things operators need to consider when implementing the technology, make sure to check out this post. You’ll be glad you did.

Speaking of those conferences, have you booked your plans yet for AIM 2011? It’s just around the corner, set for May 2-4 at the Hyatt Regency Huntington Beach Resort and Spa. Last year, more than 400 of multifamily’s best and brightest attended this event, which is known for its insightful look at apartment world through the lens and perspectives of professionals from other industries.

And of course, the inaugural Apartment Revenue Management Conference is set for September 12-14.

Make sure to check out the LinkedIn discussion and then get your plans set to attend both.