Multi Housing News August 2012 : Page 40
technology Revenue Management How to maximize the value of apartment assets By Jeffrey Steele, Contributing Editor I n the apartment industry, one task confronted by nearly every company is maximizing the value of assets, given the constraints that often cannot be con-trolled. Revenue management processes have shown the value of extra demand and that it is worthwhile to capture such increased demand. “The point isn’t just passive calcula-tion; it’s showing new demand frontiers and what it takes to get to a new level of revealed demand,” says Lefkovits, presi-dent of Joshua Tree Conference Group, the co-producer of the Apartment Rev-enue Management Conference. Revenue management provides a con-sistent method and optimization algorithm enabling inputs like unit-type demand, market conditions and units being offered to consistently optimize revenue at the property level. Revenue management systems use his-torical patterns and current data to arrive at the best pricing for today’s situation, according to Lefkovits. “That maximizes the revenue on the as-set,” he says. “The advantages that make it worthwhile include increased revenues, greater transparency, faster market re-sponse and certainty you’re making con-sistent decisions that are based on data, not emotion. It‘s like cloning the most consistent, experienced pricing executive and arming him or her with a maximization algorithm. It‘s a big win, and few compa-nies have shut it off, once rolled out port-folio-wide.” But all is not perfect. Revenue manage-ment practices are like any new process, Lefkovits says. “The drawback is manag-ing the unfamiliar new process that gets overlaid on top of an existing team of peo-ple,” he notes. Janine Steiner Jovanovic, president of Carrollton, Tex.-based YieldStar and MPF Research, agrees. “Sometimes the own-ers are ready, but the people who work for them are not. You’re dealing with dif-ferent levels of comfort around the con-cept of revenue management. The typical roadblocks you face are just normal resis-tance to change. They’ve been success-ful for years doing things [the traditional] way. Pricing is so much a part of people’s pride. We help them understand this is a complement to the way they do things. It’s not a replacement for all their experience, knowledge and talent around pricing.” While revenue management is being ad-opted more heavily these days, its pene-tration in the industry is still only about 20 percent, Jovanovic reports. That means it’s a competitive differentiator for those using it. “But it’s a big change to those who are just now adopting it,” she says. “The change management element can’t be underestimated.” Calculating every option In traditional pricing models, it hasn’t been possible to calculate the effect of ev-ery move-in and lease term variable, and their impact on the bottom line. “Someone walks in and says, ‘I want to move in in 30 days,’ when that unit is available today,” Jovanovic says. “And he says he wants a seven-month lease until the winter, and I can’t lease then. Tradi-tional pricing is very restrictive. But with revenue management we’re able to build in that cost of vacancy for 30 days, and we also build into that lease the diffi culty of leasing in the winter. A human being can’t 40 August 2012 | Multi-Housing News
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