The Demand Solutions Blog

In recent weeks we've been examining some changes to technology adoption through the COVID-dominated months of 2020. Curb-to-couch access control and self-show are obvious examples of innovations that have become a necessity as communities have grappled with social distancing. But as we discussed last week, we still need to understand the numbers when considering technology investments.

Most of the time, proptech investment decisions turn on whether or not the cost can be justified through rent increases. But rent growth is a complicated thing, particularly when it is influencing an investment decision. Correlation is not causation, and given the typically broad range of factors that influence rent growth, it is never easy to isolate the role of a single factor in driving it.

The challenge is to find evidence of the impact of the technology on rent growth. That means getting comfortable with estimates of future rent increases and, assuming they justify moving forward with implementation, conducting tests to prove revenue lift.

Over the last year or so, as proptech has exploded, showering the multifamily industry with new and exciting technology, it has become harder to understand the return on technology implementations. As we wrote earlier this year in our 20 for ‘20 white paper, an ever-growing vendor population is competing to deliver ostensibly the same benefits to multifamily communities and companies. To make good decisions, operators have had to sharpen their ability to estimate financial benefits.

The problem gets harder still when a technology offers numerous sources of potential upside. Smart home technology is just such a case, with the combination of access control, thermostats and leak detection providing numerous ways to improve operations and customer experience. The challenge is to identify a credible and measurable source of upside, and figure out whether or not the investment makes sense.     

Several months ago I started to write a post about the extraordinary changes to leasing processes that we had seen over the previous 12 months. The post, which was to be called “12 months that shook multifamily leasing” went on hold as COVID-19 took over our industry discourse. Few would have predicted the breakneck acceleration of automated leasing that has taken place in the first half of 2020. It has caused us at D2 to discuss extensively and to speculate on what this all means for the future of leasing. I will share some of our thoughts in this post.

Now I'll admit that it's hard to remember what was going on in the days before the COVID-19 lockdown disrupted our industry, but stuff was going on. New technologies were already transforming operating models before any lockdown started. Forward-thinking operators were already reaping the benefits, removing friction from the day-to-day lives of their residents and site teams, and creating new automation opportunities.

In our March 2020 "20 for '20" white paper, we noted the remarkable acceleration in the industry's acceptance and adoption of self-show in the previous 12 months. As social distancing measures have forced operators to find ways to show apartments without human interaction, adoption has accelerated more quickly than anyone anticipated.

Would you try to build a puzzle with just one piece? You already know the answer is no, so why would you try to make pricing decisions based on just one data point? With puzzles, the picture doesn't start to take shape until you have joined multiple pieces together. The same is true with your pricing decisions.

Too often, we see companies making pricing adjustments solely based on prior rents, often referred to as "trade-outs." When you focus on just one data point (the "trade-out"), you fail to see the full picture. In some cases, users over-ride their pricing and revenue management (PRM) system to protect the trade-out. In this post, I'll explain why that's riskier than you may realize, especially in today’s market.

To be clear, I am not saying that prior rents are not important. They are: I have often referred to them as the "canary in the coal mine," but they don't tell the full story and should not be used exclusively to determine the success of pricing. 

Watching pricing performance since the downturn started and reflecting on all the things we've done with our clients over the past three months reminds me of a key lesson I learned about pricing and revenue management (PRM) in the 2002-03 and 2008-09 recessions. The opportunity to outperform competitors with PRM is actually GREATER in a downturn than in growth conditions.

That may sound a bit odd until you consider a few realities of PRM and recessions. For example, we should recognize the psychological bias that PRM systems are there to help increase rents. In reality, they exist to maximize rental revenue. Most of the time, that means controlling the pace of rent increase, but there are times when maximizing revenue means lowering rents to grow or protect occupancy. Not surprisingly, a recession is one of those times.

When we come to write the history of the changes that coronavirus forced upon multifamily, there will be plenty to say about its impact on technology. With social distancing virtualizing property operations, demand for proptech has skyrocketed, for example (as we will discuss on this blog in the next few weeks). But as companies have accommodated work from home, another, more traditional technology has come to the fore: Business Intelligence (BI).

Over the last few months, we at D2 have been developing and sharing insight about the state of the market and the ways that companies are managing it. As the world has lurched from crisis to crisis, we have held weekly discussions to figure out what's going on. Last week was no exception, although we focused on an area that's close to our hearts: pricing and revenue management (PRM) systems.  

Over the last few weeks, as we have tracked multifamily performance through turbulent markets, collections have been a natural and frequent focus. With moratoria being lifted in some markets, the possibility of evictions weighs on our minds. We reached out to our friends at the Resident Relief Foundation - in this guest blog, Executive Director, Tina Oswald shares a different perspective.

Each week we have been summarizing insights from our weekly "downturn" round table conversations. This week we share a few highlights of our most recent call (May 27), as we prepare for a webinar on the pressing issue of how to prepare for fall 2020. If you haven't done so, please register for our Webinar "The Gathering Storm - Revenue Management Planning for Fall 2020," which took place June 3, at noon.

On our most recent call, we continued what is now an almost 2-month long trend as participants reported consistent improvement in leasing:

• [Denver based] Last week's leasing was fantastic. It's been building for a few weeks. This week started off strong.
• Saw a significant shift in leasing over the past two weeks in Orlando with 26 leases. We think the announcement about Disney and Disney Springs reopening may have shifted the tide. 

However, urban coastal markets continue to lag in leasing more than the rest of the nation. They are improving, as indicated by one operator sharing, "Leasing has been great over the past two weeks, but we are still down 29% on year-to-date applications. We haven't quite caught up, but if we can [sustain this] pace going forward, that will definitely be nice."