Moving Beyond Revenue Management to Optimize Apartment Inventory

[00:00:05] Welcome to the Multifamily Tech Gurus podcast series. I'm Kerry Kirby, the founder and CEO of 365 Connect, along with my Steam co-host, Jimmy Lancaster, software engineering, extraordinary, and chief product officer here at 365 Connect. Today we're talking revenue optimization that

[00:00:27] piece to the puzzle that helps you price what units should be rented for, which currently appears to be under attack by both renters and the legal community. At issue is to claim that Alka Reathams are pushing up rents and unison across larger group of landlords through aggregating their

[00:00:50] data together. Jimmy, that's a big statement in a ton of moving parts. This is yeah this is a while one and I've been sitting back looking at a couple things here and there but I I don't even

[00:01:04] know if I've been looking at it near as much as you have so I'm thinking today as we talk about this I might be a little bit in for the ride and in learning a lot myself just like everybody else that's

[00:01:17] listening right here. So Kerry why don't you tell me a little bit about what you know I know you've been digging into this your a researcher so what what are you seeing because I'm yeah well you know

[00:01:32] been a business a long time so I a familiar with litigation we'll say but you know first off allegations right there's always two sides to the story and somewhere in the middle lies the truth

[00:01:44] that's that's what they say. But some of the allegations I have read state that from the other side that landlords are sharing and I quote this is a quote out of a piece of litigation competitive competitively sensitive data which I assume is rental pricing I'm I'm

[00:02:08] guessing that's what they're talking about. Now you know being in real estate industry as long as we have 21 years running this company in a multifamily space you know look real estate values are built on

[00:02:22] cops right I mean your house whatever things trade at is based on cops it cops are it's version of the stock market but from what I'm reading then this is a stack of litigation

[00:02:39] out there is a lot of lot of litigation on this class action suits attorney generals it states that this this pool of data from all these landlords is used to push rents up and they're pointing the certain markets where rents have gone up as much as 30% over

[00:03:02] over the last few years so that that's kind of what they're pointing at they're saying look you guys are using technology of price fix not to you know I call it optimize your rents

[00:03:19] and I guess just thinking about that I mean so you know going back in the day before this took place I mean it's people with hot cops hot rents collar-down with with the scale of

[00:03:35] some of these landlords how do you manually think you do that Jimmy? Oh man that manually not fun but well let me ask you and just just to make sure we're on the same page

[00:03:50] what's your definition of price fixing how would you describe price fixing and how does how are they trying to relate that to what what's going on here so price fixing is you and I have something that we're selling in a market right as two different entities right

[00:04:13] we're competitors yeah and so we we control the bulk of that market for say I'm just going out on a limb and just kind of walking through what what I think that is and I get with you and I

[00:04:30] say hey Jimmy let's quit beat now heads up against each other and here's my price here's your words I'm going to raise mine some you raise your sum and and and less let's move this up

[00:04:45] let's quit let's quit fighting there's plenty of plenty of room in the market let's let's work together instead of against each other and move the move our prices up so that's in theory price fixing where some competitors get together and push the prices up so

[00:05:03] and and I'm just you know somebody trying to wrap their head into this would you say that they're they're looking at this algorithm as an intermediate person if you will that's going between all these separate entities and because this one person's involved in everybody's pricing decisions

[00:05:22] that that's what's making this a price fixing yeah I mean the things that I've read in the lawsuits is it's basically well it's not people doing it it's now technology so you've built

[00:05:35] this algorithm and it's say okay well I've got all these guys in my database and if I move these and they used to litigation word unison together then then I can kind of keep moving this

[00:05:50] this market up and that's that's the allegations that are in the litigation of red well this will it'll be very interesting to see how it plays out I think uh I mean I guess I can

[00:06:04] see where both sides come from but it doesn't feel it feels a little bit of a stretch I guess you know the again there's two sides to it all and and and the thing I look at is okay there's this controversy

[00:06:18] now for revenue management right there's all the litigation going on so you know or people still using it are they afraid to use it what's going on with that I don't know but but aside from

[00:06:30] that what all the controversy over it you know what is the new frontier what does that look like how how can I optimize my pricing on a unit on apartment units and the thing I look at for running

