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.

Mid-career Americans who didn’t get in before – or have finally gotten out from underneath a toxic mortgage – now see owning a home as more of a nightmare than a dream. For them, renting may seem more desirable – or indeed, be the only option – just as banks continue to shy away from writing more mortgages.

Then, there’s the fact that restricted supply – nobody’s built during the recession, either — helped push rents into the black at the end of 2010 for the first time in two years; they’re now 7 percent higher than when the market bottomed in 3Q 2008, and MPF YieldStar is projecting them to gain another 5 percent in 2011.

For multifamily owners and operators, that perfect rainbow of circumstance equates to the beginning of a golden era in 2011.

At the same time, the industry has been adopting revenue management technologies at an increasingly swift pace. The Rainmaker Group, maker of LRO software, had a banner year in 2010, almost doubling its multifamily client count to approximately 65 companies, according to MFR.com’s internal analysis. And YieldStar chief Janine Steiner Jovanovic says 150 users now tap into RealPage’s price-setting solution. Between the two companies, that represents a combined 1.7 million units whose prices are set using RevMan software.  

A growing number of those new adopters have a different profile than what once was the norm in automated apartment pricing: they’re smaller to medium-sized operators operating in regional markets, not the nationally-focused mega-sized REITs who have been singing the praises of multifamily RevMan for years.

We had a chance to chat with the Rainmaker Group’s Bruce Barfield and Mike Beirne of the Kamson Group, a recent new adopter of RevMan, to get their take on where the apartment industry is on the adoption curve, and where it’s headed in 2011.

MultifamilyRevenue.com: It’s fair to say 2010 was a good year for revenue management in the apartment industry. What does that trend say about adoption of RevMan by the apartment industry in general? Why are we seeing this now?

Bruce Barfield, president, Rainmaker Group: I would attribute a portion of our recent growth to the unprecedented changes in the economy.  Business owners, myself included, have had to approach investment decisions with greater care than in the past several years. When faced with limited investment dollars, it is critical for business owners to have a clear picture of the return potential.  When faced with a decision to invest with the opportunity to grow revenue versus investing in new cabinets or fixtures, revenue management technologies continue to be the logical choice.

MultifamilyRevenue.com: How is revenue management changing the multifamily lease-rent price setting process? How is it changing how residents shop for apartments?

Bruce Barfield: As more and more companies adopt revenue management and as the footprint grows, the concept of frequently changing rents in response to market dynamics is becoming the norm.   The rent setting process is no longer a manual one where rents are determined at the beginning of the month and changed on an ad-hoc basis.  Making incremental changes in pricing is logical from both a revenue management and a sales perspective and allows one to differentiate true market response.

Over time, we’ve seen customers’ shopping processes evolve, as well.  Customers today are more sophisticated in their shopping methods researching in advance and narrowing down their selection criteria to speed up their decision making process.  With the transparency of pricing on line, the major Internet listing sites have real time pricing feeds incorporating lease term options. On site leasing associates are weaving that “prices can change on a daily basis” into their sales process.

MFR.com: Kamson Corp. is an owner and manager of about 15,000 units in New Jersey, Pennsylvania, New York and Connecticut that recently adopted LRO. What led you to adopt revenue management now? What are you expecting in 2011?

Mike Beirne, Kamson Corp.: We realized that traditional rental paradigms in our markets are changing, and consumer behavior is changing, too. The apartment industry is now paralleling other industries, such as airlines and hospitality; we’re starting to change the way we do business. The old ways of renting seem to be hitting a turning point.

MFR.com: For much of the past five years, large REITs were the main adopters of this technology in the apartment industry. At 15,000 units, you’re not small, but you’re also not running 50,000 apartments. What advantages do you see for smaller portfolios using this technology? At what point/unit count is it cost-prohibitive?

Mike Beirne: Well, I’m certainly not expert enough to say what’s cost prohibitive for others. But I do know if revenue management delivers on the returns we’ve seen with other adopters, in my opinion, there can’t be a point where it is ever cost prohibitive. It comes down to does the model work, and can its processes be learned?  From what we and our competitors are doing, I believe its becoming more the norm, not the exception.

MFR.com: How were you able to justify your investment across your portfolio? What type of analysis did you conduct to ensure you would get a return on your investment?

Mike Beirne: We are still evaluating that, but there’s just a gut check aspect to it. We’re already seeing that given proper guidance, our rental staffs are successful. It’s all about making those incremental gains. You only have to do the simple math to discern how the trend will play out.

MFR.com: How do you plan to support staff at the property level in terms of research and pricing info using this solution? What will they need to do to use and support the solution?

