Student housing managers should look for these elements when choosing rent-setting software.
Revenue management has come to student living. Real estate investment manager LaSalle, through its management partners Campus Advantage and Ambling, deployed a revenue management solution at eight of its student living communities in multiple markets within the past year.
The revenue management solution deployed was developed exclusively for student living communities. It evaluates current availability, notices, expirations relative to current demand and recent leasing velocity. As a result, the solution delivers enhanced decision support and improved pricing opportunities. As with any major change in business strategy and operations, there were a few initial challenges such as adapting to more frequent price changes and selling predominately with effective pricing. Nonetheless, Ambling, Campus Advantage and LaSalle skillfully managed the deployment.
Choosing a Solution
Student housing managers should look for a few key elements when choosing a revenue management solution.
- Data for the market. The solution should maintain extensive historical and current student-specific databases for the community’s market(s). It would appear obvious, but it is difficult to obtain market-specific data, especially historical, for student living.
- Understands and supports the perpetual lease-up nature of student living. Student living markets differ greatly from conventional markets in that demand effectively shuts down at the beginning of the academic year. Paired with the low renewal conversion rates for most student living communities, the solution must account for the timing of demand in each market and the importance of capitalizing on the demand as it occurs.
- Updates daily as activity occurs. Student markets can have short periods of very high-volume, high-velocity activity. As such, the solution needs to be able to react and re-price (if needed) as activity occurs. A daily update provides the most proactive opportunity for setting rates, even if the manager chooses only to enact a portion of those rates onsite.
- Produces both new lease and renewal pricing options. New and renewal leases are intertwined. The more renewals achieved, the fewer new leases needed, and vice versa. It’s critical that the tool be aware of the timing and pricing of renewals, allowing the owner or manager to execute differing strategies for each segment during lease-up.
Just as with conventional multifamily housing several years ago, resistance to the change to revenue management will exist in student living. However, initial results indicate that the process of proactively evaluating supply and demand, velocity and effective rent generation also yields significant value for student living communities.
Henry Pye is Vice President of Velocity Advisory Services for RealPage. He can be reached at henry.pye@realpage.com.
The Right Tool at the Right Price
Today, more than 1 million multifamily units across 150 markets use revenue management as a tool to generate additional revenue via proactive, flexible pricing. The results have been significant. The industry consistently reports a high level of satisfaction and an effective revenue premium to market of more than 2 percent.
Revenue management software uses advanced statistical modeling to understand, anticipate and influence consumer behavior to maximize revenue from a fixed, perishable resource. Put simply, it maximizes revenue by offering the right product at the right price at the right time to the right person.
For conventional multifamily housing, revenue management is based on several factors, including current and expected availability, market supply, projected demand and actual leasing velocity, recently achieved rental rates, amenities, lease term, move-in date, seasonal differences and other market dynamics on a unit-by-unit basis.
Data Driven
There are several benefits to using a revenue management solution.
- Proactive pricing. The solution evaluates all components of pricing on a daily basis, quickly identifying potential shortfalls in leasing to provide opportunities to modify rates while demand remains.
- Swift adjustments. The solution enables managers to swiftly adjust to market shifts. If market dynamics such as demand or supply change, the tool realizes it and adjusts promptly.
- Dispassionate decision-making. The solution protects communities from emotionally biased decisions by blending statistics with operational expertise. The limited leasing window for most student living communities means a greater risk of emotion-based pricing. A revenue management solution provides a fact-based framework for these discussions where recommendations can be paired with operational expertise.
- Protection from the over-discounting of rents based on competitors’ movement. There is a tendency to “race to the bottom” by reacting to competitor pricing. Revenue management should protect communities by focusing first on internal and then external data, ensuring managers do not revert to the lowest common denominator in pricing.
- Floor-plan-level review. The tool evaluates floor-plan-level relationships as opposed to community parameters such as “the property is 85 percent leased.” It is common to find revenue opportunities by raising rents on some floor plans while reducing others.
- Enhanced decision support. The solution provides the rationale and underlying data for every recommendation, allowing owners or managers to selectively override rents as warranted by operational expertise. If the overrides are confirmed, the solution highlights the overrides for the next round of pricing.
Importantly, like any system or service, a revenue management solution is a tool. Few, if any, multifamily housing owners or managers would allow a revenue management solution to set rents without guidance. The successful operation of a revenue management solution requires the blending of the solution’s recommendations with operational expertise. It is also critical that the owner or manager appropriately direct the initial deployment of the revenue management solution and change from traditional procedures. –H.P.