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.