[00:06:43] businesses as long as I have is cost you know what what do you do especially when you have so much cost volatility you know insurance I talk to customers we have in Florida and like my

[00:06:56] insurance it's just doubled on my apartment community up for renewal you know what what what do you do with that so you got taxes are going up because the cities are faced with the same thing business

[00:07:09] is a face with they need to pay higher wages to get more employees to work for the city I mean people don't want to work for cities anymore Jimmy up I've actually talked to someone that

[00:07:22] that is in government here and there they have a employee shortage of 60% right now wow because they can't get workers so so you have to keep pushing a price and when you push it

[00:07:35] where do you push it taxes we always get these hey vote on taxes we need to pay the police more well that's a hard one of them no one of course I'm gonna about yes but we need to pay our

[00:07:47] school teachers more well I agree but but our property taxes keep going up put that at a big scale number on a big apartment community and you can see the problem I got to move my revenue up so

[00:08:00] hot what do you do go and forward I guess let's say revenue management kind of need to sit by the wayside for a little bit until this gets resolved or maybe it looks different later I

[00:08:12] don't know what the outcome will ever be on this but where do we go from here to optimize inventory yeah what are the alternatives if I if we can't use these things I think um I think you obviously

[00:08:29] have a few things if you have to and you have to get back to a point where somebody at your company is making the pricing decisions I think that obviously becomes a little bit of a problem people

[00:08:43] can only do so much at a given time they're not obviously if you got 10,000 units that you're trying to keep up with or even a vows in units how do you do that on a daily basis things change

[00:08:57] quickly you might sign a couple of leases and now the urgency to to to get the occupancy up on this community is no longer as urgent of a thing and so you don't need maybe the prices don't need to

[00:09:14] drop maybe they need to go up maybe you could be making more money and you're leaving money on the table well those are the kind of decisions that change daily and so I think if you have

[00:09:24] to bring people back into the equation as far as pricing things out that becomes difficult to to keep up with lots of units you would now need a large team and as we know people people

[00:09:37] aren't cheap so it becomes it becomes a difficult thing if we're going back to that point well in some of it is also a call it's applying demand you ever try to get a hotel room in the

[00:09:51] city which I think our city is hosting a super bowl all the hotels go up right because everybody's coming in the town right so there's a there's supply and demand so that that's one factor the

[00:10:03] other factor is I got to cover not business to lose money I got to cover cost and and I have all these other factors going on like I said insurance all my cost and then the third piece is what

[00:10:23] will the market bear what can I what can I really rent that unit for and not let it sit there too long because it's sitting cost money and our industry's answer is concessions yeah well we can

[00:10:38] I think obviously knowing what the bare minimum is is is really important too when it comes time to determining prices hopefully you can add on top of that and make a profit and ideally

[00:10:52] you can maximize it so known what that basis and known where you can set your prices is a great place to start in my mind I want to try to maximize that but I think you have to have those fallbacks to

[00:11:10] no win to offer those concessions and so that becomes your mechanism for being able to push these units that are at the maximum price range that the market can bear but when you run into

[00:11:25] the situations where you're you're having not the occupancy you need or you know for some reason something happened now you got more vacant units than you typically would like how can you identify that as quickly as possible and implement those concessions as quickly as possible so

[00:11:46] that you can get back to your ideal occupancy rate so so I think that answer and I thought I have all the answers but I have an answer to revenue management is so looking at the litigation it's like where you're looking you're swimming in a big pool of

[00:12:08] rents in a big pool of data right in y'all are swimming together right which makes it you know whatever that's where it gets that's where that's where they're trying to make it weird right

[00:12:18] so I guess what we're talking about is well okay keep that date over there we don't want to see it anymore it's basically looking within right it's like okay I have these things to sell right

[00:12:35] their apartment units they could be widgets whatever right and I've got these factors to price that I need to know where the bottom is or where my break even is I don't want to go below that for

[00:12:49] sure don't want to be at it either no no I don't it's not why I got up this morning I want to but I need to know where that number is then I need to build off of it

