Although revenue management software has become an important tool for many multifamily firms, it can’t be relied on completely for calling pricing shots, experts say.
Sean Burton, president of Los Angeles-based CityView, says revenue management programs can be used as helpful background data, but it can’t replace human intuition. After implementing the technology, Burton found that it didn't quite achieve the optimal results.
"We found in some of our projects, when the property management teams have relied too heavily on it, they can become a little lackadaisical. The issue we’ve faced is, we haven’t seen the revenue growth that we wanted,” he says. “So there’s a number of projects that we’ve gone in and we’ve said O.K. we’re still going to use it but it’s just going to be a data point, we’re still going let the manager make the decision.”
And using a blend of the data and human analysis to make the call has led to higher rent growth at those properties, Burton says.
Rick Graf, CEO of Addison, Texas-based Pinnacle, says his management company has about 50,000 units out of 135,000 on revenue management software and his staff tweaks the data here and there.
“If you turn the switch on and you walk away and turn your brain off, I think you’re not totally utilizing the tool for what it’s meant to be," says Graf. "It’s been a great tool for us, particularly as the markets are going up.
Greg Mutz, CEO of Chicago-based AMLI Residential, agrees. He believes putting the tool on autopilot is a dangerous mistake and it takes a lot more than just an increase to drive a renter away.
"It’s not a black box and if you just put it on automatic mode ... and you don’t really engage the staff and don’t engage the residents, and don’t think about what you’re doing, you’re making a big mistake," Mutz said.
But the discussion then turned to the issue of affordability and to what degree the current pace of rent growth is sustainable. Will the issue of affordability ultimately slow down growth?
"A big risk for all of us is, corn don’t grow to the moon, and we’ve been averaging 5 percent for four years now," said Mutz. "And you can’t get rents going up at 5 and real incomes going up at 2 and a half or 3 [percent] and have that continue for any long period of time, the math just doesn’t work.
"Lots of people now are talking about this very phenomenon. There’s only so much Ritz and Four Seasons," Mutz said. "Sooner or later, there's Motel 6; people are going to come back with a product that’s more affordable."
Lindsay Machak is an associate editor for Multifamily Executive. Connect with her on Twitter @LMachak.