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.

Not all of these firms are at the same point in the adoption curve. Some are multi-year veterans who long-ago rolled RevMan out to their entire portfolio. Others may still be in pilots, with just one or two properties online. Then there are those who are still conducting “head-to-head” tests of various solutions at multiple communities.

Regular readers will notice that we’re not tracking the specific solution each company is using.

We’ve made this adjustment for a few reasons. First, what once was a fledging collection of RevMan pioneers in multifamily has now expanded enough for the term “universe” to rightly apply to it.

Yet, just like counting the stars, it’s nearly impossible to keep up with every company using this technology. The subsequent task of accurately tracking which solution each is using has now grown beyond this humble blog’s resources.

The overall goal of MFR.com has always been to track, cover and highlight the use of RevMan in multifamily, and we will continue to do exactly that.

But if you’re shopping for a solution and you want to know which one would be best for you, you’ll still be better served by doing it the old-fashioned way: get on the phone, press the flesh and get out to as many meetings as possible. Ask your colleagues, associates and peers about their experiences. There’s not a Yelp! for multifamily solutions – yet — but we’d wager you can find all the answers you need in your phone’s contact list.

Our goal in the future will be to determine how many units are actually being priced using all flavors of RevMan in the industry, and we’ll be talking with third-party providers who are better suited to gather and track that sort of data.

In the meantime, we will continue to track firms using RevMan, and maintain a broad, if not all-inclusive list. Which means if you fit here, but aren’t listed and would like to be, we’d love to hear from you.

Likewise, if you’re included, but would prefer not to be, email me.

And remember, make sure to get the latest on this and all of multifamily’s tech trends at AIM 2011, set for May 2-4 at the Hyatt Regency in Huntington Beach. And to get the focused download on all things RevMan, keep September 12-14 open for the inaugural Apartment Revenue Management Conference.

And now, the list:

• Abacus Capital Group
• AIMCO
• Alliance Residential
• Allison-Shelton Real Estate Services
• Altman Management Companies
• Amerimar Enterprises
• AMLI Residential
• Apogee Residential, LLC
• Archon Group
• Archstone
• Associated Estates Realty Corporation
• AvalonBay Communities
• B & M Management Company, LLC
• Babcock Brown Residential
• The Bascom Group, LLC
• The Bainbridge Companies
• Barrett & Stokely, Inc.
• Bell Partners
• Berkshire Property Advisors
• BH Management Services, Inc.
• BlackRock
• Blue Ridge Companies
• Bonaventure Realty Group, LLC
• The Bozzuto Group
• Capstone Real Estate Services, Inc.
• The Carlyle Group
• Carmel Partners
• Camden Property Trust
• Carter-Haston Real Estate Services
• Centennial Holding Company, LLC
• CIM Group, Inc.
• Cohen-Esrey Real Estate Services, LLC
• Colonial Properties Trust
• ConAm Management Company
• Continental Properties Company
• Corcoran Management Company
• Crawford Communities
• CWS Apartment Homes
• David Drye Company, LLC
• DEI Communities
• Dominion Management, LLC
• DRA Advisors, LLC
• Dunes Residential Services
• E&S Ring Management Corporation
• ECI Group
• Edgewood Management Corporation
• Epic Asset Management
• Essex Property Trust
• Equity Residential
• Ferebee Properties
• First Choice Management Group, Inc.
• First Communities
• First Montgomery Group
• Flournoy Properties
• Fogelman Management Group
• Forest City Residential Management, Inc.
• Forest Property Management
• FPI Management, Inc.
• Freeman Webb Company
• Gannon Management Group
• General Investment & Development
• GF Properties Group, LLC
• GMH Capital Partners
• Grand Peaks Property Management
• Greystar Real Estate Partners
• Griffis/Blessing, Inc.
• Grubb & Ellis Company
• Gumenick Management Co., LLC
• Hamilton Zanze & Company
• Henderson Global Investors
• HHHUNT
• Hirschfeld Properties, LLC
• Holland Residential
• Home Properties
• IMT Residential
• Interland Corporation
• The Irvine Company
• JBG Residential
• J.C. Hart Company
• JPI
• Julian LeCraw Company
• Jupiter Communities
• The Kamson Corporation
• KBS Companies
• Korman Residential
• Landmark Residential
• Laramar Group
• LaSalle Investment Management
• Legacy Partners
• Lewis Operating Corporation
• Lincoln Properties
• Madison Apartment Group
• Mark-Taylor Residential, Inc.
• MC Companies
• MEB Management Services
• Mid-America Apartment Communities
• Mission Residential
• Morgan Group
• Morgan Properties
• NOI Capital Partners
• Noland Real Estate Services
• Northland Investment Corporation
• Olympic Investors
• Orion Real Estate Services, Inc.
• Ovation Property Management
• Pacific Living Properties, Inc.
• PASSCO Companies, LLC
• PEM Real Estate Group
• Pinnacle — American Management Services
• The Prime Group, Inc.
• Prometheus Real Estate Group, Inc.
• Post Properties
• PRG Real Estate Management
• Regional Investment & Management (RIM)
• Renaissance Property Group, LLC
• Resource Residential
• Riverstone Residential Group
• RREEF
• Sack Properties
• Sagebrush Capital Management
• Sares-Regis
• Sentinel Real Estate Corporation
• Sequoia Equities, Inc.
• Shea Properties
• Sidal Realty Company
• Simpson Property Group
• The Sobrato Organization
• Sterling American Property, Inc.
• Steven D. Bell & Company
• Stockbridge Real Estate Funds
• Stonemark Management
• Sunrise Management
• Switzenbaum & Associates
• TIAA-CREF
• Trammel Crow Residential
• Transwestern
• UDR, Inc.
• Univesco
• Verde Apartment Communities
• Walton Communities
• Washington Real Estate Investment Trust
• Waterton Residential
• Weinstein Properties
• West Coast Redevelopment
• Westcorp Management Group
• Westdale Asset Management
• Western Rim Property Services
• Wilkinson Real Estate Advisors, Inc.
• Woodmont Real Estate Services
• The Worthing Companies
• ZRS Management, LLC

