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.

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.

Alliance Residential Company's Blerim Zeqiri

With a footprint of 45,000 units spread geographically from coast to coast, Alliance Residential Company runs what’s perhaps one of the most representative portfolios of properties in the multifamily business. So when the company announced recently that they were promoting Blerim Zeqiri from a position in their acquisitions department to Director of Revenue and Research for the company, we were all ears. We caught up with him to chat about running RevMan in one of the toughest markets around – Las Vegas – what to do today with renewals and strategically applying the technology in a portfolio that is both owned and third-party managed.

MultifamilyRevenue.com: Tell us about your background and your recent promotion to Director of Revenue and Research at Alliance. How did you become a revenue management professional in multifamily?

Blerim Zeqiri, director of revenue and research, Alliance Residential Company: I started working for Alliance about 5 years ago in acquisitions focusing primarily in underwriting, market research, and investment analysis. After about a year and a half in acquisitions I started working in the newly created asset management department where I have worked until now. As an asset manager I was involved mainly in Alliance owned assets focusing on equity contributions and distributions, forecasting and budgeting, longer term asset positioning and strategies, and the like. Considering my experience in acquisitions and asset management, Brad Cribbins (SVP and my boss while I was an Asset Manager) and Jim Krohn (our COO), thought I would be a good fit to create and run the revenue management and research department for Alliance, which I humbly accepted.

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

Blerim Zeqiri: We use LRO by Rainmaker.

MFR.com: How has your solution performed in the current environment? What did you see on the way down, and what are you seeing now?

Blerim Zeqiri: We started testing LRO at the end of Q2 last year on four test properties and paired each property with a control site for a more comprehensive comparison accounting for market influences.  Since then and with addition of more properties, we have seen revenue growth in the 1%-5% range.

That said, we did not have a revenue management system in place when the markets crashed and revenue decreased, but during our testing phase we did select a market that still continues to be a challenge –Las Vegas. With unemployment hovering around 15% and vacancies in double digits, we have been able to test LRO rather well in a challenging market and what we have seen so far is mostly rent preservation with slight increases when possible.

We have used LRO to help us maintain high occupancy rates which has allowed for some revenue increases even in a tough market. In other recovering markets such as Phoenix or Albuquerque, the revenue lift has been accelerated by LRO and it has ranged from 3.5%-5%.

MFR.com: As both an owner and third-party manager, your firm has a somewhat unique perspective when it comes to revenue management. What commonalities do you see in applying RevMan in those two portfolios? Is it easier to run RevMan in one than the other?

Blerim Zeqiri: I believe we are in a great position as an owner and third-party manager. As owners, we take an investor’s standpoint. This gives us a unique perspective as a third-party manager because we understand our investors’ goals and we can apply appropriate strategies that will advance their interests.

No doubt there are commonalities. As I mentioned earlier, geographically we are very diverse, so we own assets in different performing markets. In addition, we also have a wide variety of asset structures – some that are undergoing long term financing, or other ones we are positioning for disposition.

We can apply these same strategies on the revenue management side for our third-party deals depending on what the objective is. Chances are that whatever the property unique circumstances are on a third-party deal, we either have an asset that is somewhat in a similar situation, or we have previous experience from one of our own deals.

MFR.com: Have your third-party clients asked for revenue management as a service? If so, is this a differentiator – and additional source of revenue – for managers such as yourself?

Blerim Zeqiri: No, they have not, and we do not intend to convert the Revenue and Research department into an outsourcing tool for clients whose assets we do not manage. We started this department to advance our own long term investment strategies and we felt that it is only right we do the same for our third-party partners.

If we are managing an asset for a third-party client and they want to move it to LRO we will do so as a complimentary service. We have already committed resources to this department for our own assets so there is plenty of capacity to provide this service to our third-party clients. If in the future due to an expansion of services we need to commit even more resources, we might ask from our clients to share some of these costs, but even then it will be minimal and will not be profit driven.

MFR.com: How do you support property staff with research and pricing information?

Blerim Zeqiri: From a property staff level, we first go over macroeconomic research when I am setting global parameters for revenue on a specific property. Then we drill down to submarket and even property specific competitive advantages. Our strategy is to manage revenue as it is driven by research on macro and micro economic level. With a revenue management system in place it is easy to get lazy and apply the same parameters across the board, but we believe that at the core real estate is local and each investment has its unique characteristics that must be taken into account.

From a price perspective, I have weekly pricing calls with each one of our teams that is on LRO and it generally includes Business Managers, Regional Managers, and VPs. These calls help us review pricing, leasing and traffic, competitor trends and the wider submarket, and renewal efforts.

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

Blerim Zeqiri: We are by no means veterans when it comes to revenue management systems, but we have strongly embraced the concept after the testing phase delivered promising results. We intend to approach revenue management with the idea of utilizing LRO for what it does best: forecasting exposure, supply and demand, amenity based pricing, detailed expiration management and the like.

