RealPage Exec: Revenue Management Software Helps

Janine Steiner Jovanovic has been promoting technology to real estate companies for 15 years. As president of M/PF YieldStar, she focuses on revenue management software for the multifamily industry. 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. In an interview last year, Steiner Jovanovic said the product empowers multifamily operators to “aggressively price units.” But since then, the economy has deteriorated. In fact, Houston was the only major metro area nationwide that registered substantial demand for apartments during 2008, RealPage reports. So GlobeSt.com contacted Steiner Jovanovic again–this time, to find out what benefits, if any, revenue management software can offer in a down market. Here’s the first of a two-part interview:

GlobeSt.com: How can revenue management software, like Price Optimizer revenue management, help multifamily operators when the real estate market is in transition?

Jovanovic: The first benefit is the ability to make frequent, proactive price adjustments at a unit type level. By evaluating the supply and demand situation for each unit type in a given property on a daily basis, Price Optimizer is able to quickly identify situations where too much inventory is exposed and make measured downward price modifications to prevent occupancy deterioration, which is very costly. Conversely, certainly unit types, even in a down market, will experience sufficient demand to increase rates.

Without Price Optimizer revenue management, when a property experiences excess supply in a volatile market, operators typically discount rates on a wholesale basis, even when there are unit types in that situation that are experiencing higher demand and can sustain price increases. With Price Optimizer revenue management, every day presents a new opportunity to maximize revenue in a methodical and statistical manner to a degree that cannot be achieved by even the most experienced and talented operators in the industry.

Second, while Price Optimizer always contemplates competitive market influence, the main drivers for pricing are:

1. The property’s internal supply and demand situation;
2. Recent leasing velocity, and;
3. Recently achieved effective rents for each unit type.

This approach ensures that prices are competitive while not overreacting to pricing decisions made by neighboring properties, 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.

Third, 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 dates or lease terms, 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 use of concessions, which are highly detrimental and erode revenues.

Fourth, Price Optimizer provides visibility into property performance at a level available nowhere else in the industry. As asset hold times continue to increase and markets remain in a tumultuous state, focus on revenue and operations is more critical than ever. The Price Optimizer dashboards provide clients with daily insight into performance at a unit type, property, region and portfolio level. Effective rent, occupancy and revenue is reported on daily, trended over the last 30 days, compared quarter over quarter and year over year, highlighting successes as well as areas requiring attention. Today, Price Optimizer clients are leveraging the Price Optimizer dashboards to facilitate weekly performance reviews in which underperforming regions, properties or unit types are highlighted and remediation plans are discussed.