Landlords are beginning to act more like airlines—using supply and demand to make quick adjustments to rent prices.
Long an old-fashioned bunch known for thick bundles of leasing agreements, some landlords are now using sophisticated computerized models to monitor competition, upcoming vacancies and seasonal patterns to determine optimal rent. While it’s not quite the blink-and-you’ll-miss-it tactics of airlines, rents can change quickly, sometimes day to day.
For landlords, it is about “being able to react quicker, changing your pricing more effectively to capture that incremental dollar,” says Haendel St. Juste, a senior REIT analyst with Keefe, Bruyette & Woods.
AvalonBay Communities Inc., an upscale apartment owner based in Arlington, Va., just finished a portfolio-wide rollout of Rainmaker LRO, a system from The Rainmaker Group Holdings Inc. Where the program was in use in the last year, AvalonBay saw increases healthy enough to justify the investment, the company says. AvalonBay wouldn’t discuss the terms of its contract with Rainmaker.
UDR Inc., an apartment owner and developer based in Highlands Ranch, Colo., that uses RealPage Inc.’s YieldStar Price Optimizer, saw new December rents climb nearly 7% when compared with expiring leases at its Sullivan Place in metro Washington, D.C.
At a recently rented two-bedroom apartment in Andover House, also in Washington, the monthly rent climbed 11% to about $3,200 because the new lease was for a shorter term. The market’s demand is also greater than supply, UDR says.
Operators using YieldStar see a 2% to 5% annual revenue premium over properties not using the service, said Janine Steiner Jovanovic, YieldStar’s president. YieldStar declined to discuss specific pricing.
Not everyone embraces the new programs. Some smaller operators say they don’t have the time or money to invest in new technology. Others don’t need to: Landlords in New York can often get away with little or no advertising and still keep their pricey pads full.
Those who do adopt the systems—which have been used by hotels and casinos for years—may also use them to manage apartment renewal terms, ensuring operators aren’t saddled with too many vacant units during the off season, typically the winter months. Tenants are offered leases shorter than and longer than the typical 12 months and they can receive a lower rent for, say, taking a 13-month lease.
“Prospects can get a better rate if they’re flexible,” in their lease terms, says Kevin Thompson, vice president of marketing for AvalonBay. For the industry, “it’s added real science, it’s taken away the guess work.”
Rent monitoring isn’t the only area where landlords have embraced new technology. Many landlords also accept applications online. When approved, electronic signatures can seal the deal.
For now, you usually have to meet someone to get the keys. But that could change: Equity Residential, the largest apartment owner in the U.S., says it is experimenting with programmable locks. “If you choose to, you can look, lease and live completely online without ever having to talk to your landlord,” says David Santee, executive vice president of property operations at Equity Residential.
To be sure, most shoppers still want to see the unit in person. “Unless the renter is a fool, they’re going to look at the cut of beef before buying,” says Jamie Lefrak, whose family-owned company operates thousands of apartments in New York and on the West Coast. “They’re going to make their decision when they get into the front door.”
Ever changing prices are also forcing many to alter the low-tech traffic generators—think ads in print publications and low-tech signs—they’ve used for years. “You had balloons and flags and you hoped people drove by,” says Jeffrey Friedman, chief executive of Associated Estates Realty Corp. Now, landlords are making sure they’re found via Web searches, visible on Facebook and tweeting on Twitter.
Some landlords are also making their websites more than just advertising vehicles. AvalonBay is piloting a program across eight communities that lets prospective tenants see which exact units are available, view individual floor plans and put specific apartments on hold online.
Landlords also are using social-networking tactics. The Savoye, an upscale complex in suburban Dallas owned by UDR, has an in-house social-networking site, where residents can post pictures and brief personal blurbs.
Savoye resident Chris Lang says he knows 20 residents by name, neighbors with whom he attends social activities ranging from brunch to movie night. “It actually does feel like there is a community,” says the 35-year-old. “Most apartment complexes I’ve been in, you’re lucky if you can get a ‘hello’ out of your neighbors.”
The effort comes as landlords try to appeal to younger customers who are comfortable doing everything online. “We’re adapting to the way they want to do business with us,” says H. Andrew Cantor, UDR’s vice president of investor relations.
Some landlords also reason that residents who make friends are more likely to stick around for another lease term.
The Savoye’s Mr. Lang says he renewed his lease because he likes the location and amenities including a pool table, modern gym and free coffee. But, he adds, new friends are “definitely one of the perks.” (credit d. watopka wsj)