Rent-per-unit metric enables owner/operators to compare the actual performance of communities against competitors and overall market.
In the hospitality industry, knowing how an asset performs in terms of actual revenue generation is easy. A universally accepted metric-revenue per available room (RevPAR)-and a robust industry data exchange provide owners and operators with a simple way to make an "apples to apples" comparison between a hotel's financial performance and its competition.
In the apartment housing industry, the situation is far different. A comparatively simple and standard benchmarking metric has yet to achieve widespread industry acceptance for a variety of reasons including hesitancy to share historical financial data, such as revenue and occupancy, limitation to benchmark against communities using a different PMS or revenue management product, the lack of a data exchange and the industry's slow adoption of new and effective technologies.
The differences between the two sectors are striking, according to Mark Zettl, Chief Operating Officer at Waterton, which operates both multifamily and hotel assets."In the hotel industry, you have three reports: a profit and loss statement, the asset's STAR report [a weekly RevPAR report produced by STR (formerly Smith Travel Research)] and customer surveys," Zettl says. "Having those three reports helps you determine if you are running your property effectively relative to your competitors. The hospitality industry thrives on actionable information about the competitors that we don't have today in the apartment industry."
However, a change is on the horizon. The National Multifamily Housing Council (NMHC) OpTech Conference in November included a session about implementing such a standard.
Revenue per unit (RPU), a metric calculated by the Multifamily Data Exchange (MDX), which gathers historical performance data directly from the property management systems (PMSs) of participating apartment communities, is the multifamily equivalent of RevPAR.
The data provides apartment owner/operators with a consistent and standardized means to compare the achieved revenues of their communities against those of other properties in their markets.
Similar to RevPAR, RPU is produced by dividing the total achieved rental revenue of all the units in a community by the total number of units. RevPAR is calculated for a specific period of time by dividing the total amount of room revenue by the total number of rooms in a hotel.
RPU provides a unique benchmark that owner/operators could employ. Most apartment companies today use a wide array of data sources-including secret shops, REIT filings and even calls to competitors-to benchmark the performance of their communities against competitors.
One challenge to this is that some of this information is gathered based on asking rents rather than collected rents. This current method also relies on manual data entry and phone calls, resulting in a greater chance of potential errors and discrepancies.
Asking rents often differ from what communities actually collect from residents. Additionally, this methodology doesn't account for the rent growth associated with renewals, leaving owner/operators largely in the dark about how their assets' actual revenue generation stacks up against their closest competitors.
The need for a universal metric like RPU in the multifamily industry is obvious, says Donna Summers, Senior Vice President of Operations for Gables Residential.
"A metric like RPU elevates the standard for our industry while giving our data greater credibility, which we don't currently have," Summers says. "This metric also gives all companies, regardless of size, access to the same information, enabling everyone to compare themselves to the rest of the industry. Overall, it offers much for our industry as a whole."
Dom Beveridge, Executive Vice President and General Manager of MDX, through which owners and operators share revenue and occupancy information free of charge, says the sentiments of Summers and Zettl are hardly unique. "The many investors with positions in both lodging and multifamily assets understand the benefits of RevPAR and the financial upside that a similar approach could bring to the multifamily industry," he says. "It's time for the apartment sector to enjoy benefits that have long been taken for granted in a similar industry."