Pricing in Multifamily: Have You Evaluated Your Strategy Lately?

It’s been a while since I have written about pricing. That seems a bit negligent since that’s kind of my #1 calling card in the industry and the largest portion of project work here at D2 Demand Solutions. Between Jessica Mills and I, D2 Demand has 35 years of pricing and revenue management experience with 26 of those specifically in multifamily housing.

So here are a few things to think about on the pricing front:

1. When was the last time you completed a unit amenity audit?

We just finished work for one client where we found more than $3,500 per month per community in untagged amenities. That’s $36,000 a year in lost revenue opportunity. Put a 5 cap on that and it’s almost three quarters of a million dollars in enterprise value…per community! And it’s not like there were no amenities tagged. There were just many missing, in particular around views and corner units. Also ask yourself if south facing units are more popular than others. With Netflix and other streaming services challenging DirectTV and Dish, this may not be the amenity it used to be; but if it is, then make sure to add $10-20 per south facing unit.

And if you’re sure you have all units' amenities tagged, when was the last time you evaluated their price? We can show you how to do a statistical test on average “days on market” to see whether you’re charging too much, too little or just right. This is one place where finding the “Goldilocks Zone” really does generate gold.

2. What is your renewal strategy as we head into the low season and what is likely a cyclical downturn as well?

This is another “Goldilocks Zone” problem. We don’t want to be too aggressive. Drive move-outs going into the low season and you’ll have pricing challenges all through the low season; and with next year likely to be more challenging than this past year, you might even struggle to make lost revenue back come next spring.

But get too conservative and you’ll leave significant money on the table. Our experience is that, as long as the renewal rates are still at or below the new lease price, there’s really no change in renewal likelihood unless you start to get into the 10-12% increase range. So if you have residents several points below market, don’t be afraid of a 4-7% increase. But if residents are already at or above the new lease price, be careful about getting too aggressive on minimum increases.

3. With all the new supply coming online, you’re almost sure to have at least one competitor in lease-up. So how are you dealing with that?

It’s always a little tough to compete with a new lease-up. All that promotion they do, all the shiny new things they have and then there are those pesky concessions that lease-ups tend to offer. While those are definitely metaphorical headwinds, we find most operators over-react because they ignore the tailwinds that accompany having a lease-up in your neighborhood.

First, all that extra promotion also increases your drive by traffic (or walk by if you’re an urban property). So you’ll get some extra leads courtesy of the competition’s extra marketing. In some cases, you can get direct leases. We have one client whose competing lease-up sent a number of leases their way when construction delays made it impossible to allow people to move in when scheduled.

Second, it’s good to remind site associates that another reason most lease-ups offer concessions is that most new residents of lease-ups have to deal with construction noise and other hassles of a brand new building.

Last, and most important, remember that a lease-up generally needs double the leasing pace that a stable property needs. So you only need 1 lease for every 2 they get. You don’t have to beat them; you just have to stay in the game enough to get the leases you need.

4. How well are you aligning marketing with pricing?

One of the toughest things in running a multifamily housing demand management platform is figuring out when you have a pricing problem versus a lead generation problem versus sales execution issues. So I was very fortunate that, twice in my career, I had responsibility for both pricing and marketing. With both reporting to me, it was amazing how quickly they aligned on the real root cause compared to when the two organizations were separate. For example, it was easier to determine that spending an extra thousand dollars in marketing was better than reducing rents by $50 which would impact the rent roll by many thousands of dollars.

Pricing is one of the “4 Ps” of marketing, so it surprises me how often pricing and marketing are completely separated from each other in our industry. So ask yourself how well aligned these functions are in your demand management platform. How often do they interact? Are they both reacting to problems and also proactively looking for opportunities? And of course give us a call if you want some help assessing and improving this!

5. What is the relationship between your pricing and your operating teams?

If you tell us that the relationship is great with no tension at all, then we’ll tell you something is probably amiss. Show us a situation with no tension, and we’ll show you one where either the PRM is not pushing hard enough or the field has capitulated to a process in which they believe they have no say. In our experience, there should be some tension between the two teams. PRM should be more dispassionate and push the envelope while operations should be more aware of local nuances, have a sense of what’s coming around the corner and be courageous in standing up for what they need. The key is that this tension needs to be constructive. It needs to be one of mutual understanding, each side respecting what the other brings to the table. If you have that, great! If you have any concerns you might not, let’s talk about that.