[00:13:03] in in business things happen right it's like I could have a little bit of an older community and some are here you know it's what was it 103 I saw the other day in Phoenix you know we're

[00:13:17] sitting in New Orleans and it gets out here so let's just say I don't know some AC units blew up and now wow I get to go replace three central air units that's an unexpected cost you can plan

[00:13:29] all you want you can budget all you want but you're going to have things that happen that just aren't in the cards that you didn't plan for that's a way business runs and hopefully everything

[00:13:43] goes the way you wanted to that year but I've been doing this a long time and I've not had that year I'm still looking for it maybe this'll be that year I hope so so so if we look within

[00:13:58] right and we say okay let's look at our inventory we have this price thing and we're going to have to build that pricing off of some factors we know I think the defining factor is sitting on the market

[00:14:13] with a unit right so somebody told me something interesting just last week and what they said was in that there obviously they run multi-family operator says I want you to think about this we

[00:14:32] really rent an apartment we rent time because at least has a time frame in it and he said every day that I don't have the apartment rented I lose time and time I can't recoup and unfortunately

[00:14:49] in this business time is now money so the longer it's empty I can't go backwards and grab a revenue so so the big thing is less time a market that's a whole other revenue optimization

[00:15:06] piece we'll call it is if we can limit the time that that unit sits vacant so well if that is the the real goal here right so you're saying we come to a price that we think is fair that we

[00:15:21] can get you know that we can lease these apartments at and then when things come up to where we're not hitting that time frame that we need you know say let's just call it two weeks right I don't

[00:15:34] want units sitting on the market more than two weeks between leases so the key is if you see the risk of going past whatever that that acceptable amount of time is is well what are you know

[00:15:48] maybe the goal becomes how do we make sure that we are hitting our targets and we're able to get those leases signed for those vacant units and I mean to me that that just comes back to

[00:16:00] proper marketing and if you're doing what you can to properly market those units at that point you know do you consider at that point do you consider concessions just to get through those times

[00:16:14] because it's going to happen right every property there's you can't you can't plan things perfectly to where you have an even spread of lease leases coming up in the right seasons and all these

[00:16:25] things and so at that point I think you have to have a fallback if you're saying we're doing all the marketing things we're marketing these units you know and then that fallback becomes the

[00:16:39] concessions yeah and I think the thing about it is if you look at those a column snapshots right we all markets are different first off typically typical apartment community has about a 50% turn rate so imagine a business where you have to reacquire 50% of your customers every year

[00:17:07] right but that goes back to that time right we're if we are truly leasing time here's a 12 month lease we know in 12 months we got a 50 50 shot of that customer renewing with us or going

[00:17:23] away and at that point we now have a vacant unit we now have turned time and how long away on the market and if we get too many of these we have the the risk of drastically needing to increase

[00:17:39] concessions to move that unit so I think those are the my opinion the new revenue management is how do I optimize what I'm holding in my hand and how do I limit the amount of

[00:18:01] concessions or as I call it money I need to throw out the door to get this lease yeah no that's I mean that's the concessions should be like the the last the last option on the table as far as

[00:18:17] getting getting a community a unit least again it's that idea of that you said that you're running out time and so one thing that I see that happens is you know we have customers that are

[00:18:31] either say we don't we want to make sure that people are applying in what is a very short unit a very short time from when that unit becomes available so take for instance my goal is to

[00:18:44] make sure that a unit doesn't sit fake in for more than two weeks which means if it becomes available on the first I can't let somebody pick a moving date of the 30th because then I'm I'm

[00:18:54] gonna let it it's gonna sit for four weeks and so they end up really limiting that time and so one thing that I think about is well what have you just take that time say that extra two

[00:19:07] weeks and you spread it across that 12 month lease or 18 month lease or however long that lease is going to be that they select and you're able to take that cost and spread it you know it's

[00:19:20] not it's not really even so much an algorithm as it's just I'm I'm taken it's a very specific decision right so I think there's some other ways you can you can attempt to recoup without without going

[00:19:35] if we're just keep looking for I gotta have somebody to move in here in two weeks right yeah we've shrunk the pool of potential renters because it's like well I can't I need a

