When Trinity Property Consultants began its search for revenue management software, it naturally turned to the industry's two leading offerings, Rainmaker's LRO and Real- Page's YieldStar.
The Newport Beach, Calif.-based developer, which manages about 15,000 units mostly in Texas and the West Coast, had heard about revenue increases averaging 3 percent due to the software and attentively sat through a couple of product demonstrations.
But when told of the software's cost— averaging $3 a unit per month—the firm shook off the sticker shock and looked internally for a solution, only to discover the Yardi Voyager software suite it already owned included a yield management module.
“When we first started looking at these products, we had no idea that we already had this capability,” says Charisse Weaver, Trinity's director of training. “And we thought we better try it ourselves and prove out the [pricing] concept before taking on another software contract from another company.”
Yardi's revenue management module is less powerful in many ways than Rainmaker's or RealPage's offerings. Users must manually input all of the data into Yardi, as opposed to LRO and YieldStar which leverage huge databases of comparison properties and automate the number crunching to arrive at leasing price suggestions. But Trinity found Yardi's product to be a good starting point. The company is currently inputting market surveys into the module for a pilot run as a way to measure its current pricing practices.
“It should help us make sure that what we're doing now is [a step in] the right direction,” Weaver says. “We already own it, so why not use it?”
That way of thinking should be happening more in the multifamily industry. In today's economy when firms are slashing technology expenditures, the need to optimize what you already own and unlock the hidden value of an existing investment is more important than ever. Just ask the tech experts.
“A number of modules never get implemented, and often only a portion of a software's functionality is being used,” says Georgianna Oliver, president of Washington, D.C.-based technology consulting firm Evergreen Solutions. “You've really got to scour your software license to make sure you're fully realizing all of the benefits of what you've already paid for.”
To help you do just that, Apartment Finance Today scanned the multifamily software scene to help you uncover critical modules that might be hiding in plain sight.
Budgeting and Forecasting Beyond Yardi's scaled-down revenue management application, another often-overlooked feature is the budgeting module that comes standard with accounting suites from Intuit and Yardi. These apps are made even more powerful when paired with a forecasting module, an extra add-on cost that is variably priced based on the number of users, or properties, at a firm.
Morgan Properties, which manages nearly 31,000 units in various markets mostly east of the Mississippi, calculated its 2009 budgets using Yardi's budgeting and forecasting module. It was the first time the firm strayed from its traditional— and clunky—process.
“We had this monster spreadsheet that had developed over 10 years, and every year it got bigger,” says Jeff Callan, chief information officer of the King of Prussia, Pa.-based Morgan Properties. “We were just copying lots of data out of Yardi and pasting it into more tabs on the spreadsheet. Occasionally, the spreadsheet would just blow up and everyone would freak out.”
After the company more than doubled in size by acquiring the 16,784-unit Kushner Cos. portfolio in 2007, the budgeting process also doubled in complexity, forcing the company to say good-bye to the all-encompassing spreadsheet— which had ballooned to 3MB in size as a template, before financial data was entered. The company had been storing its budget in Yardi, and using the standard “budget comparison” and “budget checking” functions since 2005, which allowed the company to see how its current expenses measured up against projected expenses, for instance. But the acquisition spurred Morgan to purchase the extra budget and forecasting add-on module.
The biggest process efficiency gained from the budgeting and forecasting application is in reforecasting on the fly. In the past, Morgan Properties would enter all of its budget assumptions and separately compare the actual financial numbers against the spreadsheet, cycling back and forth. For instance, if the company assumed 20 people would move out of a property in a given year but 25 actually moved out, they'd have to manually compare the numbers to see why its turnover budget exceeded projections. Now, the company can reforecast at will in real-time with just a simple click.
“In the past, we'd have to pull the spreadsheet out, change our assumptions, and add more tabs to track the reforecast,” Callan says. “Now, we can just run the model, and the numbers instantly spit out. That process is now possible, whereas in the past it was virtually impossible to reforecast in Excel.”
For Drucker and Falk, which manages about 28,500 units in the Southeast and Mid-Atlantic, the module allows quicker decision-making as it prepares its budget for the upcoming year. The budgeting module, which the firm began to use about a year after buying the suite, gives them the ability to navigate the seemingly endless parade of variables that may affect a property's budget.
