A delicate balance exists for multifamily companies when determining a pricing structure for ancillary services. That balance basically straddles the line between leaving money on the table by pricing too low and driving tenants away by hiking rates too high. Although substantial differences won’t always be seen from a small increase here and a slight reduction there, additional revenue derived from smart ancillary pricing can have a meaningful impact when spread across an entire portfolio of properties.
“Simply having an ancillary service in place does not guarantee success,” says Gardner Rees, executive vice president of ancillary services at Dallas-based Riverstone Residential Group. “But a strategically implemented and managed ancillary service may have a major impact and continue to drive higher NOI.”
Among the things Riverstone is capitalizing on is technology. Rees cites online leasing and online renter’s insurance signup for their use of paperless systems, esignatures, storage and retrieval as a way to keep service prices lower by reducing administrative manpower. “The adoption of technology helps tremendously, as most of the newer services are far less labor intensive and thus can be provided to our clients at a lower cost,” said Rees. Riverstone has also seen positive NOI at the properties for their clients, thanks to its introduction of a telecommunications group implementing a program which can add $150 to $250 per unit annually in revenue.
At Houston-based Camden Property Trust, ancillary services have also been evolving to meet resident needs during the past year. And several new partnerships have been formed that are starting to show their value on the company’s quarterly balance sheet. Among the more successful offerings is Camden’s Valet Waste, a door-to-door trash removal service. Not only has the service improved NOI at the properties that offer it, but Camden was able to reduce operating cost from it as well.
Another of Camden’s value adding services is its bundling of high-speed data packages in tenant’s rent. According to Camden’s director of ancillary services, Linda Willey, the company was able to make a deal with a service provider that involves a bulk deal at a discounted rate, just like Riverstone did. The company is adapting to the growing trend of tenants who are looking for services that cater to their technology needs. Willey says Camden is able to test out new services and pricing structures at appropriate properties in a pilot phase before incorporating them portfolio-wide. “As rents increase, ancillary prices will increase too,” said Willey, who added that Camden is exploring a lot of ancillary options based of different resident demographics.
Across the industry, property managers are paying closer attention to ancillary services and how they can add to a properties bottom line, be it an optional offering or an add on to base rents. And most companies have seen that residents are usually willing to pay a little extra for services that add convenience to their lives. More often than not, this means implementing technology that makes a tenants life easier—but not being too aggressive on the pricing. So as rental rates continue to grow, expect a moderate increase in ancillary rates to follow suit.
