The Demand Solutions Blog

Multifamily Insights Gleaned From NMHC.. Are we in the 7th Inning?

Posted by Donald Davidoff on Jan 28, 2016 3:00:00 PM

I recently attended the NMHC annual meeting, and the effects of what is likely to be the biggest and longest bull run in multifamily housing in my career were certainly evident. In several conversations, I shared a belief that no one really knows how long this run will last.

It seems like everyone likes using the baseball analogy, saying “we’re in the 7th inning.” However, I don’t think that’s the result of strong analysis. Rather, it’s simply a reflection that saying anything like the 3rd or 5th inning implies a Pollyanna-ish view since no one believes a run like this will last 5 or more years, while saying it’s the 9th inning would ignore current job growth and imply that a housing recession is just a quarter or two away. So being the data driven person I am, and using 3Q 2009 as the start of the current run (rents bottomed out in 2Q 2009), here’s what the baseball analogy portends depending on what inning you think we’re in (and presuming we’re “in the middle” of each inning):

Inning Proj End
     1 4Q71
     2 3Q40
     3 2Q30
     4 1Q25
     5 4Q21
     6 4Q19
     7 2Q18
     8 2Q17
     9 2Q16

While a perception that we are in the 7th inning is reasonable, anything from the 5th to the 8th seems plausible to me. With interest rates low, job growth strong, macro-demographics in our favor and construction still largely under control, why couldn’t we have another 5 years of strong growth? I’m not saying we will, but I’m also not saying we’re limited to only the 2 more years of growth that a 7th inning analogy implies.

Other areas of interest and discussion at the conference included:

  • Regulatory issues. The “as expected” concentration on regulatory and tax issues along with trying to understand what an election year that guarantees an administration change will mean for us. Along with this will come strong appeals to support NMHC’s Political Action Committee (PAC) so that the apartment industry has a strong voice. I’m no fan of how much money influences politics these days, but given the way the rules are set I think anyone who benefits from our industry should support a strong voice in regulatory affairs. The industry has been very good to me, and that’s why I’ve proudly donated each year for many years and gave Sue Ansel (the new chair of the PAC for this cycle) my donation at the conference.

  • Diversity. It’s a plain and simple fact that the proportion of minority and female people at all levels, but particularly among leadership, does not reflect the diversity of our own customers (i.e. our residents). This is not simply an issue of fairness, or morality (or politics for the more cynical amongst us). It’s a matter of smart business. Many studies have shown that companies with more diversity outperform those with less. And how can we know what our customers truly want if most of our associates and leadership don’t represent them?

  • Affordable housing. Housing affordability is a serious issue for middle and lower middle class workers. Perversely, the very bull run that is doing wonders for our balance sheets and P&Ls make affordability an even bigger issue. As a basic need, housing has a special place in the market. As such, ignoring issues of affordability will only lead to government and populist intervention that hurt our long-term potential. I don’t purport to have the solution, but I am very encouraged that NMHC has formed a formal committee to work on this and find appropriate ways to balance market-driven mechanisms with the need for our national workforce to be able to afford quality basic housing. I look forward to hearing what they recommend.

As anyone who’s been to an NMHC Annual meeting knows, the focus is mostly on the deal-side of our business, but there are plenty of senior operators and operations-oriented vendors in attendance as well. I had the privilege of meeting with many of both, and here’s what seemed to resonate with them:

  • As with the deal side, they too wonder how much longer strong rent growth will persist.

  • There’s continued and growing emphasis on investing in people. Technology is important, but we’re still ultimately a people business. Several COOs expressed interest in learning more about how to align their team’s sales approach with the reality of how differently prospects buy today though candidly, they’re not quite sure how much they should invest and when they should take on such a change management activity

  • There was a good bit of conversation around BI and benchmarking. Doug Bibby announced that NMHC would be forming a committee to define industry standards for key metrics like occupancy and rent. He went to great lengths to ensure everyone understands that NMHC’s role will strictly be to facilitate the definition of the metrics. Private industry will then be left on its own to leverage these common definitions in the creation of improved benchmarking and BI tools. Entering the conference, Rentlytics announced a new $9+ million round of financing lead by Walker and Dunlop demonstrating growing capacity for creating industry-based BI solutions while the Multifamily Data Exchange (disclosure: they’re a client of mine) continues to grow its network of participants in delivering the first set of benchmark metrics that are analogous to the Smith Travel Research reports that the hospitality industry enjoys.