At the same time we understand that revenue management systems are not omniscient and at the end of the day depend on people who are making decisions and influencing the system. Therefore, we are educating our staff to understand how the revenue management system operates so they see where pricing is going before LRO makes a decision. I emphasize often to our teams that our staff is indispensable and their role not only has not diminished with the rollout of LRO, but quite the opposite – it has allowed them to focus on the human element of our business such as training and mentoring of our staff, customer service, and marketing and sales. These are elements that math algorithms and high structured finance cannot substitute.

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?

Blerim Zeqiri: I believe it does and to some extend it already has. Old habits die hard as the saying goes, so it will take some time for the concept of higher occupancy at any price to be reconsidered by everyone. But revenue management has played a role that has been paramount insofar as to help investors and operators see that the best equilibrium comes not when vacancy is 2%-3% or somewhere close to that, but rather when it intersects with the highest potential for revenue generation.

MFR.com: What are you seeing in terms of renewal rates today? Leases priced a year ago were presumably much lower. What’s the average renewal increase recommended by your revenue management tool in today’s market?

Blerim Zeqiri: As is to be expected, renewal growth rates have varied by market conditions. However almost across the board there have been increases – at least in markets we are in. This as well is to be expected considering we are leaving a period of unprecedented low rental rates.  In the Phoenix metro (North Scottsdale), for example we have seen renewal rates ranging from 1% to 15%, in part due to when that resident initially moved in. An average of around 6% rate is more standard though. We are seeing a similar case in Dallas.

We are following renewal recommendation closely since we agree with the concept of burning off concessions and recouping rents, especially when new move-in rents are strong and improving.

In instances where market conditions continue to improve, I have gone back and firmed up increases on renewals further than initial system recommendations. This has been possible when exposure is on the decline and rents are going up.

MFR.com: How is turnover tracking, compared to past periods? Are residents “stickier” today, and more apt to renew at a higher rate? If so, why do you think we’re seeing this trend now, even as wages remain relatively flat?

Blerim Zeqiri: Inevitably with an increase in renewal rates turnover has increased as well. This is something we anticipated and have budgeted for. Residents are getting accustomed to these increases as well and are smart enough to understand that after a steady period of decline in rents, increases are to follow.

We have had a case where a resident gave notice after a renewal increase only to come back a couple of weeks later (after shopping around) and lease a new apartment at a 3% premium to what the renewal increase was. He liked the property and would rather not move if savings were not substantial.

Overall though, as markets crashed in 2008, the industry was quick to react and lower rates in order to preserve occupancy. This was sometimes necessary particularly in markets with a high level of competition from the single-family shadow market. In this environment cost cutting was the only way forward. However, with debt service levels staying the same and many expenses being fixed (or small margin for cutback), these reductions were unsustainable in the long term. Most owners and operators have realized this.

MFR.com: If you get push back from residents on renewal increases, what are your options? What are the best practices you use to explain the market to residents, while remaining firm on the recommended price?

Blerim Zeqiri: During training when we rollout a new property on revenue management system or on weekly calls, I often reiterate to our teams that the best residents are the ones we already have. We truly would like not to lose any residents, but we also understand that this is impossible. Most of our residents understand this as well and they appreciate our staff for trying to find a solution for them to keep them happy and as residents even when it involves rental increases. We approach every renewal increase with an explanation on why it happened. We explain to our residents the shift in market trends which has resulted in rental increases across the market, but especially for new residents moving in. Knowing that we value our residents and give them the right of first refusal –for the lack of better term –over new residents has helped us retain many residents. We also explain the costs of moving, but we mostly try to understand what would the resident want to see improve in our community for the higher price they are willing pay to live there.

MFR.com: Beyond using it as a pricing tool, what other potential uses do you see for revenue management tools in the multifamily industry?

Blerim Zeqiri: In the immediate term, revenue management systems will offer a degree of consistency and fairness to residents – especially as they get to know this evolving trend in the industry.

In the long term however, I believe revenue management tools will help the multifamily industry foster an appreciation not only for a higher level of sophistication in pricing, but for the time it will free allowing operators to focus on client needs. The benefits of this focus will not be tangible immediately but will certainly become beneficial to the whole multifamily industry as the “stock “ of the industry continues to appreciate in the eyes of clients and investors.

MFR.com: Thank you.

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.

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.

“We believe it is most efficient to find local management with local expertise, and we don’t expect a single fee manager to understand every market either,” says Kyle Ellis, one of the managing partners of Abacus. “We’re perfectly comfortable working with several ‘best-in-class’ management firms across our portfolio.”

The first major issue is when multiple fee managers are used they all use different data and their own internal metrics and strategies.