Mike Beirne: I think it’s a team effort. Our market data has to be timely, and we have to become proficient at the key indicators that LRO provides and be comfortable with them. We also have to support a cultural change with our leasing staff so they know how to “sell” based on the information LRO provides, as well as understanding the strategy you’ve built into your pricing decisions. Training is key.

MFR.com: What has impressed you most about using revenue management thus far? Where would you like to see more or better functionality?

Mike Beirne: The Rainmaker Group has been extremely timely and receptive to our questions. Everyone there is very well educated in the product they sell. That’s important to us, because at a company like Kamson, you need to have buy-in from the entire organization.

I terms of my wish list, I’d like to see a stand-alone, leasing agent boot camp for all things LRO aside from the support and training they already provide. As I said, I think training is the biggest key to success, and you have to learn any new technology to leverage it. The Stealth fighter is a great technology, but you’ve got to have highly-trained pilots to fly it. Why not do that for the apartment business, too?

Editor’s note: Don’t forget to mark your calendar for the inaugural Apartment Revenue Management Conference September 12-14, 2011 in Park City, Utah.  You’re gonna wanna be there.

The nuggets above came, respectively, from our interviews with Colonial’s Glenn Chmura, AMLI’s Rich Hughes, and the godfather of multifamily RevMan himself, Archstone’s Donald Davidoff.

Along the way, we’ve also heard about the dynamic and compelling corporate housing market from Oakwood’s Jeff Young – as well as how renting short-term units isn’t that much different from selling cruises, renting cars or even getting people to go to Disneyland. Lately, we heard about how UDR’s Mike Lacy transitioned from an acquisitions role at the REIT to help determine pricing for its 58,796 units.

Using this industry-wide knowledge base as a foundation, we wanted to open it up to you, noble MFR.com reader, to tell us what topics you’d like to hear more about when it comes to using RevMan in the apartment business. Is it RevMan’s potential to act as a valuation tool on the underwriting and M&A side? Is it mixing in risk-based rents and lease terms based on an applicants’ screening criteria? Or is it using RevMan to develop lifetime customers, much as UDR has started to do with its renewals engine?

Tell us what your thoughts are for the potential of RevMan in the multifamily industry. Is this technology here to stay, or will it have all the relevance of TheGlobe.com? What has surprised you – or even underwhelmed you – about using this technology to price apartments? What applications do you see for it down the road?

Of course, if you’re a revenue manager in the industry, we’d love to include you in the MFR.com interview, too, so let us know if you, or someone you know, would make for a good read. Send thoughts, comments and suggestions to joe@ameredit.com.

Finally, don’t forget to  mark your calendar for the inaugural Apartment Revenue Management Conference September 12-14, 2011 in Park City, Utah.  It’s an event you won’t want to miss.

Mike Lacy, Director of Pricing and Revenue, UDR

As one of the largest and most tech-savvy operators in the multifamily business, it’s no surprise that Highlands Ranch, Colo.-based UDR is a big proponent of revenue management. The REIT turned heads in apartment world last year when it announced impressive results from its online lease renewal platform, which offered existing residents time-sensitive incentives to sign on the dotted line again. The initial results were jaw-dropping: a 92 percent participation rate at its pilot properties, and continued robust results as it rolled the program out to the rest of its portfolio.

In November, UDR promoted Mike Lacy, formerly in acquisitions at the company, to the position of director of pricing and revenue, taking over for Chris Long, who left the company last year. We caught up with Lacy to learn more about how he landed a job that prices 58,796 units, and gauge how the REIT’s system is performing in this era of the “sticky” resident.

MultifamilyRevenue.com: Tell us about your background. How did you become a revenue management professional in at UDR, and where does your company operate?

Mike Lacy, Director of Pricing and Revenue, UDR: I have been working in the real estate industry for five years and four of those years have been spent working for UDR in various roles.  I spent the past year in acquisitions and prior to that I spent three years working in operations within our business intelligence department.  I hold a Masters degree in Real Estate & Construction Management and this, together with my experience on the operations side of the business, has prepared me well for my current role.

Our portfolio is concentrated in markets with a relatively steady job supply that also have high barriers to entry for homebuyers and developers, leading to a higher propensity to rent. As of November 8, 2010, UDR owned or had an ownership position in 58,796 apartment homes including 712 homes under development concentrated in Metro DC, Southern California, San Francisco, Florida, Seattle and Boston.

MFR.com: What revenue management solution do you use?

Mike Lacy: YieldStar.