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.

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.

Apartment Revenue Management Conference

* Professional multifamily investors, asset managers and general partners;
* Pricing managers and analysts;
* Property management executives; and
* Quantitative marketing managers

* Learn revenue management strategies to maximize financial yield

* Attract new investors with superior operational and pricing capabilities the way the REITs do

* Brainstorm tactics with pricing professionals from other industries

* Skeptical? Fact-find with experts about whether rent optimization works in multifamily

* Find a competitive edge as a third-party manager with new pricing tactics and metrics

* Find vendors of systems, implementation consulting and data

* For brokers and lenders too – learn what revenue management means for underwriting transactions at maximum value

…and more!

Registration will open in the first quarter of 2011. A formal call for presentations will be issued at that time. However, we encourage the informal submission of ideas, topics and speakers right now and at any time. Please contact us with your thoughts.

Media inquiries: Don Canfield, LinnellTaylor Marketing, 303-682-3942 or don [at] linnelltaylor.com

Conference program: Steve Lefkovits, MultifamilyRevenue.com (510) 444-2988 or steve [at] jtimedia.com

NAA: Paul Bergeron, National Apartment Association, (703) 797-0606 or paul [at] naahq.org.

While faithful followers of MultifamilyRevenue.com have known this for a while, none other than the Wall Street Journal has now recognized the power of revenue management tools applied to the apartment sector.

In a story titled “Landlords Upgrade Rent Monitoring,” Corporate America’s paper of record details how apartment owners and managers are using revenue management tools to boost revenue by 2 to 5 percent, quoting YieldStar’s Janine Steiner Jovanovic on the trend.

It delved deeper into those numbers as well, pointing to UDR’s use of YieldStar resulting in a 7 percent boost in December rents at its Sullivan Place community in Washington, D.C., and an 11 percent jump for a two-bedroom unit at the company’s Andover House apartments. Total rent for that unit was about $3,200, the paper reported, because of a shorter lease term and the fact that demand in the market is greater than supply.

Of course, the bastion of big business couldn’t help but poke fun at apartment world, too, calling out owners as “an old-fashioned bunch known for thick bundles of leasing agreements.”

