Performance benchmarking has grown enormously in the multifamily industry over the past several years, giving operators the ability to compare their performance with their competitors'. However, two major problems persist: first, there isn’t one standard metric used to properly compare those performances, leading users to rely on multiple sets of data; second, the data are relative to the software, meaning users can only benchmark their performance against others using the same software.
The Multifamily Data Exchange (MDX) hopes to provide a solution to both of those problems by taking lessons from the lodging industry.
One Standard Metric
The first solution MDX provides is one standard metric for revenue benchmarking that is comparable across the board. MDX decided to use revenue per unit (RPU), which translates to the total unit revenue divided by the number of available units. The metric accounts for both unit rate and available units and provides an apples-to-apples comparison for submarket comps.
RPU is a translated metric from the lodging industry’s revenue per available room (RevPAR). RevPAR is a useful metric for hotels because hotel business turns over every few nights. Since multifamily turnover is much longer, the goal of RPU is to track the impact of a company’s pricing decisions over time as opposed to month to month.
One Location for Historical Data
The second solution entails taking the data out of the technology. MDX extracts performance data from various property management systems (PMSs) and puts all of the industry’s historical performance data into one place where everyone can access the data regardless of the software he or she is using. For the first time, multifamily operators will be able to compare their performance against everyone in the market, not just those in the market using the same software, which expands the pool of competitors greatly.
In the lodging industry, the firm Smith Travel Research (STR) began providing performance data in 1985, before the technology boom took off. It never had to deal with numerous company handoffs because every company in the hotel industry was using STR. In multifamily, however, company handoffs often involve changing software, which means one property’s historical performance data will disappear from one software program and begin anew in another software program. This makes it impossible for any property to maintain historical performance data through the changing of hands.
“The more history you’ve got on the market, the better,” says Dom Beveridge, EVP and general manager of MDX, who joined Rainmaker, MDX’s parent company, two years ago from the lodging industry to help fill the gap in the multifamily world. “[There are] hotels that have changed hands many times in the last 20 years and you’ve got a continuous history of them, which is enormously beneficial.”
MDX has spent the past year prototyping the platform with various clients while learning how people may use the data. The first problem the team encountered was getting people on board. Since it’s never been done before in multifamily, and the metric is new, people are hesitant at first.
“People have this natural desire to have other people do it first and then join in. When you’re building a network, that just means you have to keep pushing and figuring out different ways to get people over the line,” says Beveridge.
The main way to push people over that line is to educate them about the benefits of the product and how it can be used. However, educating an entire industry to convince people the product is worth it takes a lot of time, which is why MDX chose to offer the new benchmarking platform as a "freemium" model: Anyone who contributes data can access it.
“It’s much easier to give people something for free and have them figure out what it’s worth than try to educate the market to pay for something,” says Beveridge. “We have recognized that nobody is ever going to build a platform like this if the business model is, 'I need your data, and you also have to pay me for it.' It’s far more valuable to get the largest possible amount of data to make the product as good as it could possibly be and attract as many users as possible.”
For subscribers who want more-sophisticated data analysis, a paid upgrade is available for more value-add features and services. These super-users are the primary sources of revenue for MDX while the platform continues to be built.
Steve Lefkovits, CEO of Joshua Tree Consulting, thinks that translating these points from STR in the lodging industry to multifamily could be beneficial, but that it will largely depend on how users perceive the produced data. “With any data, we have to ask, 'What could I do with that data if I had it?' ” he says.
According to Lefkovits, we can’t predict how well this will do until people really understand how to use this new metric. From there, it won’t become relevant until investors begin to show interest.
“It’s not exactly a lightning bolt, but it’s a nice thing to have,” says Lefkovits.