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

Mike Lacy: Renewal increases are controlled through our corporate strategy and we push our parameters in markets where we feel we have the most pricing power (i.e. lack of supply or access demand).  We are experiencing very healthy renewal increases across our portfolio.  Leases signed a year ago were at their lowest rate signed in years, so renewals are pricing on average at a near 6% growth.  We spend a great deal of time looking at renewals to determine the greatest potential increase.

MFR.com: At what point (or percentage increase) do you get push back from renewing residents?

Mike Lacy: Today’s resident is very educated about the market and they know what their respective home is pricing at, so it often depends on how far off the current resident signed their lease at from where the market is today.

MFR.com: How is turnover tracking, compared to past periods? Are residents “stickier” today, and more apt to renew at a higher rate?

Mike Lacy: Resident retention has been trending better for the past year; although it feels as though people are still uncertain with their job security.  Better turnover can also be attributed to our focus on customer service and the simple fact that deals on apartment homes are not as prevalent as they once were during the economic downturn.

One challenge we faced in past periods was higher supply of new competition entering the market place; residents would often jump to the newest building offering three months of free rent during lease-up.  This is happening less in the current environment, given less development.

MFR.com: If you do get push back, what are your options? How can you encourage them to renew, even at a higher price?

Mike Lacy: More often than not the resident knows the market and understands that the property down the street is offering a similar home today for a much higher rate than what they are currently paying, so the renewal rate doesn’t seem so bad.  Our biggest component of achieving growth on the renewal side of the business can be attributed to our on-line renewal platform.

MFR.com: Are there some recommended increases where it’s simply better business to “invite” your residents to move, and fill that unit with a new lease at the prevailing market rate?

Mike Lacy: Some residents received such an incredible rate last year at this time that to increase them to market rate today would be a large increase and it doesn’t make sense for them or they simply can’t afford the increase.  If demand is increasing and we have the capacity to pick up a new resident at market rate then it makes perfect sense to “invite” the current resident to move.

MFR.com: How did your solution perform when the market was weak? What did you see on the way down, and what are you seeing now?

Mike Lacy: We’ve been very pleased with how the system has performed in the current environment.  YieldStar was able to recognize and react to the effects of the economic downturn earlier than we could have and because of this, we were able to price our apartments accordingly.  The system reacted to the drop off in demand and lowered rents, while keeping occupancy high.  This type of real-time price adjustment is critical to effective revenue management.  Today, demand is similar, due to the lack of new jobs being created, but supply is significantly reduced as there is a lack of new communities being developed.  What this means is that there are less homes, or supply, to rent in the market place, and an increase in demand. That being the case, the system is actively pushing rents across our portfolio.  Being able to recognize industry trends early provides a real competitive advantage and YieldStar helps us accomplish this.

MFR.com: How do you view the current state of revenue management in multifamily today? What trends have you noticed lately?

Mike Lacy: Revenue management in the multifamily housing industry seems to be changing with the times.  Looking back a few years ago when I first started working in the industry the penetration rate for revenue management systems was approximately 1 percent and today, based on what I’ve read, the rate is closer to 10 percent.  I believe this is a direct reflection of how technology has evolved over the years and the sophistication of today’s systems compared to past versions. It also illustrates companies’ willingness to incorporate technology into their operating platforms.

Revenue management is likely to continue to grow within the multifamily sector as the proven success of systems like YieldStar continue to push bottom line growth for the companies who have implemented a revenue management system.

MFR.com: How has revenue management changed the way your company does business? How has it changed the multifamily industry as a whole?

Mike Lacy: Revenue management systems have helped to put a system in place that applies science to the art of pricing.  As a result, this has brought consistency and transparency to our company pricing strategy.  We now have the ability to quickly recognize and react to changes in market demand and this creates real value for apartment operators.  Another strategic benefit is the information output from these systems allows revenue managers to incorporate their knowledge into the science when it comes to making the right pricing decisions.

As for the industry as a whole, it’s getting more competitive due to the amount of companies who have adopted revenue management systems.  As stated before, the penetration rate of these systems have grown close to 10 percent.  Compared to the past, there are now larger databases to draw information from allowing the systems to react more efficiently and on a more consistent basis.  Companies recognize this and are buying into it.

MFR.com: Let’s talk about adoption. Why do you think, at this point, we’ve still seen relatively low penetration rates in the multifamily industry with smaller and medium sized operators, even though we’ve seen generally positive results from the larger owners?