But it contrasts that characterization by pointing to computerized pricing models from both YieldStar and the Rainmaker Group now being deployed by numerous apartment operators, much as airlines and casinos have done for years.

The paper also picks up on another trend well-known to multifamily RevMan watchers: it notes that while revenue management tools have helped companies such as AvalonBay and UDR, other, smaller landlords still are less apt to adopt RevMan for renting apartments.

“Not everyone embraces the new programs,” the Journal says. “Some smaller operators say they don’t have the time or money to invest in new technology. Others don’t need to: Landlords in New York can often get away with little or no advertising and still keep their pricey pads full.”

Finally, the paper points to other uses of technology in the apartment sector, such as a push from AvalonBay to show specific units to prospects on its Web site, and UDR’s efforts to build a social media community specific to its Savoye property in Addison, Texas.

What do you think? Is this proof that RevMan in multifamily is finally getting the recognition it deserves? Post comments on the LinkedIn page here.

The following is Part 2 of our Q & A with Oakwood Worldwide’s Jeff Young, where we talked about the unique challenges of the temporary corporate housing market, the impact of the supply side on pricing, the similarities of temporary housing with the rental car and cruise line markets, and the contrasts between the temporary and traditional multifamily markets. You can read Part 1 here.

MultifamilyRevenue.com: What’s one of the biggest differences you see between Oakwood’s market and more traditional multifamily?

Jeff Young, Oakwood Worldwide: When you look at corporate housing, one of the things that defines our industry is the opacity inherent in competitive  information.

There is really a lack of transparency out there in terms of what the pricing is. Some pricing is available online, but most of it is not.

At the same time, it’s not like hotels, where you can just shop the property around the corner and figure out exactly what’s going on. It’s a lot of anecdotal evidence. It’s a lot of discussions with accounts in the B2B model, and it’s a lot of picking up information wherever you can. It makes for a lot more detective work to understand which way the industry is trending.

So right now, we’re going out and getting better information. We signed up with Reis, and we looked at MPF Research and AXIOMetrics as well.

Combined with talking to our accounts, and getting input from our experienced professionals we have on the operations side, I think we’ll eventually be able to look at how we are really doing on an inventory cost per-square-foot basis.

MFR.com: So you’re managing your costs and your revenue, but not necessarily with an off-the-shelf solution.  Are you considering building a proprietary solution to target the corporate market? Or are you looking for an off-the-shelf tool that you can apply to the Oakwood model?

Young: I think we’re undecided at this point. Right, and I would say that we are still at step two or three out of 10. We have a long ways to go.

We are looking at off-the-shelf solutions, but the reality is the off-the-shelf solutions are not specifically tailored to the corporate and temporary housing model. There is a possibility that a vendor may be able to be modify a solution  to accommodate our model, but there will need to be some development there. I don’t want to say that’s an impediment for us to go with an off-the-shelf solution, but it is a question mark.

MFR.com: You have a very unique outlier, which is the supply side and what you can get for your leases on those non-Oakwood owned units. How would you develop a solution to overcome that hurdle?

Young: Well, from a statistical standpoint, you have a small numbers challenge in terms of the transactional volumes. This isn’t car rental, where the average rental might be a day and a half or two days. If you think about  the decision to sign a lease for an apartment for a month or two in terms of a blackjack hand, you’re putting a lot more  money on each hand.

It’s a very complex and important decision because there’s a lot a revenue it at stake. We need a top to bottom solution that is going to handle the process from bid and negotiation all the way to fulfillment in terms of putting somebody in a unit and at what price.

We need something that helps our sales force in determining what we need to quote for a given market, on a market-by-market basis. We need better granularity in terms of seasonal pricing and better granularity in terms of unit-type pricing.

MFR.com: What macro pricing trends have you noticed over the last eight months? Where are prices going in your business?

Young: There is still a reticence, and a real fear factor out there.  Now, there are some promising signs. We are seeing customers that are willing to consider price increases compared to last year, but keep in mind, last year many of our accounts were flat, or even negotiated reduced pricing in a very difficult environment. We were able to reduce our costs as well, but last year was certainly a very challenging period.

MFR.com: What kinds of drop-offs did you see in the darkest days?

Young: We saw 30 to 40 percent drops, in volume, depending on the market. On price, we were down 10 to 15 percent in many markets. That was the effective rate.