“It really allows you to make some ”˜what if' scenarios on the fly,” says Guy Buck, CFO and COO of Richmond, Va.- based Drucker and Falk. “If electricity goes up 5 percent, or if occupancy goes up 2 percent, you could check those numbers very quickly, run different scenarios, go over those with ownership, and decide on a strategy much more quickly by using the [budgeting] module.”
Maintenance and Facilities Industry watchers agree that maintenance and facilities are the most overlooked standard modules. The software, available in RealPage's OneSite, Yardi's Voyager, and Intuit's MRI suites, replaces the standard “make-ready white board” used by maintenance staff to track work orders in process. By integrating that information into property management software, a company has much greater visibility into the speed of the cumbersome turnover process.
“The module is always included but very seldom implemented,” says Oliver of Evergreen Solutions. “It can really help turn units over more quickly. Every day that a unit is vacant is big money that you're losing.”
By integrating the maintenance module with an online portal—a Web site where tenants can pay rent online or send work orders—a firm can get a better handle on its inventory and man-hours while facilitating quicker dialogue between field offices and headquarters. “We'll know whether items have been purchased and maybe not yet delivered, or the system can tell us the minute a unit is completed,” says Trinity's Weaver. “Because that white board isn't in a maintenance shop, instant communication between all management staff is available.”
The module also can send repair requests directly to a handheld device used by the maintenance staff, allowing the staff to service units while out in the field, rather than constantly checking back with the main office.
However, the tool does pose a few challenges that might explain why it's underused. Most maintenance staff ers don't routinely use desktop computers, especially at smaller properties; the handheld devices are pricey and haven't gained much traction in the marketplace; and using white boards and markers is a much more costeff ective approach than buying a large flat-screen display.
Purchasing The leading purchasing software on the market today is OpsTechnology's suite of products, bought by RealPage in October 2008. The software can save big money on a company's bottom line by putting more controls on expenses and streamlining the purchasing process. The software can also help locate the best bulk price on recurring expenses through an online marketplace of large suppliers bidding for your business— sort of a reverse eBay, where vendors outbid each other on line items such as paint or ladders.
Colonial Properties Trust, a REIT that manages about 39,000 units, implemented OpsTechnology in 2006 and reports significant savings of about 8 percent to 10 percent on its controllable expenses, or nearly $2.7 million annually.
“About 4 percent of that is just from going with a purchase order system,” says John Schneider, controller and vice president of accounting at Birmingham, Ala.-based Colonial. “We saw an additional 4 percent savings by shopping with a national or regional account versus using mom-and-pop shops for everything.”
But the product does have a major drawback: The software is somewhat costly, and is an economies-of-scale product. An owner with two or three properties wouldn't realize the same level of benefit as those with larger portfolios, so the software may not be a great fit for smaller multifamily firms. But for basic expense-control functionality, sometimes the answer lies in your existing software suite.
Take Intuit's MRI as an example. The software comes with an expense-control module that allows headquarters to set spending limits on field offices, require approvals on items that go beyond budget, and show managers how each purchase request will affect their overall budget. RealPage's One-Site also includes a purchasing module as a standard feature, functionality that most users would overlook. The module includes purchase orders, invoice processing, and asset management functions.
The asset management feature is especially underutilized, according to RealPage. The tool allows companies to enter and track every purchase they make by property. Users can centralize warranty information—if a fridge or dishwasher breaks down, you can quickly and easily see if it's still under warranty—as well as get a better handle on the value of a site's assets. The software makes depreciation calculations particularly easy by measuring a product's initial cost and replacement cost, another item on your year-end accounting checklist that can be automated.
Of course, budgeting, purchasing, and maintenance modules are just a sampling of potentially untapped software features. Technology consultants and software providers alike urge their clients to do a technology “business process improvement,” basically an audit to ensure you're fully utilizing all the bells and whistles of an existing software package.
“It won't cost much to spend some time looking at your system, whether it means additional staff training or a one-day consulting session,” says Tracy Turner, a manager at RealPage.
“If you've already purchased the system,” Turner adds, “you've got to make sure you're using everything [that is] available to you.”
How Low Should You Go?
Revenue management faces its biggest hurdle to date.
