The Demand Solutions Blog

Why Does Multi-family Always Compare Apples to Oranges?

Posted by Donald Davidoff on Jun 10, 2014 7:33:00 PM

[Note: This blog first appeared in the Multi-family Data Exchange blog. Full disclosure: the Multi-family Data Exchange is one of my clients. I believe I would write the same blog independent of that fact and leave it to the reader to interpret the blog with this knowledge]

This past year marked my 15th year working in multi-family housing. I’ve seen our industry adopt many best practices from other industries—instant credit checks like the automobile industry, pricing and revenue management like the travel and hospitality industry and customer portals like the online retail world, just to name a few.

But one of the things that continues to baffle me is how we continue to benchmark our key operating performance indicators against benchmarks that are not “apples to apples.” I’m talking about how 3rd party data benchmark providers call (and/or screen scrape) for asking rents, the growth of which we then compare to our actual rent growth.

The plain and simple fact is that asking rents are a leading indicator. They’re an indication of what might come based on what operators are trying to get as rents for their units. Actual rents are a trailing indicator. They’re a factual representation of what actually happened. Comparing one to the other simply doesn’t make sense.

On top of that, asking rents are only about new rents. They don’t include any information about how renewal rents are performing. And renewal rents are typically half or more of the rent roll!

Why is this is so, and how can we stop the madness? I think it’s the way it is simply because it’s been very hard to collect actual rents, and almost impossible to collect renewal rent information. But it’s 2014—all we need is the willingness to share information and some careful rules to ensure that such benchmarking is not ant-competitive or price collusive.

The hospitality industry has been doing this since 1985—that’s almost 30 years! The secret to their success has been not only the willingness to share data through a data exchange but also the presence of a data-oriented partner who is trusted as a curator of the data. The data exchange in hospitality isn’t tied to any specific operating platform; and the vendor takes great care to ensure that the ecosystem as a whole get the sub-market data all the participants crave while ensuring none of the participants are at risk of getting a call from the Department of Justice.

It’s time our industry caught up to theirs and compared actuals to actuals—apples to apples. The taste will be sweet, I promise!