IN WITH THE NEW With those kinds of results, other operators say it’s time to start looking at underlying profit drivers from a different perspective, too. The trick now is to make sure you keep the right heads—those who are willing to pay the rents you push—in the right beds, while letting those who won’t walk.
“Our property managers using the system have become more confident that they can wait for the right prospect to walk through the door,” Lynn says. “You don’t have to lease your apartment to just anybody. Now, you can afford to wait for the right person at the right price.”
A key factor enabling that selectivity is the ability of most revenue management systems to offer different lease options to residents. Whereas the 12-month lease was the gold standard of rental terms in the past, systems will typically offer a lease with any term a prospect desires—at the right price. flat means the entire concept of “market rent” has gone out the industry’s collective window; the rent for a three-month lease, for example, is likely to be much higher than that for 10 months. And, as is the case at Archstone-Smith, the importance of metrics such as loss-to-lease and gross potential rent—measurements of what a community could earn if it was fully occupied at the going “market rent”—is fading.
“The traditional ways people report their financials are going away because the definition of market rent is gone,” says Tamara Berndt, residential product manager for software firm Yardi Systems, which introduced a revenue management “toolset” into its property management platform last October. The tool integrates with both YieldStar and LRO for its clients.
“If you sign a 12-month lease, your rate may be $1,000 a month. If you sign a 10-month lease, it may be $950. But if you sign an eight-month lease, it may be $1,050. So who’s to say exactly what ‘market rent’ is in that scenario?” Berndt says. “It’s just a paradigm shift that’s making those types of definitions go away.”
Joe Bousquin is a freelance writer in Sacramento, Calif.
PUSHING RENT
- Embrace new benchmarks. While occupancy is still important, it’s no longer the dominant barometer of a property’s health. Overall rent growth also weighs heavily in revenue management models.
- Think of turnover as a good thing. Revenue management emphasizes recruiting and retaining only those residents who are willing to pay higher rents.
- Be open to the alternatives. Flexibile lease terms will now be priced differently., so the concept of determining “market rent” is disappearing, while a property’s overall revenue growth is becoming paramount.
