This article was posted on Saturday, Aug 01, 2015

With rising rent rates in the apartment market, property managers are looking for the best way to maximize revenues. A revenue management system potentially could be the answer.

Mrs. Johnson has been a good tenant since arriving at the community several years ago. She leased her two-bedroom apartment at a great rate when occupancy levels were below normal. But market rates for her two-bedroom abode have since soared. 

Apartment demand is much higher than it was a few years ago, and it’s time for Mrs. Johnson to renew. Until now, the community has held the rate or extended only slight increases. However, the gap between her rent and what competitors are getting for a similar floorplan has widened.

What does the manager do about Mrs. Johnson? Nobody likes to lose a resident, especially a community fixture, but money is being left on the table.

“Sometimes the industry is afraid to push people’s rates up with renewals, even if they are ‘X’ percent below market,” says Jeremy Boelens, Waterton Residential’s pricing director. “We don’t want to scare them off. Utilizing the recommendation from the system, here’s what we would offer if the apartment were available today with the market rent. That’s what we’re going to ask for the renewal. “(Revenue management) takes emotion out of it.”  

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Pricing Executives Tout Revenue
Management for Increasing Revenues

Boelens was among panelists at March’s Crittenden Multifamily Conference in Fort Worth who touted the benefits of revenue management systems, which are designed to drive maximum profits by establishing pricing that balances rent price with occupancy. Pricing executives said the systems are particularly helpful for increasing and improving revenues without the hassle of negotiating.

Boelens says a community manager may occasionally resist a rate increase for a long-time resident or one who has become valued over the years.  Business is business, however.

“When they start to say, ‘Oh, Mrs. Johnson has been here six years,’ we try to get them away from the emotional aspect of pricing,” he said. “We say if we really wanted to lift our rents and maximize our revenue, we have to make some tough decisions, and some people who can’t afford it may have to move out.”

Waterton Residential went to a revenue management system four years ago and is pleased with the results. During the first year of operation, the system helped the company increase its revenue performance, most of which came from renewals, Boelens said. 

Companies are Less Likely to Negotiate Renewals

Revenue management systems are helping to take a hard line on renewals at a time when occupancies are at their highest levels in years. Once the system establishes a market-based price that is accepted by management, arbitrarily negotiating or offering concessions is limited. Even if it’s just a $50 increase.

Scully Co. − which manages garden, mid-rise, and hi-rise apartment communities in New Jersey, Pennsylvania, Florida and Connecticut – doesn’t budge with residents at renewal time and it’s paid off. One reason is that company doesn’t want to potentially infringe upon Fair Housing laws, so the company policy is to not negotiate.

“We do not negotiate, period,” said Regional Property Manager Karen Mette, ARM, CAM, CAPS. “We adopted this philosophy and we’ve stuck to it, and I’m happy to tell you that we have seen incredible growth on our renewals.”

But it doesn’t always hurt to review the history of the resident when rate becomes an issue. F. Brooke Dunn, revenue manager at Gene B. Glick Co., tries not to focus so much on the dollar amount but where a resident’s rent is compared to market rates. She will also get the history of concessions, if any.

“If you don’t have a lot of exposure and you have the demand for that unit type, why wouldn’t you push it for the $50?” she asked. 

If the Rate is Fair the Resident Will Likely Pay It

Mette said Scully Co. believes that if the rate is fair the company will get it. However, Scully Co. recognizes the value of the resident and realizes that in order to get the price, a high level of services and amenities need to be in place.

“We try to talk to the residents about what the feature benefits are,” Mette said. “We ask them if they are happy living in our communities, talk about the services that we provide. And if we do anything for our residents, it would be something within their home, to make their home more comfortable, whether it’s cleaning their carpets, or replacing an appliance that gives our community added value as well.”

When rolling out its revenue management system, Indianapolis-based Gene B. Glick Co. adopted a new strategy on renewals. A more aggressive approach is taken with a community that has high occupancy compared to one that is lower, Dunn said. “So we’re pushing those residents closer to market rates, and we eliminated all of our concessions.”

But Dunn added that a company won’t lose a renewal over $5-10 if it makes sense. Boelens agreed, saying sometimes it’s better to shave a little off the rate to avoid the turn cost of the unit.

What’s especially important, they say, is to keep an open line of communication with the communities and apartment managers, and encourage their input. That could help onsite staff and Mrs. Johnson better understand the true value of the apartment when using a revenue management system. 

Tim Blackwell is a long-time publishing and printing executive in the Dallas/Fort Worth area who writes about the multifamily housing and transportation industries. He has contributed numerous articles to Property Management Insider, and worked as a newspaper reporter in the D/FW area. Blackwell is president of Ballpark Impressions, and publishes the Cowcatcher Magazine. He is a member of the Fort Worth Chapter/Society of Professional Journalists.  Reprinted with permission of