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Money on the Table, Finding the Hidden Opportunities. Part 3.


Lately I have been hearing questions about whether to raise prices or not to raise rates. There are many strategies to increase revenue and some that are right there glaring at you, but seem to be hidden. Let's uncover some of the hidden opportunities.

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3 Thoughts on Amenity-Based Rent Pricing

  As a landlord or property manager, setting rents is a high-stakes exercise.  Set them too low, you might get a tenant but you are leaving money on the table.  Set them too high, you could be unnecessarily extending your vacancy loss.  And it is with this backdrop that rent setters employ various strategies and technologies to help with pricing.  Finding that equilibrium point is not easy, especially in a dynamic market like New York City.                Amenity-based pricing is a common way to set rents, and this article is mainly in reference to such models.  Amenity-based pricing is a methodology in which a base rent is set for a unit type of some kind, then various amenity prices/values are added in, creating the all-in rent that renters see and pay. Individual amenity prices are set by a variety of factors, including the cost of developing the amenity, the desired payback (to the landlord), and perceived value to renters. The percentage of amenity value to total rent varies a lot, but consider it to be about 5-10% of the total rent.               Aside from landlords and property managers, renters also have a vested interest in how rents are priced, because they want to know they are getting a fair market deal, and because, naturally, it is a lot of money.                So we wanted to provide a few thoughts on how rents can be set and to encourage landlords and property managers to re-think the exercise in ......
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Don't Worry Too Much about Average Metro Rents – It's the Rents of Your Comps that You Really Want

Don't Worry Too Much about Average Metro Rents – It's the Rents of Your Comps that You Really Want
When it comes to apartment market data, it's important to make a distinction between "macro" and "micro."Macro data refers to statistics like a metro area's average rent or its occupancy rate. Micro data refers to the average rent or vacancy rate of a competitive set of communities. Think of it in terms of a photo – macro is the whole photo. You can see the entire picture but not the details. Micro data is like zooming in on that photo. You can now see things like a ribbon in someone’s hair or a flower just starting to bloom. When evaluating the performance of your apartment properties, it's helpful to consider both macro and micro statistics. But in the end, micro data – the more detailed, closer view data – will provide by far the most valuable, relevant insight.The Fallacy of Averages To be sure, reading third-party monthly or quarterly reports detailing a metro area's apartment macro data can give operators important context for their communities' performance. It's always good to understand the broader market in which your properties operate and to take in the numbers, insight and analysis regarding trends in your metro area.But here's the thing: in the end, when it's time to truly put the performance of your community into perspective, micro data eats macro data for breakfast. Put simply, if your property is located in say the booming Midtown area of Atlanta, you can't really evaluate your property's pricing based on the average rent in metro Atlanta. Even the ave......
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Two Minute Comps. Show your competitors how it’s done.

Introduction Nobody likes doing comp surveys. Fact. Property comp surveys are annoying and time-consuming tasks agents just need to deal with. Debatable. Every property should complete property survey comps regularly. Most PMC’s require agents to complete comp survey’s every week. Not only do these surveys keep your on-site teams up to date on their competition’s habits, but it gives your pricing strategists the insight they need! We are on board, but can we circle back to the ‘Comps don’t need to be annoying’ conversation?   There are three steps needed to complete your comps: Fill out the survey for your property Collect surveys from your competitors Organize the data collected   Altogether, this typically takes 1-3 hours a week. A lot of PMC’s aren’t aware they can automate these steps to take 2 minutes of your agent’s time. We have identified three ways your agents can complete your property comps. We like to think of this as a maturity curve. Each new method adds an extra layer of sophistication and decreases the time your agents need to spend on comps. Let’s explore the three levels of maturity for sharing survey comps.     Level 1: Manual Survey Estimated Completion Time: 1-3 hours Most PMC’s complete surveys use the manual method. To begin exchanging comps, agents need to determine which properties are their direct competition (similar location, price range, and offerings). Then, they need to reach out and see if their peers are open to sharing data. Finally, they can start the process. This require......
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3 Steps to Avoiding Pricing Complacency

