But to run with tired, old adages, you also ‘don’t put all your eggs in one basket’. In other words, the mark of a successful multi-family asset manager will be their ability to blend the old with the new — to understand how new tech and new market trends can support (and even enhance) fundamental industry best practices that are tried, tested, and true.
Of course, stating the obvious vs putting it into practice are two different things — i.e. ‘it’s easier said than done’. That being said, however, there are six distinct areas in which multi-family apartment managers can marry the old with the new to generate more revenue while simultaneously cutting costs.
1. Organizational Integration
A significant determinant of whether any multifamily revenue management strategy will be successful is whether it’s informed by a big picture perspective — i.e. whether it’s applied in a silo, or alongside complementary strategies that all support a unified set of goals. Specifically, as more and more revenue managers leverage “more analytics and business intelligence than ever before, they are discovering the powerful potential offered by bringing marketing, operations, and revenue management together to drive demand generation.”
In other words, as multifamily managers collect data from different areas of their operations, they can piece those datasets together to map out a big picture view of their costs, efficiencies, risks, and overall operational performance. From there, they can understand where their greatest revenue opportunities lie, and realign their departments (marketing, leasing, supply, maintenance, etc.) to work in concert toward realizing those opportunities.
The idea of aligning different departments is very commonplace in tech and manufacturing, but is often overlooked in more traditional business models, like property management. That doesn’t mean, however, that there isn’t considerable opportunity to improve revenues by doing so.
For example, perhaps maintenance frequently incurs certain infrastructure costs — say laundry room repair. That data can be compared against marketing and leasing and supply data to determine the source of this cost. Can these increases in maintenance costs be correlated with a change in appliance supplier? Or are the machines simply experiencing more wear and tear due to an increase in occupancy? Or perhaps in resident demographics, such as an increase of young families vs childless occupants, who tend to do less laundry than a family of four?
Equipped with this insight, multifamily managers can make a number of strategic decisions, such as replacing an appliance supplier whose reduced pricing is more than offset by higher maintenance costs, or adjusting marketing strategies to target non-family tenants who put less stress on communal infrastructure. Essentially, but leveraging data from separate departments, multifamily managers can develop predictive analytics that range from supply-and-demand forecasts, leasing team execution, and the effectiveness of different marketing channels.
2. Smart Pricing Strategy
As multifamily managers collect data from different segments of their business, and then blend them to better understand their multi-family property, that insight will naturally factor into their pricing strategy. After all, what good is data if it can’t inform your price point and profit margins? As Multifamily Executive Magazine puts it:
those in the multifamily industry know that revenue management strategies can vary considerably from property to property.
By learning about […] pricing personas, multifamily executives can develop an easy way to understand and talk about revenue management strategies within their companies.
To that end, there are roughly five distinct pricing personas among multi-family property managers can adopt, the one that’s right for them will depend on (and should be informed by) whatever bigger picture revenue model they choose to pursue.
The Balanced Pricer
This pricing strategy involves pushing rents whenever there’s an opportunity, but not allowing vacancy or exposure rates to get too high, and is commonly found at average-sized properties that are stabilized. Balanced Pricing is widely applied across the multifamily industry because it strikes a balance between risk and reward; and while property managers that use this strategy are unlikely to see an above average ROI over any significant period of time, they’re also unlikely to see below average returns, as well.
The Occupancy Defender
As the name implies, the Occupancy Defender focuses on renting out as many units as possible for as long as possible. Operators who employ this pricing strategy are looking for a steady and reliable return on their investment, and usually maintain price parity in order to not lose tenants. Consequently, Occupancy Defenders tend to be more responsive to competitor pricing, as well as more attentive to the pace at which they’re leasing out units. Essentially, they prefer to avoid the risks that come with vacancy over pursuing the rewards of aggressive rent growth.
The Vacancy Averse
Whereas Occupancy Defenders are some risk averse, the Vacancy Averse are risk allergic, even to the point of significantly dropping rent pricing and forego any kind of rent growth in favor of reaching maximum occupancy. Consequently, the Vacancy Averse set up their revenue management system (RMS) to respond to competitor pricing, reducing their rents to meet (or beat) the competition. Generally speaking, there are two kinds of Vacancy Averse multifamily operators:
- Either they’re looking for a consistent revenue stream, and care more about reliable returns than larger ones.
