Don't Miss The Biggest Opportunity of the Recovery!
by Donald Davidoff | April 27, 2021
It is becoming clear that we're in the early stages of what will be an incredible economic recovery, especially for multifamily rental housing. In this post, I will summarize the reasons to be cheerful about 2021 and the things that revenue managers should be doing now to capitalize on the unique opportunities that this recovery offers.
First, the tailwinds
There are so many tailwinds in current economic data. The recent additional $1.9T in stimulus included many things that will help us: the extra $1,400 in payments to most adults, tens of billions in specific rent support and perhaps most importantly, the $300 per week in supplemental unemployment insurance payouts.
Then there's the progress of our vaccine efforts. Through April 24, almost 42% of Americans (52% of the eligible population 16 and older) have had at least one vaccine, with 35% fully vaccinated. While experts still say we need 75% penetration to get herd immunity, prior results from Israel indicate that vaccination rates approaching 40% have a material impact on the transmission rate.
Case numbers are also encouraging: the trailing-7 average of daily new cases is down more than 18% since the peak of what was initially feared to be a true 4th wave. Barring a new variant that defeats current vaccines, we are heading to the low rates of new infections that will support the near-complete reopening of all elements of our economy.
Multifamily demand suggests that these trends are already playing out as demand surges into our high season. New lease trade outs are already positive nationally, and even urban portfolios are heading to positive trade outs in months, not quarters. Savvy revenue managers are shifting to normal high season settings (or at least backing off the recession settings they had in place through last year).
Don't miss the opportunity!
Yet, most operators and revenue managers continue to pay less attention to a key element in pricing that has been under-managed for many years. Yes, it's time to take a fresh look at your unit amenities.
Based on experience with the last two recessions, prospects are much more price-sensitive on unit amenities than on base rent. So highly-amenitized homes become even harder to rent, resulting in long vacancy loss or substantial amenity price reductions, but then they recover more quickly. I remember a scenario from the 2008-09 recession where we had been getting $150 for a walk-in closet in a northeast urban A-class high-rise. By early 2009, we had to reduce it to $50 to move the homes; however, by 2010, it was back to where it was.
Here are three things all operators and revenue managers should do today:
- Review each community’s unit amenity configuration. If you’ve never fully reviewed them before, I guarantee you will find units with missing amenities; and even if you’ve done this in the past, it’s likely that changes were made during the recession that now need to be unmade. Download this white paper for examples of things to look for.
- Review your square footage adjustments. In LRO, these are the “floorplan offsets” in the PMS Unit Type screen; in Yieldstar, they are the “base rent adjustments.” Or you may have them attached to individual units as square footage amenities.
- Re-examine the price for each unit amenity. Look at the speed with which homes which certain amenities lease compared to those that don’t. With an appropriate statistical test, you can quickly determine whether homes with each amenity lease faster, slower or the same as those without it. When statistically significant, the obvious prescription is to raise, lower or keep the amenity amount the same respectively.
If you’re at all unsure how to do this, give us a call. We’ve analyzed amenities at close to 1000 communities over the past 10 years, and we’ve never failed to find hidden rent. You can do the same!