The second problem with using multiple fee managers is inconsistent reporting. “When there are different types of reports coming in, on different schedules, it can be quite difficult to keep up with what’s really going on out there,” Ellis says.   “What you want is a single, consistent, and methodical approach to pricing and an accurate and timely reporting solution that’s used by all managers.”

Abacus adopted a standardized pricing strategy by deploying RealPage’s Yieldstar revenue managemnent system to help eliminate many of the inconsistencies they were experiencing.

Revenue management systems for multifamily generate pricing based on several factors, including current and expected vacancies, projected demand, recent rental rates, amenities, lease term, move-in date and existing market dynamics. Optimized pricing can be achieved daily, which in turn will help operators generate more income and improved financial results.

Read more about the Abacus case and other Yieldstar case studies on optimized pricing here:

Multiple Fee Managers, One Revenue Management Solution

Atlanta, GA (PRWEB) November 3, 2009 — Every company is addressing the current market challenges differently; some more aggressively and successfully than others. In late 2008, Lincoln Property Company decided to test a new price setting process to see if it could improve revenue. Lincoln’s executives designed a scientific test of the newest multifamily housing revenue management technology and used it at eight of their communities in separate markets. To ensure an objective evaluation, they paired test properties with similar communities in the same markets that continued to set prices with their customary process. The results proved a definite increase in lease rents at the automated properties – in spite of the economy.

“Seven of eight properties using automated rate setting had better results than our control group setting rates manually,” said Scott Wilder, senior VP, property management for the Lincoln Property Company residential division (shown at left). “Our perception entering the test was that we would activate the ‘black box’ and it would do the thinking. We were encouraged how engaged our team became; by using LRO and contributing to our weekly pricing calls, they became more focused on rate setting and the factors that drive revenue.”

Lincoln Property Company has a corporate culture of diligent pricing analysis and rate setting. “We are good at what we do but wanted to evaluate automated multifamily revenue management software tools and test the one we thought would be the best fit,” Wilder said. The company selected the LRO system, from The Rainmaker Group, which is widely used in the multifamily industry.

4.3% lift from LRO
Lincoln, which manages more than 350 conventional communities nationwide, began its six-month pilot in February 2009 with eight test communities using LRO to set rates, while staff at eight control properties continued their established price-setting process. To ensure test results were valid nationally, Lincoln selected communities in the Atlanta, Dallas, and South Florida markets. At the pilot’s conclusion, LRO properties showed a 4.3% lift over the eight control properties. The LRO system analyzed hundreds of historic and current economic, market, and comp-set variables, and traffic information to deliver updated rate recommendations daily.

“The surprise was the LRO recommendations caused our on-site and regional managers to engage more with their markets and the price-setting data and became more familiar with who their real competitors were and why they were gaining or losing leases,” said Wilder. “Our managers do a great job of rate setting, but the automated system is more detailed and looks at many more variables than you would think of including manually.”

Market-based pricing – minus emotion
Another surprise was how the pricing system responded to the soft market. “LRO’s analysis of market conditions, including guest traffic, revealed that significantly lowering rates was unlikely to produce a proportional increase in demand in the softening market,” said Wilder. “We took a measured approach and accepted the systems recommendation that we lower rates in small increments. This kept our LRO properties from deeply reducing rates unnecessarily.”

Looking forward to market recovery
“We ran our six-month pilot in a very soft market and the system helped us,” Wilder said. “LRO was good in the down market and when the economy corrects, the real value will come in the renewal cycle. Renewal rate setting is especially difficult where managers have relationships within their community. LRO’s renewal price setting removes the emotion from the decision. I expect higher revenue will be the result.”

“The transition to automated pricing is all about change management,” Wilder said. “Shifting communities to automated pricing changes the way we do business. LRO’s most solid benefit is that it helps our onsite people and regional managers do a better job. The longer you use it, the better you become at optimizing rents.” Lincoln expects to roll out the LRO revenue management system to its owned properties over the next two years and recommend revenue management to all their third party clients.

The November issue of UNITS magazine will feature an article profiling the Laramar Group and how it uses a pricing manager whose daily duties are entirely devoted to managing Laramar’s revenue-management software. By using a pricing manager to incorporate feedback between Laramar’s property managers into the revenue-management program, they are able to maximize the value of their revenue management system.

According to the article, Laramar’s pricing manager includes the community managers on pricing decisions on a weekly basis, confirming the accuracy of the program’s generated data. This overrides any aspects of the program that the property managers think are out of line with competitors’ rates or not appropriate for the current market place. When they decide to override the program based on observations of the property managers, the appropriate pricing adjustments can be made within 30 minutes.

For the entire article, check out the November issue of UNITS magazine arriving to National Apartment Association members and UNITS subscribers in mid-November.