[00:19:50] part of it now but but I can't move in for three weeks then what yeah exactly you don't want to you don't want to limit yourself or limit your options that you present a person when they are

[00:20:02] looking to move on a very specific date and again we've come to a point where we're optimizing time and so well that's definitely a a way that we can do it right and I know we're working on

[00:20:18] some things here looking at the playing field on how do you stay out in front of some things from an inventory perspective but I think the other the other big elephant in the room is

[00:20:34] concessions I mean currently there are some markets and you know we play all over their country that I see if I go look take a walk through you know our customer database where we're we're seeing concessions sometimes 1500 dollars right you know thousand off

[00:20:57] first months rent the numbers are the numbers are getting up there so I think that's the other big piece to optimize well I have a theory on why that's happening actually I think what happens is

[00:21:09] if you have people that are looking to decide on when a concessions you need to make concessions at a community the problem is if you're not looking at every community every day and you have some

[00:21:23] sort of way of mathematically and logically deciding when to implement concessions you so a lot of times they don't decide to do a concession until you're like way too late right and so you wake up one

[00:21:37] day and you're like oh my gosh I'm at 90% occupancy how did this happen and what do you do now you're just thrown you're creating a $1,500 concession or something that's very very dramatic as

[00:21:52] far as how extreme you're going whereas if you if you had ways to analyze this automatically day by day so that you say oh we've hit this threshold where we're at risk of getting too close

[00:22:08] instead so instead of creating a $1,500 concession in a week when it's you know in a couple weeks once on too late how do I start easing into the concession so we see customers that go you know

[00:22:21] you go as as the you say zero to 100 real quick and so they go from no concession to $1,500 one it's like well why why didn't you start easing into this weeks earlier and I think that's because

[00:22:35] uh you need the right tools to to analyze and in flag when it's time to start so basically there's a problem let me throw money out at it and see but no way that's right what what happens and I know

[00:22:49] we're we've been playing what some things in some data but basically looking not only at vacancy but on notice units what does that combo look like together what's a timing on all that

[00:23:04] and maybe throttling into points where we might have to do a concession but trying to I call it stay ahead of the vacancies yes I think so I think looking at some of those things I think that looking

[00:23:20] at you know terms of when people can move in I also think at looking at just least term pricing as you and I know we there's some software out there that has least term there's

[00:23:36] some that doesn't so so creating some middle ground there to be able to do maybe some least term pricing and I guess it's a combination of things given people more options on on move ends and least terms as well as staying in front of your vacancies

[00:23:58] through not just knowing what they are but in the in the concession but actually doing something about it right so look revenue management it moves prices but it's not saying hey

[00:24:13] I just change the price let me go tell the world about it right right well good to concession of nobody knows exactly so so it's another piece is to have a trigger which again but I'll

[00:24:26] give it away our secrets uh something we we're we're cooking up in the kitchen but actually doing something about it let in the world know about that this is available let's go but

[00:24:39] but throttling knows out and staying in front of it yeah I think that's the key is being proactive instead of reactive yes that's the way to be in business yeah so Jimmy I actually think there's some

[00:24:58] some options should you know and I'm not saying that revenue management is going away and I'm also not saying it's the holy grail of all this it sounds like you know some of the things we're

[00:25:11] thinking about is something that can actually work in unison uh whether wherever you get your pricing from whatever happens in the legal system out there in deems what can be done and not done

[00:25:26] you still gonna have concessions you're still gonna have to let people know what's going on and you still need to keep a close eye in your inventory so pricing units is just one piece

[00:25:39] to a bigger puzzle so Jimmy to kind of wrap this one up my final thoughts on this is I think multifamily operators need to look at optimizing inventory because I see that as a new front

[00:25:58] tier of revenue management and it's going to be something unique it's going to be called working with your own data empowering people to to to make those decisions quickly and efficiently

[00:26:13] that's right so well that being said let's uh jet up out of here thanks for joining us today you can find us streaming everywhere and be sure to check us out online at multifamilytechgooos.com

[00:26:29] until next time I'm carry Kirby along with Jimmy Lancaster and we are the multifamily tech gurus