  • Interestingly, there wasn’t much discussion on marketing. This could be a reflection of COOs not worrying too much about leads given such high occupancy and rent growth, or it could be an oversight. I’ll leave that to the reader to decide.

All in all, the state of our industry is healthy and robust. It was good to see that in action at the conference, and I look forward to an equally prosperous 2016.

Business Intelligence in Multifamily

Read More

Topics: apartment

Pricing and Longstanding Vacant Units

Posted by Donald Davidoff on Oct 6, 2013 2:36:00 PM

In my last blog, I promised to talk a little more about longstanding vacant, so here we go. I am not an advocate of automatically reducing rents just because a unit has been vacant a while; and as discussed in a prior blog, I don’t recommend putting leasing bonuses on longstanding vacants.

Here’s what I do recommend:

Read More

Topics: apartment, apartment pricing, pricing and revenue management, apartment marketing

Is Your Bonus System Hurting You?

Posted by Donald Davidoff on Sep 26, 2013 5:26:00 PM

Funny thing about bonus systems —you often get exactly what you incent. Now that doesn’t mean you get what you want. It means you get what you incent. So here are a couple of pet peeves of mine that I’'ve seen w.r.t. bonuses in multi-family that at best just waste money but at worst actually hurt our pricing and revenue management efforts:

Read More

Topics: Revenue Management, apartment, property management, apartment operations, apartment pricing, multi-family housing, pricing and revenue management, financial performance

Inverted Leases at Renewal Time: A Big Challenge

Posted by Donald Davidoff on Sep 17, 2013 6:51:00 PM

It’s that time of the year when prices typically start going down. The good news is that with rent growth relatively strong over the past year, in general new rents are above expiring rents come renewal time. However, there are still times when rents are “inverted.”

With transparency of pricing on web sites, this can cause a real challenge. Existing residents see you offer no (or a small) increase and then take a look at the website where they see new pricing below what they’re currently paying. So what do you do?

Read More

Topics: Revenue Management, apartment, property management, apartment pricing, pricing and revenue management

A Gathering of Pricers--Will I See you at ARM?

Posted by Donald Davidoff on Sep 3, 2013 10:43:00 AM

It’s been a while since I last blogged. Lots going on—crazy busy with clients, my younger daughter just started high school and we just sent my older daughter off to Princeton for her freshman year. Both of those milestones got me thinking about how I got to where I am.

Hard work, smarts and a good bit of luck certainly had a lot to do with it. But I think the most important thing for anyone in a “cognitive skill” career path is to be constantly learning. Learning from experience,  but more importantly learning from others—from “experts” we may not know and from colleagues (and competitors) who we do know. Which got me thinking about how important a role conferences have played in my career. I’ve met so many people who become not just business colleagues but also friends; and I’ve learned from many speakers I never would have otherwise encountered—people with ideas that changed how I viewed the world, my job and myself.

So if you’re serious about pricing in the multi-family industry, you simply have to go to the Apartment Revenue Management Conference. There are lots of pricing conferences and lots of multi-family housing conferences, but ARM is the only conference dedicated solely to practicing our art in our vertical. I’ll be there again and hope to see you. For those of you who might care, here’s what I’m expecting to do there:

Read More

Topics: Revenue Management, apartment, property management, apartment pricing, multi-family housing, pricing and revenue management

Should we offer and price really long lease terms?