The good news is we saw the pricing really flatten out in the spring of 2010, and we’re starting to see some upward movement in the pricing in select markets this summer.

MFR.com: With the parallels you’ve pointed out between corporate housing and the rental car and travel industries, why do you think corporate housing, and multifamily in general has been slow to adopt revenue management technology? What’s the hurdle that has kept us from adopting it an in a broader way, such as hotels and airlines have done for instance?

Young: I think part of it is certainly scale. We’ve all seen what the Archstones of the world can do with this. But for an individual owner, I’m not sure the impetus is there. I know that’s where the RealPages of the world are headed, trying to go from the bottom up, going after the individual owners, and maybe they’re providing a base solution to some of those folks. But I don’t know if there’s anything off-the-shelf that’s really cost effective for that part of the market.

In the corporate temporary housing industry, I think it’s partly due to the complexity of the supply side of the equation. I think a lot of people think that if they go out and buy a pricing tool, and the inputs on the supply side are constantly changing, it won’t be able to react quickly enough. They’re afraid they’ll get whiplash.

MFR.com: How important is occupancy to you at Oakwood?

Young: That’s an interesting question. Culturally, one of the metrics you hear at Oakwood is ‘vacancy’ instead of occupancy. Well, that’s kind of a negative view, when you think about it. We should be thinking about driving our occupancy up, and not how to reduce our vacancies. Obviously driving occupancy is critical, but at what price?

One of my goals is to manage to revenue potential, because overall revenue potential at 93 or 94 occupancy could be significantly higher — or even just marginally higher – than when we’re at 97 or 98 percent.

Historically, you would go out and take down more units to gain supply, but then get hammered when you had too much vacancy. Determining the sweet spot of an inventory level that allows Oakwood to capitalize on revenue opportunities without unnecessarily diluting the existing revenue stream, that is the challenge.

MFR.com: Thank you.

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.

MultifamilyRevenue.com: Given its life-cycle so far, it seems revenue management was born into a recession in our industry early on, before gaining some momentum during the boom. But it seems like the current recession has stymied that enthusiasm again. Is that an accurate assessment?

Rich Hughes, AMLI: It is. For me, the interesting thing is that obviously, all revenue management tools are multivariate systems. Basically, you’re looking at a subset of the past, and trying to form an inductive model to predict what you should do in the future.

Given the fact that we came out of a very good time and went into a very bad time, I wonder how well some of the models responded. Did they still induce from a good time, and use a “good time” set of rules to try to predict what you should do in a bad time?

Anecdotally I’ve heard of people turning their revenue management systems off during the bad times. We certainly did not, but I think the confidence in revenue management’s ability to make money went down.

Of course, during the bad times, a revenue management system should manage the downside as well as it did the upside. That’s really what we are hoping for.

MFR.com: How did Rent Cheque respond?

Hughes: It made the right directional changes. I think with hindsight, we can ask whether the magnitude of the changes was large enough. Again, sometimes people think they can outperform the system. They may feel their product is worth more than it is. But it’s the market that tells you how much your product is worth, and we have to be very, very clear about that.

Getting caught in the vanity of the past is a loser’s game. Personally, I think all of our product is worth a lot more than you can rent it for right now. My advice would be, if anyone is looking to rent an apartment today, get in there quick while you can still get a deal.

MFR.com: The commercial and retail sectors measure results on a square-footage basis. From a revenue management perspective, would it be useful for us to measure ourselves on an NOI per square foot basis, for example?

Hughes: Again, it’s a bit of a different animal. Commercial and retail, when they’ve got blocks of space, have the ability to divide and subdivide that space, and find the cleverest fit for their tenants to make the most money from it. When a tenant moves out, they can elect to do that all over again if they want. So they’ve got flexibility in their product.

We don’t. We have one bedrooms, two bedrooms and three bedrooms, and I can’t make a three bedroom into a two bedroom and a one bedroom. That’s just not going to happen.

Also, we know empirically that small apartments have higher rent per square foot than larger apartments. The reason for this is that every apartment has certain capital intensive requirements; things like bathrooms and kitchens cost a lot of money. Bigger apartments can divide these costs across a lot of square feet, and smaller apartments divide them across fewer square feet.

