7 Amenity Habits That Improve Community Health for Life
by Donald Davidoff | October 28, 2020
We're all familiar with it. At some point in our childhood, a seemingly overbearing adult told us to finish our greens. Or not to eat that piece of candy. If you've graduated to parenthood, then you're familiar with the opposite side of that transaction. Why is it so hard to drop bad habits and acquire better ones when the long-term benefit is so great?
Well, of course, the clue is in the question. The cost of the small infraction of good dietary behavior is - well - small, while the long-term benefit of a healthy metabolism can seem intangible. The same logic applies to one of our revenue management issues du jour, unit amenities.
As goes weight, so go unit amenities
Just like our weight, unit amenities should be neither too low nor too high. When amenity values are too low, we're likely leaving rent on the table. When they're too high, then we're not leaving as much rent for the revenue management system (RMS) to manage. At best, it puts an extra burden on us to continually manually monitor and adjust amenity pricing; at worst, it minimizes the speed with which the RMS can raise or lower rents and actually hurts revenue performance.
Taking this analogy a step further (as I can tell you want me to) is equally instructive. Much as childhood eating habits set us up for nutritional success as adults, the initial amenity setup for a lease-up profoundly affects the success of a community's amenity performance over its lifetime.
We can collectively come up with a rule of thumb, but I prefer seeing amenity totals closer to 5% of the total rent, with anything beyond 10% of the rent is getting excessive. These values include sqft/ floor plan adjustments. If there is a legitimate need for amenity premiums beyond 10%, then this might be an indicator to review unit type groupings.
Here are some key tips and tricks for getting amenities right from the start:
Remember that amenities distinguish the unique differences between similar homes. If all the units in a community have the same feature, it's best to promote them through marketing materials and community features. If not all units in the community have the amenity, but all units in a unit types/floorplan have the amenity, then it's best to list them as a "zero dollar" amenity. Both of these approaches let the RMS control more of the price, which is a good thing.
Setting initial pricing can be tricky. If you have sister communities in the market, then those can serve as a useful benchmark. Failing that, you may be able to get colleagues from other communities to share some information. You can also look at the pricing of various units at the competitors and infer various amenity values. If the comps list unit amenities on their websites, that makes it all the easier. Even if they don't, you can infer the floor and view premiums pretty easily.
With lease-ups, it's important to start early. Review construction plans, and most importantly, walk the units to get a sense of various layouts and views. Starting when you still need a hard hat tour is a good idea!
It's best to have a checklist of amenity categories to make sure you don't miss anything.
In general, amenities and amenity pricing should change very infrequently; and even then, only when leasing data shows that one amenity or amenity bundle is leasing faster or slower than those homes without the amenity or bundle. That said, lease-ups should have more frequent amenity reviews in the first 1-2 years since the initial setup is based on less data than stabilized communities and units are often made available in phases that are several months apart.
Along these lines, if in doubt, we tend to recommend setting amenity pricing a little higher for lease-ups and then coming down. Unless you have a really tight leasing pro forma, it's easier to start a bit high and come down where leasing isn't happening as you can't recover any underpricing until renewal time; and if you're offering concessions, trying to remove concessions AND recover underpriced amenities can create unnaturally higher renewal increases.
Having a centralized "gatekeeper" of amenities is an absolute best practice. This avoids well-intentioned (or not-so-well intentioned) changes from individual community managers, which can lead to a patchwork of amenity set ups. Ideally, the gatekeeper is the pricing manager.
It's no fun to be told to eat your greens, but as most adults know, it's the right thing for kids to do. Amenity audits may inspire a similar reaction, but at D2, our century of revenue management expertise and our amenity reviews of more than 400 communities tell us how big the upside is. Follow these practices, and keep your amenities in check, and you'll be setting up your lease-ups for life!