THE CURRENT DOWNTURN is testing the merits of revenue management software. Having come of age in the multifamily industry within the last five years, this is the first time the software has had to address steep rental rate declines. Consequently, the downturn has further polarized the debate over revenue management: Detractors have grown more pessimistic and proponents more optimistic about the software's power.
Revenue management analyzes a variety of data—seasonal traffic rates, weighted competitor rents, and recent demand—to recommend pricing for a given move-in date, unit type, and lease duration, ultimately maximizing rents for each unit in a firm's portfolio. Some firms are reporting that the software is setting the bar too high, which can further depress occupancies by turning off prospective renters sniffing around for a bargain. But the opposite may also be true: The software may be setting the bar too low.
“Our sense is that the software has been cutting rents dramatically on a daily basis, and I'm not sure it's helped occupancy levels as much as it would need to,” says Guy Buck, CFO and COO of Richmond, Va.-based Drucker and Falk, which manages about 28,500 units in the Southeast and Mid-Atlantic.
Drucker and Falk has not yet adopted the software, and in the current environment, where rent increases are largely unrealistic, there's less interest in implementing it now. “Those folks who do have it need to be very cautious with the adjustments it's asking them to make,” Buck says. Still, many leading multifamily firms—Camden Property Trust, Home Properties, Simpson Housing, Laramar Communities, just to name a few—report great results from revenue management, even in a downturn. These firms say that patience is key, and that the system needs constant supervision—a company's pricing czars need to combine the software's pricing suggestions with the reality on the ground.
“We feel like we're getting the best rents that we can get with [Rainmaker's] LRO,” says John Schneider, a controller and vice president of accounting at Birmingham, Ala.-based Colonial Properties Trust, which manages approximately 39,000 units mostly in the Sunbelt. “But we have to make sure we're following all the variables brought on by the recession and interpreting them the best we can.”
Is social media the next marketing frontier?
WHILE THE MULTIFAMILY industry is traditionally slow to adopt new technologies, leading firms are beginning to explore the capabilities of social networking sites such as Facebook and Myspace, and, increasingly, now Twitter. Several multifamily-specific social networking sites, including RentWiki and RentMineOnline, help build a stronger sense of community for residents and help get new renters in the door.
Multifamily firms including The Bozzuto Group, Kettler, Sequoia Equities, and Gables Residential are already embracing these technologies, but most firms are only cautiously dipping their toes into the water. Case in point: A few of Morgan Properties' communities are testing the effectiveness of sites, including Facebook and Twitter, to build stronger connections between residents, and, perhaps more importantly, send more prospective tenants its way.
“Social networking works when the site builds a strong community of residents and prospects, and it's great for pushing referrals,” says Jeff Callan, chief information officer of the King of Prussia, Pa.-based company. “But the site needs to be monitored daily, and we're still developing policies related to the proper use of these sites.”
RentWiki, for instance, uses the Wikipedia model of user-generated and peer-reviewed content. The site allows users to rate and provide in-depth information on a neighborhood—be it identifying the best local restaurants or rating the safety of the greater community.
Apartment firms can also advertise their properties on the site but Rent- Wiki charges per lead, as opposed to the per-lease charge that Internet Listing Services such as Rent.com offer. This pay-per-lead model has turned off many firms since the lead-to-lease ratio through RentWiki can be very low. RentMineOnline, which specializes in referral distribution—where residents send referral requests to friends via social networking sites—is also winning converts as a lower-cost version of door-hanger campaigns.
AvalonBay Communities has been testing social media optimization since 2007 on a variety of sites, but believes that simpler technologies, such as search engine marketing (where your property's site appears when users Google “San Francisco Apartments,” for instance) are still not fully utilized within the industry.
“We as an industry are embracing social networking more from a novelty perspective, and my concern is that we're rushing into it before we've conquered other aspects of cyber marketing,” says Kevin Thompson, director of marketing for the Alexandria, Va.- based firm.
A number of AvalonBay's communities have Facebook pages, which the company dutifully monitors to get a pulse on how tenants view their communities. “The conversation is going to occur with or without us being there,” Thompson says. “With social sites you have to be able to respond in real-time to resident feedback.”
The big problem with spending time and resources on social networking optimization is in monetizing these efforts: Where is the payoff? For all of AvalonBay's work in this area, two years after it began testing the effectiveness of social networking, “We haven't cracked that code yet,” Thompson admits.