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.

The two multifamily revenue management mavens outlined how their respective solutions – the Rainmaker Group’s LRO and RealPage’s YieldStar Price Optimizer — behaved during the downturn, and what they saw in the first part of 2010 as markets began to recover.

Steiner Jovanovic said her clients were able to respond to falling demand with more moderate pricing adjustments and that YieldStar properties were able to sustain occupancy levels without the rent loss experienced by the general market. In general, she pegged her clients’ outperformance of the market at 3.2 percent nationally in terms of rent and occupancy.

While she didn’t detail the difference between YieldStar users and the market on the way down, she did give comparative numbers for the rising tide of 2010.

“If you compare our results in the first quarter of 2010 to the first quarter of 2009, [YieldStar] properties outperformed 3.7% in revenue, which was made up entirely of net effective rent,” Steiner Jovanovic said. “The markets are still catching up on occupancy, but because YieldStar properties were already in a more favorable occupancy position through the recession, they’re able to push price much more aggressively now.”

For Archstone’s Davidoff, perhaps the earliest adopter of revenue management technology in the multifamily industry, having his LRO pricing tool was the saving grace of an otherwise brutal two-year period.

“It’s fascinating to me,” Davidoff said. “I honestly don’t know how anyone could have made it through this past cycle without a revenue management tool.”

He said that LRO started reacting to the reduction in demand as far back as December 2007, even though seasonality was still giving many operators a false sense of strength, just as they approached the abyss in 2008. Then, the system started projecting strong demand at a time when much of the market was still in the doldrums – and scared into paralysis – when it came to pushing rents back up.

“We’ve had spectacular rent growth in the first quarter of this year, and our year-over-year numbers are up substantially,” Davidoff said. “It all started in the fourth quarter [of 2009], before operators could feel it, before there was that visceral understanding of what was going on in the market. But the statistics were bearing it out. The guest card counts were rising, the leasing velocities were more steady and solid, and supply wasn’t quite as brutal, and all of that played together.”

Speaking of raising rents, the two apartment execs also had an interesting perspective on the potential for “green” amenities to push rents in the coming cycle. Spurred by MFE’s moderator Chris Wood, who asked whether revenue management systems could generate “green” premiums in various markets, the two pricing pros were surprisingly optimistic.

“There are already premiums within specific portfolios being garnered by green buildings, I would say particularly within the Pacific Northwest,” Steiner Jovanovic said.  “With regards to YieldStar the results will be there…  any component that drives demand will be capitalized on by the system in the form of affecting rent growth.”

Davidoff, who said Archstone hasn’t explicitly discussed using LRO to get a “green” lift in rents at the company’s properties, pointed to the science of revenue management to say that if green buildings are valued more highly by prospects, they will, indeed, be priced accordingly.

“Where residents or prospects favor green buildings, and if we do our marketing job correctly in communicating those benefits, we will see demand rise, we will see our own internal supply drop and LRO will respond by raising rents,” Davidoff said. “The value of green, or any amenity or feature of a property, is ultimately going to be realized in the demand response.”

You can access the full exchange here.

We are delighted that Kevin Geraghty from the digital marketing agency 360i and the author of “Revenue Management & Digital Marketing: Integrating two independent business processes produces marketing magic” has agreed to speak at the Apartment Internet Marketing Conference (AIM).  His experience with deeply integrating marketing with revenue management should provide important strategic guidance for revenue managers who are looking for next steps to increas the value they bring to their companies.

We’ve asked him to present advanced-level case studies from other industries about the integration of trackable digital marketing with revenue management.  Kevin worked a decade ago with our friend Jeffrey Roper (from M|PF Yieldstar) in the auto rental sector, and is now a principal at 360i, a leading digital marketing firm that serves consumer giants.

In his December 2008 article in Operations Research Management Science Today, Geraghty states the problem of having separate revenue management and marketing functions:

“Revenue management is very effective in extracting revenues from strong markets. This often makes up for a key weakness: over-reaction and lack of precision when demand is soft. The response to soft market conditions can be to make price cuts across the board to stimulate demand. In some cases this is appropriate, but in many cases it is extremely expensive. Unlike marketing spend, the impact of price cuts do not show up as explicit expenses. However, price cuts can have a devastating impact on profitability.

When marketing and pricing are integrated, the cost of a price cut is weighed against the cost of driving extra business. In many areas of marketing practice, the level of granularity available to marketers is insufficient to create a clear understanding of the impact a specific investment on tactical pricing and conversion. Direct marketing strategies such as paid search do have the granularity to target specific timeframes and geographical locations to offset the need for price cuts. When this is combined with competitive monitoring, a clear picture emerges of where and when to deploy paid search spend and which products to discount.  By using paid search in tandem with yield management, substantial revenue gains and marketing efficiencies can be realized. “

Last year at AIM, we heard from Kathleen Reidenbach, Vice President of Revenue Management and Distribution from Kimpton Hotels.  Her presentation (video excerpts available) carefully laid out why hotels integrate revenue management with marketing – because they are part of the same process of attracting the right customer and giving the customer the right offer, which may be priced to yield the optimal return.

In lodging, the executive with price information also has demand information and can determine which offers to “distribute” (advertise) in order to get more of the desired traffic.  They drive leads through their low-cost sources first, and then layer on more expensive traffic – if they have statistical support that the investment will yield higher-value customers coming in the door.  In this scenario, advertising is an investment that is justified by higher yield.  Special offers and discounts are structured and distributed knowing the total cost and expected acceptance.  Advertising response rates help to determine pricing.

The ultimate goal is total yield (revenue per available room night) not a heuristic occupancy benchmark.  (I know many people who would rather be 100% occupied with a $1,000,000 rent roll, rather than 95% occupied with a $1,040,000 rent roll.  But that doesn’t make sense to investors who just want their money.)

We believe that operations, marketing and revenue management leaders all can boost their personal and corporate prospects by focusing on the integration of revenue management and marketing.  This will in turn create better-yielding organizations if they treat marketing and pricing as part of a larger whole, under
common leadership.

Please come to the Apartment Internet Marketing Conference in Denver, Colorado April 29-May 1, 2009, we’ll talk more about it there!