RealPage Exec: Software Boosts Rental Rates & Profit

M/PF YieldStar Price Optimizer, a product of Carrollton, TX-based RealPage Inc., is an on-demand tool designed to optimize rental revenue for conventional, lease-up and student living. The software uses market response and forecasting models to make daily rent recommendations and provide detailed and summary decision support reports. GlobeSt.com asked Janine Steiner Jovanovic, president of M/PF YieldStar how the product benefits multifamily owners and managers in a down market. Here’s the second of a two-part interview:

GlobeSt.com: What type of metrics does the tool leverage to identify changing market dynamics?

Jovanovic: The most critical components to pricing with Price Optimizer are the internal supply and demand situation, recent leasing velocity, recently achieved effective rental rates, and current market dynamics. In a declining market, there is a propensity for operators to overreact to competitive pricing adjustments. By placing more weight on the internal dynamics of each property and then looking to the broader marketplace for trended changes in comparable property rates, Price Optimizer provides an excellent balance for pricing.

To understand market dynamics, Price Optimizer has the unique benefit of being able to leverage more than three million units of daily transaction data–and growing–collected from various property management systems, including RealPage’s OneSite solution, which is the most widely used on site property management system today.

This transaction data provides pure visibility into true economic occupancy and actual effective rents achieved in most markets across the country. In addition to this data, Price Optimizer leverages data collected for decades by MPF Research, which collects effective rent and occupancy data for 4.5 million units on an ongoing basis. The combination of data from these sources delivers unparalleled insight into historical, current and projected market performance.

GlobeSt.com: How does the software keep multifamily operators from over-reacting to a market decline?

Jovanovic: By prioritizing the internal fundamentals of a property and then considering broader, competitive rate movement, we limit the risk of over-reacting to disproportionate decisions made by competitors whose supply and demand situations may be very different, whose asset investment strategies may be different, and whose on-site teams may not possess the same quality of resources. Every day, Price Optimizer calculates each unit type’s rent performance relative to its competitive peer group in the submarket.

As such, the system knows where the property had success selling previously relative to the competition, and will not take rents lower than the minimum historical position. It is important to note, though, that while Price Optimizer considers history from the property and its submarket to determine the relative position of each unit type in the marketplace, the system does not assume that history repeats itself. The historical component establishes an expectation for what should occur based on past experience; however, today’s current availability and exposure, most recent leasing velocity and recently achieved rental rates relative to market position are the factors that influence price the most.

GlobeSt.com: Last year, your clients included REIT’s, fee managers, owner/operators and institutional investors, such as UDR, Lane Co., Trammell Crow Residential, JPI, Morgan Group, Sares Regis, Steven D. Bell and Archon Group. Have the number of clients remained stable through this difficult economic period, or has there been a change up or down?

Jovanovic: Our client base has grown exponentially over the past 18 months, and sales have literally doubled since the start of 2009. With 49 clients and nearly 1,100 communities using Price Optimizer across the nation today, we are in discussions with several organizations with significant national presence that should provide substantial growth for YieldStar revenue management during the rest of 2009.

The industry is struggling to retain occupancy without overly eroding rents and deteriorating profit during what has been one of the most challenging economic climates in history. Our clients and prospects believe that revenue management with YieldStar is an effective method to achieve that balance. YieldStar clients of all types, such as UDR, Trammell Crow Residential and Carter Haston, have publicly credited Price Optimizer in recent months with delivering their properties a 2% to 3% revenue premium to market.

YieldStar has been able to conclusively demonstrate that the properties using Price Optimizer across the country outperformed their submarkets by an average of 2.7% in revenue during the second half of 2008, which was the period in which multifamily operators experienced dramatic revenue declines between 3% and 4% on average. Tumultuous times–up or down–provide the best opportunity for Price Optimizer to outperform the market, and we are devoting a significant amount of resources not only to developing new business opportunities, but to our existing client base as well, in order to ensure that that they are achieving maximum benefits from the use of Price Optimizer.

GlobeSt.com: Just recently, one of your senior managers said, “When economic conditions tighten and apartment renters have less money to spend, the ability to offer a lower price for a longer lease term or an earlier move-in date provides greater opportunities to meet the needs of the customer and increases the likelihood of closing the deal.” Can you elaborate on that? In what ways can the software help multifamily owners meet the needs of potential renters?

Jovanovic: The flexibility introduced to the leasing and renewal process with Price Optimizer revenue management is a tremendous benefit, as it leads to increased closing ratios and retention and reduces average vacant days. Price Optimizer properties can offer multiple price options for a given unit to new lease prospects and renewing residents, based on different move-in dates and/or lease terms.Price Optimizer pricing accounts for:

1. Days that a prospect may ask to hold a unit after it becomes available;
2. Turn costs, which are amortized based on lease term, and;
3. Projected lease expiration date, to ensure that exposure is controlled. As a result, if a prospect is flexible with move-in date or lease term, lower price points are available and can be aligned with the prospect’s budget constraints. Renters feel as though they are getting a deal.

This flexibility has never been more important than in this difficult economic climate, which has forced consumers to become extremely price conscious. And with Price Optimizer, the seemingly discounted options are all equally profitable to the property. This flexible approach to pricing replaces the traditional concession approach, which is highly detrimental as it erodes revenues.

To read Part I of this interview, please click here.