The Demand Solutions Blog

Where I come from (the UK), the English language is peppered with curious variations. One of the strangest is the perpetual controversy over the pronunciation of the word "scone." Everybody pronounces the vowel either as "own" or "on." Which side of the divide that people fall on follows no clear regional or socio-economic pattern. People adopt one pronunciation or the other and never change thereafter. And everybody is convinced that people who pronounce it the other way are entirely wrong to do so.

(This is the third blog in our current series on amenity pricing)

It’s a classic conversation that will be familiar to every revenue manager who has ever had rehab units in their portfolio:

Property Manager: “I need to lower my one-bedroom prices”

Revenue Manager: “Ok. What, exactly, makes you feel that way?

Property Manager: “I’ve got a few units that have been sitting vacant too long”

Revenue Manager: “Anything those units share in common?

Property Manager: “Yeah, they’re the units we’re doing the rehab on.

Revenue Manager: “Ok. Then we really need to reduce the upcharge for the renovation on those units, not reduce the price on all 1-bedroom units”

Property Manager: “I can’t do that!” “Then I won’t get the ROI I need on those rehabs!!”

We have told that story many times, and every time we tell it to a revenue manager (or group of revenue managers), we get that immediate, knowing smile.  Yet despite this familiarity, this script keeps repeating itself. Why? And what can we do about it?

A couple of months ago, I read a blog about multifamily sales. It caught my attention because the title referred to closing as "the bottom line." Those of you who read this blog frequently know that not only do we regularly write about how to improve sales performance, but we also do so from a contemporary point of view based on science and data behind successful sales/leasing.   

Our views are influenced by the seminal research by Matthew Dixon and Brent Adamson in the Challenger Sale, as well as anthropological research on how prospects actually buy. The hook (in the blog) of closing as the bottom line struck me as being completely out of sync with this modern approach. It was reminiscent of the "always be closing" approach that influences many people's idea of sales. This approach - brilliantly satirized in Glengarry Glen Ross - has been clearly debunked by Dixon and Adamson as well as other authors (e.g. Daniel Pink) in favor of much more prospect-centered approaches.

I was recently moderating a panel on short-term rentals (STRs) at the Indiana Apartment Association’s Multifamily Industry Summit, and a question came from the audience about the implications of Government Sponsored Enterprise (GSE) policies regarding STRs on the ability of owners to have as liquid a funding and sale market as possible.

This is a question that occasionally comes up in other STR panels and discussions though surprisingly not as often as one might expect. When I first heard this question in 2017, I did some research in early 2018 on this subject; and somewhat coincidentally, I had just updated this research following conversations leading up to NMHC’s OpTech.

First, let me say that our work and experience is completely on the operating side. Neither my team nor I have extensive experience in the financing side of the business. So everything here is a) the result of research into an area a bit out of our sweet spot and b) meant to start a conversation should anyone out there have information more contemporary and/or more accurate.

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.

Last week we were talking about the experience of leasing up big projects, and it reminded me of something that I’ve advised companies against doing for years.  It’s to do with the setup of pricing and revenue management systems (RMS) – a set of tasks that do not always receive the attention that they should.

When companies set up new properties on an RMS, one of the most frequent missteps, even for experienced revenue management departments, is the execution of floor plan groupings.  It’s an essential set-up step, as it determines the level at which the system will forecast and make pricing recommendations.

Recently it's been my privilege to interview 20 senior multifamily executives to get their viewpoints and understand their priorities for the next few years. (The interviews were part of our research for a new white paper that we'll be publishing soon - you can pre-register for your copy here.) Through the interviews, one thing was crystal clear: most companies see sales as a top training priority for 2019.

Readers of this blog will not be surprised by this finding - we have long been calling for a revolution in multifamily sales. Multifamily leaders seem to agree, and there are good reasons for that: after a decade of growth in multifamily, the sales muscles have perhaps not received the most rigorous of workouts lately. It makes sense to strengthen them before markets start to soften - whenever that is.

In the closing weeks of 2018 I had the pleasure of interviewing 20 leaders in multifamily operations and technology about the outlook for 2019 and beyond. The content of those conversations will be discussed in detail on this site in a few weeks’ time, but in the meantime, one theme emerged that seems to be a 2019 priority for everybody: leasing.

That’s right folks, as the hangovers wear off and the post-holiday diets wear on, it’s normal to think about new year’s resolutions. And for many in multifamily, plans to re-vamp, re-focus and in many cases re-think their companies’ sales processes are top of the list.  There are several different reasons for this. The now seemingly perennial question mark over whether the bull market on rents will add yet another year to its already historic trend provides a natural motivation for operators to get better at converting leads.

Fall is upon us. As usual for multifamily operators, Halloween preparations and pumpkin spice treats provide the backdrop to the main event - next year’s budget. As we grind through the seemingly endless iterations of revenue and cost numbers and reconciliation between properties and central teams, at some point the light will appear at the end of the tunnel. At that point, we will get to turn our attention not merely to the goals, but how we will achieve them.

We will bring 2018 to a close with a decade of growth behind us. We will enter 2019 facing what is now an annual question "is this going to be the year when things slow down?"  Of course, nobody knows the answer to that question, but there are good reasons to take our preparations for next year as an opportunity to revisit sales. A decade when demand has outstripped supply more often than not has delivered spectacular returns but in many cases, less-than-spectacular sales performance.

Just yesterday, Pillow Homes released a white paper I authored, “Allowing Short-term Rentals in Multi-family Buildings: The Benefits and the Risks Based on Real-world Data.” Though in full disclosure I was compensated for my work, I am particularly proud of this piece of analysis as it’s the first time I’m aware of any comprehensive case study of what really happens when buildings actively allow residents to sublet their homes out for short-term rentals (STRs).

The paper was made possible by data collected on the Pillow Homes platform and the courtesy of two management teams of Denver multi-family communities allowing me to interview them to bring their experiences into the analysis along with the “hard” numbers. The study was made all the more interesting as one of the communities was a stabilized property and the other is going through lease-up, thus giving different perspectives from different operating imperatives.