  The legendary golfer, Jack Nicklaus is often quoted as saying, "Complacency is a continuous struggle that we all have to fight." We have frequently argued on this blog and elsewhere that the decade of growth has blunted many of the tools that have delivered success and shareholder value in our industry over the last couple of decades. Rising tides lift all boats, and when growth is all-but-guaranteed, competitive capabilities atrophy. We found ourselves pondering this issue after reviewing the research for our recent 20 for '20 white paper. Having spoken to 20 technology and operations senior executives about their priorities, and the outlook for the next few years, we grew concerned that Pricing and Revenue Management (PRM) may be falling victim to complacency. One of the most salient findings among those detailed in the white paper is a strong reason to fear that almost all operators may have taken their eye off the ball. When speaking to heads of technology, every single one of them shared that they had not been close to PRM for years; and of the 20 executives that we interviewed, none had an obviously pre-conceived answer to the question "what's next in PRM."   We found a pervasive attitude of "we've checked the PRM box"; and that, in our view, is a problem, for a couple of reasons.  First, PRM systems are complicated and require constant monitoring and regular reviews of, for example, system settings. Further, markets change, which means your PRM practices also have to. Multifamily communities ......
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The Competition: Your secret pricing power

The Competition: Your secret pricing power
  When it comes to successfully pricing your apartment homes, it's critical to know who your competitors are and what rental rates they are charging.Unfortunately, though, too many operators don't have a true, clear-eyed understanding of their properties' comp sets. Below are some common mistakes property managers make when trying to determine who the competition is.• Assuming neighboring properties are comps. For sure, nearby communities – say, those within a one-mile radius – have a strong chance of being a competitor, but that's not always the case. Perhaps your community is a Class B asset, and the one down the street is a Class A or a Class C. Those may not be a comp. But the Class C across the street that is doing some value-add renovations, well, they may be another story. Visibility into property specifics like units, amenities and renovations can really help better determine what neighboring properties you really should be watching. • Assuming that communities with the same floorplan types are comps. It's tempting to assume that a nearby community in the same asset class as yours is definitely a comp if it offers the same floorplans as yours. But operators need to be more discerning than that.For instance, say that nearby community's one-bedroom units are only 450 square feet and yours are 900 square feet. A significant discrepancy between the size of your two-bedroom homes and theirs also exists. Should this property really be included in your comp set?• Not adjusting your comp set based on your c......
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Why Now is the Time to Stop Using Excel

Why Now is the Time to Stop Using Excel
  Everyone knows how important it is to capture asking rents from competing apartment communities. And conducting weekly market surveys is the most common practice to secure this vital business intelligence. When done right, market surveys can provide invaluable insight into whether a community's rental rates are too high, too low or competitive. A key part of the previous sentence is found in the word “right.” Today, the vast majority of operators aren't getting market surveys right. Too many companies use an inefficient process to compile market surveys and performance metrics. Overworked and under-prepared onsite associates conduct time-consuming phone calls to comparable properties. This process alone can take anywhere from three to four hours a day depending on the number of properties within a comp set. And let’s not forget the time needed for follow-up calls, because you know associates often aren't getting the info they need on the first call. Once the data is gathered through weekly calls to competing properties, associates input the data they collect into Excel spreadsheets. In fact, I would venture to guess that 99 percent of properties still rely on Excel as the repository of information gathered during market surveys. However, this use of Excel represents a significant hindrance to understanding a submarket and how a community is performing within that submarket, particularly how its pricing compares to its comps. Here are the top five reasons you need to stop using Excel to track market survey data: Excel becomes unwieldy. We all do it. We adjus......
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6 Indicators that it's Time for a Pricing Health Checkup

