The Demand Solutions Blog

As we head into the winter months, it’s normal to think about slopes - especially if you live in Denver, as I do.  Denver is famous, amongst other things, for both skiing and multifamily leadership, and the “slopes” that we find ourselves discussing with multifamily leaders at this time of year are the profiles that describe a property’s lease expirations.

Lease expiration management (LEM) is particularly timely now as we lease December/January move-ins, soon moving on to February (which many are already sending renewal offers for) and then March. Now is the time where we get to move expirations out of undesirable expiration months into more desirable months. 

Miss your targets in the next few months, and you’ll have to wait another year to try to fix that pain. It should be simple enough, right? We know there’s seasonality, so we know what good and bad months for expirations are. All we need to do is stop signing leases with bad expirations and only sign leases with good expirations. As my good friend and former colleague now at RealPage, Rich Hughes would say, “Done and done,” right?

There's been a lot of talk of downturns lately in Pricing and Revenue Management (PRM) circles. It was a major theme of the recent NAA Maximize conference and was also covered at NMHC OPTECH last week. While no one knows when the downturn is coming, everyone seems to agree that it's a good idea to plan for it. While occupancy and rent growth are still strong, the sheer length of the recovery since the last recession has everyone wondering how much longer this bull run can last.

I think it was probably a record, and by some distance.  A whopping 2,300+ attendees were registered for NMHC OPTECH, and it made for a busy, busy show.  It will take us some time to decompress, organize and reflect on the many learnings and insights.  While we do that, here are a few instant reactions from the show.

Self-tour is HOT! 

Attitudes to several key technologies are quite different this year compared to a year ago. Nowhere is this more apparent than self-tour.  Last year, as we interviewed operations and technology leaders for 20 for ‘20, we were surprised at the push-back against this exciting and impactful technology.  While the range of views remains wide, the tide has clearly turned.

You might say that self-show has officially taken the place of short-term rentals as the hottest topic in the industry, as evidenced by the standing room only crowd at the “Cage Match” session on Tuesday.  Several companies who are experimenting with self tours shared their experiences, which ranged from working with the tech solutions to running manual tests with their on-site staff handing out keys. The panelists shared their excitement about the initial success and stats they've seen thus far, and it seems set to grow in 2020.

Can it really be time for NMHC OPTECH already? It appears so, and I’m looking forward to joining industry leaders and technology luminaries next week for what is usually one of the highlights of the fall, as we make our way to Dallas to learn about what’s new and what’s working in multifamily technology.

There are many reasons to be excited. It looks like there will be a record crowd for this year’s show, and it’s probably the proliferation of exciting new proptech that’s drawing the audience. But alongside the new and shiny, we will be taking some time to celebrate 18 years of multifamily Pricing and Revenue Management (PRM). This year I’m delighted to be leading the first PRM panel that’s taken place at OPTECH for years.

The fact that PRM has been strangely neglected for a few years at this leading technology show is at the heart of what this panel is all about. February of this year marked the 18th anniversary of the first-ever system implementation. However, the last ten of those years have coincided with unprecedented industry growth. There is good reason to think that it may be time to re-sharpen our focus on this critical capability and the technology that supports it.

I just got back from attending the inaugural FLEX conference. More than 200 industry professionals spent a day and a half focused on the issues of short-term rentals (STRs) in this “first of its kind” event. Here are a few thoughts and recollections while still fresh in my mind:

1. Content was king! Kudos to Stephen Lefkovits and Dennis Cogbill for curating an excellent set of content. The content covered all angles, discussing pros and cons, finance questions, operational and service issues, regulatory challenges and more. Most importantly, presenters shared real-world scenarios, actual results based on data and generally gave the audience information they could take back to their offices and use.

2. The Lines are Blurring. If I were to sum up the conference lessons learned in one word, it would be “blurring.” There’s a blurring of lines. Housing is blurring with hospitality; vacation stays are merging with business travel, and vendors are combining to offer a range of overlapping services, etc. On the one hand, it’s quite confusing as it’s increasingly hard to label anything or keep our processes in neat metaphorical cubbyholes. On the other hand, it’s incredibly exciting, posing many opportunities for those who can embrace the increased uncertainty/risk to expand and optimize the use of space.

