MultifamilyRevenue.com

Incremental rent, one night at a time

By Joe Bousquin | June 3, 2011

If you’re like me, every once in a while, you open one of the email newsletters that lands in your inbox to find something of unparalleled value.

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.

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Conference Lands Rev Man Guru Bob Cross

By Joe Bousquin | May 25, 2011

We’ve been telling you about the apartment industry’s first-ever RevMan conference for a while. And we just told you a coupla weeks ago that if you haven’t perused Revenue Management: Hard Core Tactics for Market Domination, it’s a mandatory add to your summer reading list.

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.

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You Get What You Pay For: The Other Side of a “Poor Man’s” RevMan

By Joe Bousquin | May 17, 2011

Editor’s note: Our recent article on VaultWare’s Market Comp’s offering, which the company is proferring as a “poor man’s RevMan solution elicited some interesting response from our readers. Chief among them was MF RevMan guru Donald Davidoff, who’s been plying the apartment pricing trade for as long as anyone. He sent us the following comments. Enjoy.

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.

Posted in Advanced/Expert, Featured, Q&A With Executives, REITs, The Basics | Tagged "apartment management", "rental rates", analyst, apartment technology, davidoff, multifamily revenue management, optimization, the rainmaker group, Yieldstar | Leave a comment

Growing Up RevMan: An Accidental History

By Joe Bousquin | May 11, 2011

It’s always easier to see the big picture from 30,000 feet.

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.