Mike Lacy: I think there are a number of factors that need to be considered. Revenue management systems are an investment and it may not be cost effective for smaller and medium sized operators to have both a system and a dedicated team of pricing specialists, like myself, to oversee their revenue management.  You also have to consider the sizes of their portfolios.  The small to medium sized operators may have more time to price their properties individually without sophisticated systems.  That said, as the market becomes more competitive and new technologies are introduced it’s reasonable to expect the penetration of these systems to increase.  It has only been a relatively short period of time since the multifamily housing industry truly adopted revenue management systems, and the operators who haven’t realized its importance as a tool to drive performance will need to use it in the future to compete.

MFR.com: Traditionally, apartment operators have measured the health of a property by its occupancy. Given the impact of revenue management within the industry, and its emphasis on total revenue, how has evaluating a property’s metrics changed?

Mike Lacy: The way we measure the success of a property has not changed, we have always looked at total revenue.  I believe this practice is consistent throughout the industry.  Occupancy will always be an important measure of the health of a property, but the realization that revenue growth is a better long-term approach to value creation has been the major focus of most operators.  In short, the success of a property is contingent upon the total revenue it generates.  Operators who look at the revenue index as opposed to the individual components can better gauge the health of their assets.

MFR.com: The office/commercial sector tends to look at things in terms of their square footage. They talk about 3 million square feet under management, for instance. Why do you think we measure ourselves in terms of units owned or under management, instead of revenue per square foot? From a revenue management perspective, which is a more useful number?

Mike Lacy: It’s important to recognize these are two different sectors driven by different fundamentals.  Although it’s all real estate, there are certain nuances in each sector and measuring in terms of units owned or under management has been ingrained in the multifamily industry.  In our case, it comes down to simplicity and what people are used to.  Our residents and investors understand the basics of rent per unit/home and this has been used extensively for some time now.  Regardless of size people look at how many homes are at a property, in a given market, or portfolio.  We have also always spoken to occupancy in terms of occupied homes, so everything converts easily.  In terms of what is more useful, it all depends on what sector you operate in.  In that way, it’s really like comparing apples to oranges.

MFR.com: What about NOI? How is this a helpful number? Are there any challenges when it comes to comparing NOI of two different properties within the same portfolio? How can the use of revenue management mitigate this challenge?

Mike Lacy: NOI is extremely important within our industry, but somewhat separate from revenue management.  While revenue management may have some influence on turnover and marketing expenses, its main focus is on revenue optimization.  As revenue managers, it’s our job to find the most efficient and accurate way to gauge the market and price our assets accordingly.

MFR.com: In more mature revenue management industries, such as gaming and hotels, total yield (or NOI) per square foot, has taken on much greater significance than occupancy itself. Will multifamily follow suit?

Mike Lacy: I don’t believe so. Revenue is the driving force in value creation within revenue management systems with the expense side of the business being focused on separately.  As systems continue to evolve you could see fees and other ancillary income focused on a bit more, but for now rents are far and above the most important measure in the multifamily housing industry.

MFR.com: Does revenue management have the potential to change the focus of keeping “the heads in the beds” to maximizing the cash profit of a property on a square-foot basis instead? Has it done so already?

Mike Lacy: I think it does.  Maximizing the cash profit of an asset is a fundamental piece of revenue management that has allowed us to step back and view revenue growth as the driving force to value creation.  Occupancy is the biggest driver of revenue, but now we make sure that “heads in the beds” are there at the right price.

The trend is taking shape just as owners are experiencing somewhat surprising pricing power, in the midst of a tepid recovery where broader prices, including those for consumer goods, have remained relatively flat and inflation has been virtually non-existent.

Just check out this article from Multifamily Executive, which delves into the topic of many REITs actually pushing their pricing past what their revenue management systems are recommending. In a sign that apartment pricing fluctuations are often forward-looking tells of the larger economy, for multifamily owners, today’s pricing power is very real.

“Our turnover in the 3^rd quarter of 2010 decreased 4.5 percent compared to last year,” says Glenn Chmura, LRO Pricing Manager at Colonial Property Trust, which also pushed rents 4.5 percent past the numbers LRO was recommending in the 3^rd quarter. “Residents are very sticky right now.”

Chmura says the uptick and increased stickiness makes sense, since many of the events that typically drive residents to move out are muted right now.

“The economy has improved somewhat, so move outs due to job losses are down,” he explains. “At the same time, rents have improved enough that it is not financially feasible from a resident’s perspective to pay moving costs and move to another, similar quality property, only to have to pay a similar rate to what was in their renewal offer.”

He also points out that the while it’s on the mend, the economy still hasn’t improved enough for home buying to increase. For many residents, all that adds up to the math of simple inertia: they’re not going anywhere as long as other forces don’t push them to move.