- Or they’re managing very large assets, typically in densely populated areas, where any measurable decrease in occupancy quickly converts into a measurable loss.
The Rent Driver
Whereas Balanced Pricers and Occupancy Defenders reflect the traditionally conservative nature of the multifamily real estate industry, the Rent Driver is much less risk averse. Indeed, Rent Drivers are less averse to vacancy, and are often willing to let units remain unoccupied in order to obtain a higher rental price. They also tend to decouple their rental rates from competitors, and are less likely to lower prices in response to a shift in supply and demand or an increase in competition. Rent Driving is most common in markets with supply-side shortage (whether due to geography or strict zoning regulations), or with property managers that are trying to increase property value ahead of selling it.
The Lease Up
Lease-Up pricing strategies are most common among multifamily operators who have properties coming online, and have predetermined occupancy rates they intend to achieve through stabilization. Consequently, they tend to not give their RMS a lot of room to adjust pricing, set very high exposure thresholds to compensate for such high availability of new units, and configure that RMS to anticipate high leasing velocity. Generally, Lease-Up property managers keep rents down, and will even offer value-added concessions to tenants that expire at renewal. Of course, once they’ve reached their target occupancy rate, Lease-Up operators often adopt a new pricing persona and become more aggressive in pursuing rent growth.
3. Lease Retention
If there’s anything that multifamily pricing strategies underscore, it’s the conservative, risk-averse nature of the multifamily investors. Indeed, while 3 of the 5 personas fall more on the risk averse side, and even the other two more risk tolerant personas tend to only be adopted with short-term goals in mind. The appeal of investing in a multifamily property, after all, is stable revenues and long-term returns.
Unsurprisingly, then, Lease Retention tactics are an effective part of a stable, longer-term revenue strategy. These tactics, however, don’t come without an upfront investment price-tag:
Many property management firms target their marketing to the demographics best suited for the community by highlighting amenities, apartment features, and neighborhood attributes to attract potential residents. This makes for a satisfied and, likely, long- term resident. Reduced resident turnover and shorter vacancy cycles are good conditions to have—and good property managers will have a tried-and-true resident-retention formula.
In other words, investing in infrastructure and amenities that best suit the needs of tenants in a given neighbourhood is a great way to reduce tenant turnover, and while that investment does represent and upfront costs, it is often more than offset by the reduction in vacancies down the line. It’s worth noting, moreover, that of the two risk-tolerant personas, while the Rent Driver will certainly forego Lease retention, using vacancies as an opportunity to raise rents, even Lease-Up multifamily operators will embrace this strategy to reach their initial occupancy goals.
4. Smart Supply Chains
Managing and operating large multi-family properties requires a lot of different inputs, and different kinds of inputs are often sourced from different suppliers. Choosing to work with tech-enabled suppliers, moreover, can offer cost-savings and other efficiencies that can help multifamily operators reduce their overhead while offering amenities that support occupancy targets.
For instance, multifamily managers often negotiate bulk discounts from their vendors and discounted rates with their insurance companies. Similarly, but choosing to work with vendors who are also invested in smart-tech infrastructure, multifamily operators can access data and better understand their relationship with that vendor, allowing them to optimize expenses both revenue and expenses.
5. Energy Management
Whether utilities are the responsibility of the operator or tenant, energy costs are a significant factor for multifamily managers. If included with a tenants lease, the operator must bear the costs directly. If utilities are the responsibility of the tenant, anything operators can do to help tenants manage their consumption will make that property more competitive in the market and support occupancy goals. Just as multifamily operators can invest in smart tech (such as an RMS) and smart supply chains, however, they can also invest in smart energy management practices to significantly reduce their operating overhead.
Smart Thermostats & HVAC Systems
When most people thinking smart thermostats, the think of the more common consumer models, such as those offered by Nest or Ecobee, and while these might be great for single family dwellings, that cannot manage the requirements of larger multifamily properties or offer operators the insight they need to truly optimize their operational costs. Indeed, not all smart thermostats are created equal. Fortunately, smart tech and machine learning algorithms have also made possible HVAC energy management solutions that were unavailable to previous generations of multifamily operators.
For starters, commercial smart thermostats and occupancy sensors now allow multifamily managers to monitor (and adjust to) fluctuations in unit occupancy. Furthermore, smart energy management systems can monitor both common areas and private units for temperature, body heat, and motion, and then use that data to adjust room temperatures in real-time. This allows operators to not only significantly reduce energy costs (for themselves and/or tenants), but also create better tenant experiences which, in turn, supports occupancy retention.
