It’s fair to say that the city of Austin has shown us most of its repertoire of late-summer weather over the last couple of days. As this year’s annual gathering of the multifamily asset management community - NAA Maximize - draws to a close, the changeable weather feels like a metaphor for the changing market conditions that continue to prevail in multifamily.
It’s been noticeable that several of this year’s sessions have gravitated towards analytics - or to be more precise, analytics that help operators to optimize performance and drive NOI through changing market conditions.
Analytics and foresight were central to the opening keynote panel, in which Brad Cribbins of Alliance Residential and Noreen Henry, CEO of travel AI-specialist, Wayblazer, discussed “The holy grail of asset management,” predictive analytics. Wayblazer is an exciting new company - founded by the same folks that started Travelocity and Kayak.com. It presents a bold new vision of travel distribution in a world where voice search and machine learning will increasingly become the norm, with tailored, insightful search results replacing the current listings-based services.
After hearing Wayblazer’s vision of consumers doing less of the leg-work in finding the perfect vacation or trip, Brad described Alliance’s predictive analytics through the lens of the marketing problems that they help Alliance to solve. As markets change, focus naturally moves to customer acquisition, and this is an area where Alliance brings its analytics to bear, identifying what content people are responding to, and what things seem authentic to potential residents. Data points like these, the use of personas and rigorous a/b testing of messaging and tactics have boosted Alliance’s marketing performance.
Time to Focus on Renewals
On Tuesday we were treated to a great discussion on another top-of-mind issue, renewals pricing. Donald Davidoff hosted a panel that included Daniel Amaral of Irvine Co, Sandi Dumas of Cardinal Group and Trachelle Spencer of 18 Capital. The premise of the discussion was that we have reached peak rent-growth, at least for now, so smart operators should be revisiting their renewal strategies.
In common with the rest of this event, the discussion started with metrics, with panelists sharing some of their go-to metrics for renewals pricing decisions. First some basics: compare the renewals against the new leases so you can spot, for example, points where the renewals increases are greater than the new rent pricing - a problem that often leads to customer service issues.
Retention rate is important, for a number of reasons. Operators may focus on low retention rate being indicative of bad pricing decisions (or bad service), but high retention rates are also problematic. For example, if a property is renewing 80% of its leases, it usually means that pricing is too low, and the community’s rent growth is falling behind the market.
The panelists discussed the common trade-off in renewals pricing: on the one hand, small increases avoid vacancy loss and also generate some goodwill. On the other hand, there is an expense to moving, so we know that our residents have a reason not to move out. Sandi described three analytical “buckets” to focus on: The current rate, the rates that the market will bear, and the expiration profile of a property. A solid understanding of the three, and a loyalty bonus favoring existing residents tends to lead Cardinal Group to a good outcome.
The People Side of Renewals
Of course, renewals conversations are not always easy, so we must always consider the people and process considerations. Trachelle noted the comfort zone of the onsite staff is a consideration in making pricing decisions. In a rapid-growth environment, characterized by frequent change, onsite teams may be stretched, making it difficult to find the time to review and provide feedback on renewals pricing, and making it hard for revenue management to get buy-in. This may result in smaller increases.
Daniel described the process of sharing batches of renewals with operations teams and getting feedback. While necessary it can be challenging for a couple of reasons: It’s time-consuming, and it also means that offers are reduced through the internal review process before they even get reviewed by residents. Given the relatively small impact of rent increases and the financial downside of discounting, the downward pressure on renewals can be costly.
Finally, the group addressed the training aspects of renewals. A show of hands in the room indicated that most companies incentivize their teams more for their performance on new rents than on renewals. Given current market conditions, it may be time for a shift in focus.
Sandi described Cardinal’s in-depth training that treats renewals as a sales process - one that begins at the point of the original lease. With upward of 80% of customers completing their leasing online - it's important for the renewal experience to be consistent. And online renewals processes tend to lead to less negotiation than the more traditional face-to-face transactions.
Converging Asset Management Functions
Tuesday's final session took a look at the convergence of marketing, pricing, and operations, through the lens of people, process and technology. Jason Whittington of Gene B Glick and John Reardon of Beacon Communities were joined by Jennifer Cassidy of Campus Advantage and Jamie Matusek, of Catalyst, a marketing agency.
Some familiar topics emerged through the discussion, including that of sharing information more freely between the different departments (a topic that got considerable air time at Rainmaker’s executive Roundtable earlier this year). The group also discussed including people from, for example, leasing, in performance-related meetings with other functions. In this way, some fresh insights and perspective can be added to the performance conversation.
Similarly, when companies bring marketing and RM into the same discussion, new levers for performance can be identified. For example - if marketing understood floor-plan level demand and exposure (commonly available to users of Revenue Management systems) they have the opportunity to refine ad spend and lead to better revenue performance.
The discussion concluded with the same themes that have permeated this conference - namely the benefit of key metrics and the impact they can have on performance when made easily available in a timely manner. Here the classic example of phone-answering metrics - surely the very definition of low-hanging fruit in our industry - illustratedthe ability of data, metrics and easy-to-use dashboards to drive NOI.
We thank NAA and the Joshua Tree Conference Group for another engaging conference and look forward to the event’s return to San Diego in 2018.
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