The interesting thing is, if you run a regression analysis, you’ll find there’s actually a fixed component for any apartment, regardless of size. We did it with one of our high rises.

Let’s say that fixed component is $500 for every apartment. Once you subtract that out, the variable, per-square-foot rent is actually very linear, regardless of apartment size. But of course, the industry doesn’t look at it that way at all.

MFR.com: Does revenue management have the potential to change the focus of “keeping the heads in beds” in the apartment industry, to say, maximizing the yield per unit instead? Do you see that happening now or in the future?

Hughes: That’s a great question. I think that you’re basically asking whether NOI is a helpful number. The answer is, for development and underwriting, it is the helpful number.

The problem for us from a pricing standpoint, though, is that a lot of the expense side of NOI is built in by the time we get to the equation. Of course, to set price, the only expenses we really care about are the ones that influence the demand function, such as marketing.

For instance, one of the great questions of revenue management is, ‘Would you spend a dollar in marketing or customer acquisition to get two dollars in rent somewhere in the future?’

‘Absolutely,’ is probably the right answer.

The trouble is, marketing is not NOI. You can say the same thing about certain amenities. Can you get extra rent if you have a 24-hour doorman?

For costs that have a demand corollary, you may be able to get a better quality resident, or higher paying resident, or just more residents. But those costs are really just a very tiny subset of the overall expense structure, which includes the physical structure, maintenance and everything else.

So when you use NOI, you have this tiny bit on the expense side that’s good and meaningful in terms of revenue management, and then this whole massive part that you can’t affect at all. NOI, from a pricing standpoint, becomes very nebulous.

I would certainly make the argument that we should start looking at breaking out expense categories so that we can look at just those items that influence demand. That would be absolutely legitimate. NOI as a whole is just too cumbersome and holistic to be meaningful for revenue management.

MFR.com: Revenue management has obviously been a game changer for the industry. How has revenue management changed the way that you do business at AMLI?

Hughes: Our focus seems to have gotten more and more granular. Back in the old days, we looked at the portfolio or asset level, and said okay, AMLI at Happy Acres is doing okay.

Of course, that’s a very broad statement. Maybe the one bedrooms are doing great, and the three bedrooms are doing terrible, and it averaged out to be okay.

As we’ve gotten more and more granular, we’ve started optimizing unit types. Then, we’ve used amenities to optimize units, and now, we optimize leases and lease options.

So when you rent a unit, you look at the specific unit you want to rent. We have a basket of potential options that you can choose to customize your lease. We know that you can only pick one of those options, but we make sure every option we offer is profitable, or at the very least cost neutral, for us.

People talk about submarkets of one, and micromarketing and things like that. We are actually getting there. As we try to de-commoditize our product and move from renting blocks of space to the selling of apartment homes, which is what we all really want to do, it’s about tailoring a very, very specific offer to the customer. That may be a little bit more retailing than revenue management, but that is the pathway that we’ve been following.

MFR.com: What would you say to young professionals who want to pursue a career in revenue management in multifamily today? How should they prepare themselves?

Hughes: It’s funny. Not every company agrees on where revenue management lives and who should be in charge of it.

Some people think it’s an IT function, because it certainly is very technologically heavy.

Others would put it in more of a finance role, because it’s about making money.

Some people put it in operations, because it’s all about managing people and process.

And then there’s the fact that marketing is clearly a part of revenue management, too. It’s a part of the demand function, and that’s revenue management.

I think the right answer is, be prepared to embrace all of these disciplines. Be able to bring all of them to the table in a way that those departments can all feel vested in the outcome, and be stakeholders in the process.

It’s not one very specialized pathway, although it sounds that way from the job description. It sounds like a very specialized job, but you will touch a lot of other departments and a lot of other disciplines in order to fulfill your revenue management goals.

Revenue management works when the system works, when people have faith that it’s working, and when it has upper management support. So there are a lot of moving parts, and a lot of  cross-disciplinary aspects to good revenue management. I think you have to bring all of them together in order to be a success.

MFR.com: Thank you.

Hughes: It was my pleasure. Thank you for the opportunity to share my thoughts.