In recent weeks we've been both thinking and writing about two things: pricing and revenue management (PRM) skills and the possible impact of an economic downturn.  A recent conversation reminded me of another related topic: the metrics we use to measure performance.

Given the importance of pricing and business analytics to our success, the metrics we choose to measure performance matter.  Yet while the industry has made great strides in employing ever-more sophisticated software, many processes and rules of thumb remain that have not caught up to where the technology is.

There is perhaps no better example than the metric "gross potential rent" (GPR). This metric is so ubiquitous that many property management systems (PMSs) embed it in their data model and standard reports.

 
“What about the liability?”

“What about noise complaints from neighbors?”

“What about the extra costs involved?”

“It will totally change the character of our community, and we don’t want that!”

To anyone who’s been involved in talking about short-term rentals (STRs), the above looks very familiar, right? They’re the most common concerns about the risks (and hassles) involved with allowing residents to sublease their apartments on short-term rental platforms.

Except that’s not where I first heard these concerns. Back in the late 1990s, hardly any apartment communities allowed pets, particularly dogs and cats, in their apartments. When I asked why not, I usually heard the same four objections.

Yet a few intrepid pioneers, sensing the growing importance of pets as part of their prospective residents’ lives, took a risk and started allowing pets.

I remember visiting one of those in the early ‘00s, Archstone South Market, at the edge of the financial district in San Francisco. I was touring and noticed there seemed to be a lot of dogs. So I asked the community manager whether that was true or it was just me thinking it was.

I must admit, last week's acquisition of Smith Travel Research (STR) by the CoStar group took me by surprise. And it wasn't just me - few observers of either the hospitality or multifamily industries expected it. As the dust settles after a seismic move, let's take a moment to think about some of the possible implications of this acquisition.

First, this is a big acquisition. Although not quite at the same dizzying heights of the 2014 Apartments.com takeover, $450m for a data company (i.e., not a product like an ILS that drives prospects to its customers) is extraordinary. But STR is no ordinary data company. It is not an exaggeration to say that STR is the foundation upon which property analytics are built in the global lodging industry. For decades, STR has been the gold standard for property performance and property underwriting. Nobody plays in this critical niche at the same level in multifamily.

For CoStar, who now have the habit of entering new markets with a strategy of going very big, the strategy makes perfect sense. Overnight they have become the uncontested, dominant force in hotel analytics. The merger on this scale creates many exciting opportunities, including a couple of potentially important ones for multifamily.

Lately, we've been writing about the possibility of a downturn, and the impact that it will have on multifamily revenue management. It came as no surprise, then, that the changing economic tides appeared to be a recurring theme at last week's Maximize asset management conference in Atlanta.

Although the conference's audience seemed neither preoccupied nor unduly worried by the prospect of a downturn, it formed a backdrop for the program. From the keynote session where economist Ryan Severino assured us that while a downturn is coming it is not happening tomorrow, to individual sessions in one of which I was fortunate enough to be a panelist, there was a decided focus on preparing for the inevitable downturn whenever it comes.

Do your community and regional property managers have such a great relationship with their pricing and revenue managers that there is no sense of tension at all? They never escalate an issue because they always agree? If you answered “yes” to either or both questions, then you are likely leaving money on the table.

At first blush, that probably sounds provocative at best and just flat out wrong at worst. Admittedly, in most situations, leaders strive to remove tension in the relationships that exist between co-workers who collaborate to create business success. However, pricing and revenue management (PRM) is different.

Lately, we’ve been writing a lot about PRM capabilities as well as pricing strategy, but even if both are perfect, the nature of inter-departmental relations still has a heavy influence on performance.  In my thirty years of experience in PRM (20 of that in multi-family housing PRM), I have found that a lack of tension almost always indicates one of two situations. Both are bad for maximizing revenue: