In a 2Q 2010 conference call that provided plenty of nuggets for apartment pricing professionals to chew on, the company reported that it pushed collective rents by 5.6 percent on 28,000 units in May and June.

Even more stunning, though, was one of its submarket standouts: in Richmond, Va., Colonial was able to raise its rates by a whopping 14.7 percent.

Those results came during a quarter in which Colonial beat analysts’ earnings estimates by 2 cents, and felt enough positive business momentum to raise its overall outlook for the remainder of the year.

Chief Operating Officer Paul Earle told analysts Thursday that the company’s latest rent increases came while using the Rainmaker Group’s LRO revenue management software to push pricing. On its 1Q earnings call back in April, it announced it would use the system to test rent increases of 7 to 16 percent in various markets.

On its 2Q call Thursday, execs gushed about the initial results of that push, and the software they used to get there.

“LRO is doing a very good job helping us manage our rates,” Earle said. “We kind of turbocharged the LRO system, and then we let the LRO system start working the rents up or down. If we were too aggressive, it helped us adjust rents back down. And if we were not aggressive enough, it moved rents even higher.”

That was the case at the firm’s Richmond properties, where the company originally targeted a 10 percent increase in asking rents for its apartments, and the revenue management system pushed for even more. “LRO moved them up another 4.7 percent, so in Richmond, we’re up 14.7 percent,” Earle said.

Earle described that extra push as a primary example of why revenue management systems shouldn’t be viewed as an autopilot system for setting apartment prices, while noting that it took guts for the company’s leasing agents to follow its recommendations.

“It’s not a perfect black box. It requires a lot of interaction with on-the-ground intelligence,” Earle said. “And I will say that our men and women out in the field were fearless. They embraced this large rent increase beta test with enthusiasm. They were out marketing the price of their apartments far above the competition in anticipation that the competition would come up and join us, and that is what happened.”

Earle’s insights into the firm’s second-quarter pricing moves came in response to a question from FBR Capital Markets analyst David Toti. Citing guidance from Colonial CFO Reynolds Thompson that the firm’s prices for new leases should catch up to its rates for renewing leases sometime in the third quarter, Toti asked why the company was still maintaining a 96 percent plus occupancy, and not pushing prices even more.

Earle’s answer underscored the impact that revenue management solutions are having on the metrics multifamily pros – and indeed, Wall Street analysts – use to gauge the performance of an apartment portfolio. Namely, in a portfolio that’s managed for overall revenue, occupancy alone is not as important as the sweet-spot between optimal occupancy and optimal rent.

“We are really not occupancy driven,” Earle said. “LRO is set up under several business rules, but it really doesn't trigger specifically on occupancy. It looks at unit availability, traffic, our lease renewal schedule that’s coming and historical information from the same period of a year ago. So there are many business rules that will help us determine what is optimal rent, and there's a delicate balance between occupancy and rental rate."

In other words, when it comes to managing to revenue, occupancy alone is no longer king. At the same time, Thompson explained that company was using LRO to maintain current occupancies in anticipation of the seasonal drop that usually comes in the back-to-school third quarter.

Finally, when asked by Banc of America Securities-Merrill Lynch analyst Michelle Ko whether it was concerned about that double-dip recession we’ve all been hearing about, Colonial’s executive team, which actually boosted its Wall Street guidance on the call for the remainder of the year, said it hadn’t seen any evidence of a secondary slump materializing. When Ko asked whether it was pushing rents any less aggressively in July than in June, she got an uncharacteristically unambiguous answer for a Wall Street earnings call.

“No,” Thompson said. “We actually see the continuation of the positive pattern.”

See the transcript of the call here, and listen to it here.

Joe Bousquin

Editor’s Note: With this column, I begin my tenure as executive editor at MultifamilyRevenue.com. Given my background covering technology in the apartment industry, I couldn’t be more thrilled to take on this new role. Feel free to check out my bio here.

My goal is to expand MultifamilyRevenue.com’s role as the go-to source for information on the use of revenue management in the apartment industry. Please email me with your questions, thoughts or news: joe@multifamilyrevenue.com.

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Since the start of the downturn there’s been a lot of focus on how revenue management works in a recession. Proponents argue that revenue management software can keep an apartment portfolio above water, or at least flat, in a down market. Skeptics conjure visions of “black boxes” leading leasing agents off a cliff, into an abyss of perpetually declining rents.

In case studies, interviews, and at recent conferences, a consistent trend has emerged: revenue management has helped mute the pain of the economic downturn, and may already be serving as a springboard toward recovery.

Colonial Properties Trust’s most recent earnings call provided evidence of how revenue management is  impacting the REIT as the rental environment begins to thaw. During a question and answer session on the REIT’s 1Q 2010 call, UBS analyst Dustin Pizzo asked Colonial’s executive brain trust about the feasibility of pushing rents, given the firm’s 96 percent-plus occupancy.

The company’s response? It was going to start testing increases of 7 to 16 percent at select properties, particularly those that had high occupancy rates, and felt comfortable doing so because of the revenue management technology it has implemented.

“We’re not interested in maintaining 96 plus percent occupancy without aggressive rent increases coming in behind that,” Colonial CFO C. Reynolds Thompson said on the call. “We have the pricing system in place, [the Rainmaker Group’s] LRO, and so we have a very good tool that allows us to move very quickly with our rental rates.”

Tom Lowder, Colonial’s CEO, said he anticipated getting a good lift in coming months, based on the firm’s use of revenue management in the past. “Our experience in the last cycle, when we had this kind of demand at our back, was very good,” Lowder said. “We expect to see the same kind of results this time, as we get in that same type of environment.”

Colonial’s example of the impact of revenue management comes on the heels of similar validation at the Apartment Internet Marketing Conference which was held April 28-30 in Huntington Beach, Calif. There, attendees discussed revenue management’s performance during the recession, as well as the technology’s inherent link to marketing initiatives. In a session titled “Marketing for Third-Party Managers,” fee managers discussed the disparity they saw in their portfolios between properties using revenue management, and those that weren’t.

Jennifer Staciokas, vice president of marketing and training at Lincoln Property Company, said in her 130,000 unit portfolio, properties using revenue management outperformed manually priced communities by 4 percent. “Even at properties where you’re seeing a decline, if you look at the market, the market is typically losing more than we are,” Staciokas said. “We continue to see a lift.”

Gail Duke, senior vice president at Sares Regis Multifamily Management, initially a skeptic of what she saw as a “black box” solution, reported a 2 to 3 percent outperformance at revenue managed properties. “I am converted,” Duke told AIM attendees. “I am a born-again revenue manager.” See video of the session here: http://www.apartmentinternetmarketing.com/2010-conference/marketing-third-party/

In a recent white paper, Joshua Tree Consulting President — and MultifamilyRevenue.com Publisher and Editor — Steve Lefkovits took that notion one step further. He wrote about how Englewood, Colo.-based apartment owner Archstone was actually able to get a 1.5 percent revenue lift by pairing its LRO system with the Level One Call Center application. The two-pronged approached allowed Archstone to push rents during the heart of the recession, from January to September of 2009.

“The test results contradict traditional industry thinking, which has held that new or excess demand in fully occupied properties is wasted because the property has no ability to raise rents in a competitive market,” Lefkovits wrote. “These results show conclusively that with sufficiently granular insight from LRO, Archstone was able to turn incremental demand into higher rents and revenue per unit.” Check out the full white paper here: http://www.multifamilyrevenue.com/2010/03/new-white-paper-archstone-test-shows-1-5-revenue-increase/

The role of revenue management in the recession, and Archstone’s use of Level One with LRO, will be explored in depth later this month as part of industry trade journal Multifamily Executive’s Virtual Conference: Tech Trends 2010 and Beyond. The all-Internet confab, originally scheduled for June 21, will now  kick off June 28.

Chris Wood, MFE’s senior editor, will moderate a panel titled “Adopting and Optimizing Revenue Management Systems in the Recession.” Wood touts the session as a kind of Celebrity Deathmatch between apartment revenue management heavy weights, with one of LRO’s most prominent users pairing off against the top brass at RealPage’s YieldStar division.

“It’s going to be a no-holds-barred face off between two of the go-to industry experts on revenue management: Donald Davidoff, Group Vice President of Strategic Systems at Archstone, and Janine Steiner Jovanovic, President of YieldStar over at RealPage,” Wood writes in an email. “We’ll be talking about how Archstone has juiced up LRO with Level One Call Center, as well as overall industry adoption. We’ll also get pretty in-depth on how pricing and demand algorithms responded (or did not) to the recession. Donald and Janine are going to touch on their own adoption and migration tips, and we’ll wind it up by talking about the merging of technology and marketing and the ability for revenue management to serve as a broader corporate strategy tool and not just a pricing box.”

Find more info about the session here: http://mfevirtualconf.com/

What do you think? What experiences have you had with revenue management during the recession, and what do you see now that the climate is starting to turn? Email me at joe@multifamilyrevenue.com, or post your thoughts to the Apartment Pricing Professionals Group on LinkedIn.