“As long as a resident is getting excellent service, and not experiencing a lifestyle change, they’re staying put,” Chmura says.

Declining homeownership rates may indeed be adding a little extra stick to that pricing power, especially when you consider the results of the U.S. Census Bureau’s latest American Community Survey.

The survey put 2009 homeownership at 65.9 percent, versus 67.3 percent in 2006. What’s more, it found that renter-occupied homes accounted for 34.1 percent of all households, nearing the 10-year high of 34.7 percent. Finally, among the darlings of multifamily’s eyes — the twenty-something renters of its target market — the impacts have been even greater: homeownership for those 25 to 29 years old dropped by 10 percent, versus a 5 percent decline for those 35 to 44, according to Fannie Mae’s 2010 Own-Rent Analysis.

Given those variables, Chmura says the drop in turnover “is expected at this point in the recovery cycle.”

And he’s not alone. Paula Poskon, a senior research analyst with Robert W. Baird, told Multifamily Executive’s Les Shaver that the additional pricing power wasn’t that surprising after all. “People could push rents faster than software if tenants are staying longer and occupancy is going up,” she told the magazine.

Of course, both rents and occupancy have been going up, giving owners that much more leverage right now, even when other industries have zero pricing power. The fact that apartment operators now have revenue management tools to help them execute on the price increases is making the results that much more striking.

Carrollton, Texas-based MPF Research, which tracks rental trends nationally and supports RealPage’s YieldStar Price Optimizer revenue management tool, reported rent growth went from negative 4.5 percent in Q3 2009 to positive 1.2 percent in Q3 2010, a total upward spread of 5.7 percent from a year earlier. Q3 represented the tipping point for the year, and marked the first time rent growth had been positive since 2008. By the end of 2010, rents had climbed 2.5 percent, a total gain of more than 7 percent since the market bottomed.

All in all, even with the seasonality of Q4 slowing the ascent slightly, 2010 was a banner year for the apartment industry. “It’s a great story, because first half numbers were already really strong,” says Greg Willett, vice president of research and analysis for MPF Research, who noted that overall occupancy stood at 93.5 percent at the end of 2010. And 2011 promises to be even better: MPF is now forecasting an additional 5 percent rent growth for the year. “Five percent rent growth is a pretty big number,” Willett says.

At the same time, such new-found pricing power, along with uber-sticky residents, has introduced a new question into the national discourse of the multifamily recovery. Namely, as much of the country continues to struggle with flat wages and tight job prospects, how should apartment operators approach this industry-wide embarrassment of riches, while renewing existing leases priced a year ago at today’s prevailing — and often significantly higher — rates?

“Almost all of the markets across the United States are dealing with the backend of the fire sales from 2009,” says Tammy Farley, principal at the Atlanta-based Rainmaker Group, which sells the LRO revenue management software. “Now, they’re struggling with the right way to adjust prices higher, and getting past the emotional impact of raising rents on their existing residents.”

Of course, doing just that – maximizing rental income from new and existing residents, while taking the emotion out of pricing decisions – is exactly what revenue management programs are supposed to do, and it’s hard to imagine a better time than right now to put them to work.

Yet, even when operators have those systems in place, it can be tough to turn the dial up, especially for leasing agents who are still gun shy from the occupancy hits they took in 2009, and have to look residents in the eye every day.

“Right now, as a management company, how do you deal with this as a business and say, ‘We appreciate you living here, but the apartment that you were paying $750 for now costs $1,000?’” Farley asks. “We’re seeing it across the board.”

Indeed, apartment pros are so sensitive about the topic right now that few operators wanted to comment to MultifamilyRevenue.com for this article. One national REIT voiced concerns over being portrayed as “the aggressive, rent-gouging landlord,” fearing that whatever it said, its words would come back to bite it.

Yet, like it or not, apartment operators – especially those who use revenue management tools – are in the business of maximizing returns for their investors. That means that even during economic environments such as this, it’s their job to raise the rent on existing residents, and sign new leases at the highest rates the market will bear.

“Our company runs conventional, market rate properties. Our goal is always to bring everyone up to the current, prevailing market rate for an apartment,” Colonial’s Chmura says. “If a resident just can’t afford the increase we’re pushing, we try to help them transfer to one of our sister communities that may still be in their price range. But the end of the day, apartments are still temporary housing, and for one reason or another, residents eventually move out.”

The difference is that for residents renting apartments today, “eventually” is still very far away, which means they’ll continue to stick around, even as rents rise further. And that’s making 2011 look like a very good year, indeed.

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.