Next Era of Revenue Management to Target Marketing Costs

It’s no secret where multifamily revenue management came from: Algorithmic forecasting of pricing based on transactional supply and demand has been a mainstay of the airline and hotel industries for years. By crunching recent prices against historical demand, current transaction velocity, and unit availability—among other data sets—revenue management systems suggest optimal per-unit pricing and lease duration terms that proponents say translate to revenue lifts ranging from 2 percent to 5 percent.

Over the past several years, adoption of the technology within multifamily has been steady, if not meteoric, but systems providers expect the pace to pick up as revenue management proves itself out in a recessionary and concessionary environment. This comes even as new system functionalities begin to morph over from the hotel industry.

In late April, Atlanta-based Rainmaker Group announced that its Revolution 1.6 Revenue Management system for the gaming hospitality industry would be the first to include data from marketing promotions and events within its demand forecasting for clients such as Wynn Las Vegas, MGM MIRAGE, and Harrah’s Entertainment. The idea: integrate marketing within revenue management so promotions correspond to the relative availability and price per units. Just as revenue management can drive daily pricing fluctuations, so, too, should the system be able to pull the trigger on the need to promote leasing availability across a property or portfolio.

“I don’t have an exact date, but that functionality absolutely will be coming to multifamily,” says Rainmaker president Bruce Barfield. “On the hospitality and gaming side, we found that marketing and revenue management never really talked to each other: You might have low demand dates on the revenue management side, and marketing is over there promoting the heck out of a business where there might not have been any need. It brings those two departments together, and it will be exciting to see on the multifamily side.”

At Carrollton, Texas-based RealPage, makers of the YieldStar Price Optimizer system likewise expect marketing to be an eventual component of their revenue management solution. “It’s definitely on the radar screen for RealPage,” says YieldStar president Janine Steiner. “I’d say we are in the R&D mode on that.” Steiner points to daily transaction data at YieldStar for some 13,000 conventional multifamily properties as part and parcel of additional functionality improvements, marketing or otherwise.

“That data is a perfect view into past and current situation for a submarket,” Steiner adds. “As that database expands by about 200 to 300 properties a month, so does our view of submarket conditions across the United States.”

Impending bells and whistles aside, revenue management providers are still engaged in the effort to increase implementation of their systems industrywide. Steiner pegs adoption at approximately 10 percent, and in an effort to overcome misconceptions, YieldStar has launched a redesigned Web site that includes testimonials from large REITs and regional power players alike, in addition to educational videos and man-on-the-street descriptions of how the technology works within a larger leasing optimization strategy.

Rainmaker, as well, is leveraging video in an effort to emphasize the human component of revenue management and illustrate its effectiveness in combating concessions and softening rent fundamentals. A video featuring Boston-based Windsor Communities pricing revenue manager Emily Dreyfuss provides a how-to on conducting amenity audits and incorporating unit views, floor plans, and other design premiums into revenue management.

Even if such efforts seem granular and obvious to pricing strategy, the aggregate transparency is exactly the point of revenue management systems to begin with. “That’s why we like to call Yieldstar the glass box,” Steiner says. “We provide visuals, graphics, and charts to clarify what the historical demand has been at a unit level, what leasing velocity they have been experiencing recently, what prices they have been able to garner recently, and what they can expect to happen in regards to exposure in the next 90 days with regards to new leases and what they can expect over the next 15 months with regard to expiration.”

That type of intelligence is a powerful concessions fighter, if, as proponents claim, it allows an isolation of unit types with increasing fundamentals that would suffer from broader property-wide discounts to rent. “That is a tremendous amount of insight as to why your prices may be moving up or down or staying static, and replaces the manual effort of generating all of that information,” Steiner says. “That’s really how you capitalize with revenue management. Without all of that information, you are required to address market challenges [and rent fundamentals] in a wholesale manner.”