Posted by Donald Davidoff on May 19, 2013 1:18:00 PM

So I’m at the NMHC Market Research Forum in Boston this past week to sit on a panel/workshop on revenue management. Mark Obrinsky, who heads up Market Research at NMHC and has been a good friend and colleague for roughly decade brings up an interesting question:

“(paraphrasing) So what do you think about longer lease terms? And by longer lease terms, I mean 3-, 4- or 5-year leases.” He hypothesizes that there’s a latent, older “renter by choice” demographic that could be tapped, particularly in urban markets. The theory is that these folks would choose to rent but for the fear of unknown and thus uncertain future rent increases.

Read More

Topics: Revenue Management, apartment, apartment pricing, pricing and revenue management, apartment marketing

The Most Effective Marketing (and Other Lessons from AIM)

Posted by Donald Davidoff on May 6, 2013 1:25:00 PM

At AIM last week, I was up early for breakfast and wandered into the roundtable Lisa Trosien was leading, called “Talk Nerdy To Me.” If you’ve never experienced Lisa, you’re missing out on a true force of nature. I’ve barely woken up, and she’s already full of energy and just moving the discussion along—presenting interesting websites, asking the group questions and just generally always pushing forward.

Anyway, that’s not the point of this blog. About a third of the way through, she asked a senior marketing person (someone I’ve known for years and always watched what she’s doing as a bit of a bellwether for the industry) what she’s found to be the most effective marketing tactics these days. After a pause, the answer came back, “Well, I hate to say it, but it’s still the traditional stuff—driveby, website, referrals, …” [note: I would add ILS although this executive said they'’ve really cut back on ILS without any pain —maybe a good topic for a future blog].

I found that response incredibly interesting on two levels.

Read More

Topics: apartment, property management, social media, apartment marketing, marketing programs

JC Penney Proves It’s Hard to Change Pricing Psychology

Posted by Donald Davidoff on Apr 9, 2013 10:41:00 AM

Don’t know how many of you follow retail, but JC Penney just pulled the plug on one of the biggest experiments in pricing history—acknowledging it to be a colossal failure. In short, Ron Johnson, the architect of a move from constant couponing to simple “fair” pricing is out. And expect coupons to be back in.

I was skeptical when he was hired and announced his plans less than 2 years ago on two grounds:  1) Walmart kind of owns the “every day low price” model (plus it’s not clear that “everyday fair pricing” has an authentic ring to it anyway) and 2) more often than not, I find people like to feel they’re getting a deal. In other words, discounting sends a psychological signal that is more powerful than “simple” pricing.

Read More

Topics: Pricing, apartment, LRO, apartment pricing, Yieldstar, pricing and revenue management

An easy $120 a year

Posted by Donald Davidoff on Apr 1, 2013 11:00:00 AM

Amenity pricing can be one of the tougher things to get right—but also one of the most lucrative. So here’s the shortest blog I’m likely to ever write.

Do you put an amenity charge on south facing units? Why south facing (many of you may already have figured it out)? Because you have to have a south facing view if you want a satellite TV subscription. As a displaced Marylander who desperately wants to watch his Washington Capitals on DirecTV’s NHL Center Ice package (even this year, when they’re not playing too well), I can personally attest to the willingness to pay a segment of the market has.

Read More

Topics: Revenue Management, apartment, property management, apartment pricing, pricing and revenue management, apartment marketing

Evaluating comps when pricing

Posted by Donald Davidoff on Mar 19, 2013 10:44:00 AM

Understanding your competitive set when pricing is obviously important. If you’re constantly at low exposure, you can push pricing and ignore whatever comps are doing. But if your exposure ever goes up, you’ll want to make sure that you’re not priced out of the market such that you can’t reduce exposure.

In my experience, I’ve seen two “camps” on how to approach this problem. The first tries to build the comparison from the ground up. We audit our community against the comp on a variety of things—age, community amenities, unit size, unit type amenities (balconies, fireplaces, kitchen and bath finishes, etc.), and record these in (usually a large) spread sheet. $15 for a balcony, $3 for crown molding, $10 for a fireplace, ….  A lot of work, and a lot of alleged precision.

Read More

Topics: apartment, apartment operations, apartment pricing, pricing and revenue management, competitor shopping