Verdant’s EI energy management system energy management system, for example, uses advanced machine learning algorithms to a variety of climate variables, including peak demand loads, historical thermodynamics, and local weather patterns, and analyzes that data to optimize energy consumption on a continuous, ongoing basis. The cost saving potential is so significant, in fact, that smart energy management is already commonplace in the hotel industry, and can increase the resale value of residential and commercial properties alike.
It’s worth noting, moreover, that smart energy management systems offer benefits that extend beyond automating and optimizing energy consumption. For instance, Verdant EI’s Remote Management features also allow multifamily maintenance staff to monitor performance, and ensure that HVAC systems are operating at peak efficiency. Specifically, maintenance will receive diagnostic alerts whenever an HVAC system is not performing within required parameters, allowing them to address the problem before it becomes too costly.
Smart Lighting Systems
Lighting energy consumption is also a cost factor for multifamily operators (especially in common areas). Fortunately, here too smart energy management technology is helping operators reduce both consumption and costs.
As with smart HVAC systems, smart lighting systems help multifamily operators (1) monitor energy consumption, (2) gain insight into their energy requirements, and (3) optimize that energy consumption, by (4) responding in real-time to changes in tenant occupancy patterns. And similar to smart HVAC systems, smart lighting systems leverage occupancy sensors and time-based schemes to reduce energy costs. For example, an IoT-enabled smart lighting system will adjust lighting intensity according to the time of day, providing a seamless and more comfortable experience for occupants.
It’s also worth noting that some smart lighting systems can be integrated with Verdant EI, allowing property managers to monitor both HVAC and lighting energy consumption patterns through a single interface. Specifically, Verdant’s line of occupancy sensors are able to integrate with third party lighting systems to ensure that lights automatically turn off or according to real-time occupancy.
6. Predictive Maintenance Technology
Just as Smart Pricing, Supply Chains, and Energy Management can all help multifamily operators optimize revenue and reduce costs, Smart Maintenance Tech can help them prevent costs. In a word, maintenance costs represent an ongoing expenditure for any multi-family property, and smart tech is now helping operators predict, prevent, and mitigate those costs.
With certain amenities being included in a lease agreement with tenants, it’s important that critical infrastructure remains operational all the time, or at least experiences as little downtime as possible. Not only, if left undetected, can infrastructure decay lead to inflated maintenance costs down the line, but disruptive tenant experiences can lead to lower levels of occupancy retention, adversely affecting a property’s revenue.
With predictive maintenance, multifamily operators can prevent minor maintenance issues from escalating into more more costly (and disruptive) ones by leveraging smart sensor data to proactively identify maintenance issues while they are still minor. In the case of HVAC diagnostic alerts that notify maintenance staff when systems aren’t performing within expected parameters, multifamily managers can identify malfunctions, and diagnose and address them before energy costs rise further and/or HVAC equipment failure reaches a critical point.
Water waste and damage is another common area in which multifamily managers can reduce waste and prevent inflated costs. For example, a single leaky toilet can cost up to $840/year. Not to mention any additional water damage costs that stems from that that leak. Indeed, it’s alarming just how quickly undetected maintenance issues can lead to exorbitant repair costs. However, with cheap, IoT-enabled waterline sensors and smart water meters, multifamily maintenance staff can detect such minor issues, and prevent them from escalating further. It’s worth noting, moreover, that operators who invest in smart water tech can even see a return on that investment in about 4 years.
When maintenance issues are identified and mitigated before they escalate, moreover, not only do operators save on repair costs, but occupancy rates remain stable, and so does a property’s revenue stream. An investment in smart maintenance technology, then, is an investment in the stability of a multi-family property’s physical and financial well being.
Growing a Revenue Ecosystem
Multifamily revenue growth has many aspects to it, and they all interact and influence each other, much like different species in an ecosystem. Some contribute directly to a property’s revenue, while other play a more indirect role by supporting its overall health.
For multifamily operators that want to drive significant growth, they need to consider each of these aspects, in turn, and ensure they’re receiving the attention they require to fulfill their role in the bigger picture ecosystem. Depending on the specifics of any given property, of course some aspects will require more attention than others, but what is certain across all multi-family properties, is that none can be overlooked or ignored.