Here's where the black box lives or dies. Revenue management software, which automatically sets pricing and lease duration terms for multifamily rentals, has long had its fair share of proponents and detractors. And that still seems to be the case even as the recession pounds rent and occupancy levels alike.
"You either drank the Kool-Aid or you didn't," says Michael Casper, chief information officer for Denver-based multifamily property management and development firm Simpson Housing. "I got an email from a colleague doubting it, thought it was going to tank rents in an already soft economy, but we still love it. We think it does a nice job of anticipating market conditions and feel like you can use it just as effectively in a down market as you can in an up market."
After implementing Rainmaker's LRO system across 17,000 units back in 2007, Simpson saw rent lifts between 3.6 percent and 4.1 percent, an average pricing boost shared by most revenue management adopters. Critics of the technology don't dispute the fact that revenue management sets higher rents. On the contrary, most contend that the systems often set prices too high, forcing leasing agents to turn away qualified applicants and needlessly impact vacancy levels. With rents and occupancies in steep decline today, old-schoolers say that sacrifice is unacceptable.
"We're currently anti-revenue management," says Mark Windhager, COO of Denver-based RedPeak Properties. "In a very good market, our opinion is that those products work very well. In a declining market, we think the product reacts in the opposite way and starts to rashly decrease rents while increasing concessions. Right now, what you need more than anything is a seasoned, veteran property manager who just knows their market cold."
Then, there's the price. While quotes vary, virtually all systems approach or go beyond the $3 per unit per month threshold, a hefty investment for a newer technology, particularly for mid-sized firms with thousands of units but stressed budgets.
Neither of these primary arguments is lost on Rainmaker Group president Bruce Barfield. "Critics of revenue management fall in one of two camps: They either want it but cannot justify the expense, especially in this economic environment, or they have institutionalized basic forecasting, comp shopping, and tier pricing by the lease term in-house. They feel they do the process well and pay associates to perform these functions, and therefore, there is no need for an automated revenue management system."
So the question remains. Will revenue management prove itself out or prove precarious in the current economic environment? "The reality of it is that it does prove itself," says Stuart Price, vice president of technology for Greenwood Village, Colo.-based Laramar Group. "I'm a believer that in these economic conditions it is going to be more valuable than ever."
One key reason for Price's confidence lies in his firm's deployment of LRO in the summer of 2008. In addition to rent gains of 3 percent, implementation of the system at a Phoenix, Ariz., property mired in the housing recession boosted occupancy from 90 percent to 96 percent.
Another factor to consider is the relative dearth of revenue management defectors who will claim on the record that they put full force behind the technology and found it failing. "We recognize that automated revenue management is not a widespread practice yet," Barfield says. "But our customers don't want to go back to old-school pricing once they are up and running. No one has ever told us to turn it off. "