6 Indicators that it's Time for a Pricing Health CheckupModern pricing strategies and revenue management systems have had a tremendous impact on the performance of multifamily owners and operators. While systems like LRO and Yieldstar are quite robust and continuously improved, they are not infallible on their own. In fact, the flexibility they give operators to implement a range of strategies means that users need to review and modify settings as market conditions and strategies change. Forward-thinking and high-performing property management companies realize that, as with any system, a routine assessment or checkup is a powerful tool. Inevitably when you look at your pricing and revenue management system in depth, you find areas of meaningful improvement. Here are six indicators that the time has come for a pricing health checkup: 1. Large Occupancy and/or Price Swings If you see that your occupancy is spiking up and then spiking down, either your system may be configured wrong or there may be something about how you're executing the use of the system that needs to be looked at. This could be caused by a variety of factors, including overrides or lack of compliance with the revenue management system’s pricing. The whole point of a revenue management system is to have much more stable occupancy and steady revenue per unit growth, so if you see volatility in occupancy or revenue per unit, that means you're getting the opposite results from what the system is supposed to be delivering. If you see an occupancy drop of a point or a point and a half in a s......
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Detailed Data For Most-Searched Submarkets Can Lead To Effective Pricing

b2ap3_thumbnail_Screen-Shot-2015-10-20-at-12.00.13-PM.pngIt’s not quite as difficult as locating a grain of salt in the Pacific Ocean. But sometimes, trying to find a cost-effective apartment home in the Los Angeles metropolitan area can seem nearly as challenging for prospective renters. Owner/operators can ease this burden by setting their prices closer to what consumers are seeking—and willing to pay—in their neighborhoods. Proper pricing, naturally, can lead to higher occupancy, increased demand and maximized revenue. We took a look at our internal data on apartment searches in the LA market and found significant variance in the most-searched price ranges of each submarket. Consumers seem to understand the cost discrepancies in more prominent markets, but optimistically search using a price range lower than market value in each submarket. For instance, the median one-bedroom apartment home in Northridge is listed for $1,400 and the median two-bedroom for $1,800. Consumers most often search the area in the $1,100 to $1,300 range. In upper-tier markets such as Beverly Hills, consumers frequently search up to $2,500, while the median two-bedroom home is listed for $3,000. Consumers are most hopeful in Santa Monica (search range of $1,500-$2,000 when median one-bedroom homes are $2,300 and two-bedrooms are $3,200) and most realistic in Sherman Oaks and Woodland Hills, where searches are on par with pricing. Here is a recent breakdown of a handful of key Los Angeles markets: City Search Range    Median 1-bed     Median 2-bed Beverly Hills Any-$2,500   $2,100 $3,000 Burbank $1,300-$1,500 $1,400 $2,000 Culver City Any-$2,000 $1,750 $2,500 Los Angel......
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Amenity Pricing with Revenue Management

I attended a great session during the National Apartment Association Education Conference and Exposition called " Sustained Longevity: Reaping the Greatest Year-Over-Year Revenue Management ROI", and I picked up a few notes that I thought you all might enjoy on the topic of amenity pricing within revenue management.  Bryan Pierce of Holland Residential suggested you identify everything that could be an amenity, and then rather guessing at what value it might have, instead look at the data on how it actually rents.  Does it rent quickly?  That could indicate that the amenity has value.  Conversely, if it rents more slowly, it could indicate the reverse is true.  So rather than trying to guess at the values for your amenities, or determining if they have any value from a price increase point of view, simply look at the data and it will identify opportunities for rent growth. Kevin Huss of Harbor Group also shared that amenity pricing could change over the year.  For example, the pool view balcony may be a great selling point in the summer, but may suffer during the cold winter months.  Obviously, year long leases would ensure that the balcony has value in the summer, too, but the prospect may not always give it that type of value when it is snowing outside.   During the conference overall, there was much conversation about managing lease-end dates.  By looking at amenities in a seasonal point of view, this might also show a potential for pushing for lease end dates......
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