During the 2009 RealPage User Conference at the Hilton Anatole in Dallas, RealPage Founder, President, and CEO Steve Winn sat down with Multifamily Editor and Writer Joe Bousquin for a no-holds-barred, free-ranging discussion of today’s tough economic conditions, the strategies and tools available to manage them, and the future of multifamily technology.

All questions were prepared by Mr. Bousquin and were not submitted to RealPage prior to the interview.

Joe Bousquin, Multifamily Writer and Editor: The theme this year at the RealPage User Conference in Dallas is ‘Get the BIG Picture.’ What is the big picture in 2009? Where are we today versus a year ago?

Steve Winn, Founder, President and CEO, RealPage: The industry is hunkered down trying to weather this economic turmoil. For a company like RealPage, that means you have to focus on those products and services that deliver a return measured in months, not years. Even six months is probably too long. Three would be better. I think that's probably going to be true for another year and a half, at least.

I do think this industry is going to come back very strong. Beginning in 2011 but really by 2012, it should have recovered because of the demographic demand that we are seeing with Gen Y—and even Gen X coming back now—producing apartment absorption.

Bousquin: When that recovery happens, we’ll obviously start from a lower base. Can we ever get back to where we left off?

Winn: Actually you could see occupancy tick up above where it was before this economic down turn hit us.

It takes a long time to get the new construction supply engine running. What you're seeing now is the tail end of what was started 18 months or two years ago. I think we’ve got another 12 months where nobody is going to do anything. Then, sometime in early 2011, they're going to look around and say, ‘This environment looks pretty good. Let's start building again.’

Bousquin: You talked about people in the industry needing to see a more immediate ROI today, within six months, if not sooner. What are the tools that they are asking for to do that? What in RealPage’s suite of offerings can deliver that ROI?

Winn: Starting on the spending side, OpsTechnology is clearly a tool you should be using. It allows you to direct a percentage of your maintenance, repair and operating supply spend—which could be $800 a unit per year—into a national negotiated discount program.

So the effect of that is really quite substantial. If you can move at least half of your spend into that network, you can realize $80 a unit per year. Depending upon the size of your portfolio, those savings can be astounding.

Bousquin: Ops has traditionally been leveraged by the larger REITS. Does it work for midmarket players?

Winn: I don't think the middle market players have the purchasing departments to negotiate favorable rates. That's where OpsAdvantage comes in, which we just announced today.

We've essentially gone out to the major suppliers and negotiated rates near what the REITs are getting. We can now offer those rates to members of the OpsAdvantage group purchasing organization. I think that's a big deal. And we're seeing an enormous amount of interest in that, because it's a fast return, and everybody wins, both suppliers and buyers.

Bousquin: I just came from the YieldStar session, and folks there were talking about renewals versus new leases. It seems that renewal leases are a lot more stable, and not succumbing to downward pricing pressure right now. Why do you think that’s happening?

Winn: People have to be pretty motivated in this environment—in other words, they have to be pretty unhappy—to move. So what's happened is renewal rates have remained constant. We've seen the renewal rates at about 45 percent consistently over the last 18 months. They have not budged—if anything, they've gone up a little bit. And the spread between what a new lease costs and what a renewal lease costs has widened. Now, it’s right around 5 percent.

Bousquin: How long can that trend last?

Winn: Well, it is a trend. I don't know how much further it can go. Five percent is one thing, 10 percent is probably not sustainable. You will eventually start to see those two price points track closer together.

Bousquin: You talked about the analogy of people butting heads today. What are operators butting up against right now and what can they use to soften the blow?

Winn: It's different depending on whom you talk to. If you have too much debt on your property, you have a different set of constraints that tend to dictate how you operate.

The big theme is that everyone is struggling with declining revenues. If we've had a 5 or 6 percent decline in revenue, how do I make it up? You can't cut that much expense. The problem is that your expenses are at most 50 percent of revenues, so if revenue goes down 5 percent, you've got to cut expenses 10 percent just to break even.

The fee managers are under a lot of pressure now. The owners are trying to squeeze or compress their fee, and this is why I think Peer Watch is so important, because it gives the fee manager's a transparency now, where they can show an owner what they are producing.

Now that's also a double-edged sword. If they're not producing within the magic quadrant of the market that everybody wants—above market occupancy and above market rent—then maybe they do need to cut their fee. Then it's harder to justify. But if you're in the magic quadrant, there is absolutely no reason why you should be negotiating your fee, and I don't think any owner in their right mind would ask you to.

Bousquin: RealPage Executive Vice President Ashley Glover says that up to 40 percent of marketing spend is wasted. That's a pretty big number.

Winn: It is. We deal in averages, but if you're not using a call center, you're wasting money. Period. Because the site personnel can't answer all the calls. It's not a reflection on them at all—they've got so much on their plate that they cannot get to the calls. You need a call center. Period. It's proven. It's not a question mark any more.

I think there are some new things that will probably be coming on outbound call centers, where you are actually confirming appointments and doing things like that, which should improve the process that much more. But the quick hit is, just answer the calls.

Velocity is another area. Everyone should be using Velocity, or one of Velocity's competitors. Convergent billing works. You don't need to justify it anymore. We've got so much data, we know it works.

You also have the ability to recover utility theft, which happens when the resident doesn't convert the utilities into their name until a week after they move in, or cancels them a week before they move out. Velocity collects on both of those stub periods. And it is a lot of money: $10,000 to $12,000 per year per site.

I know people are feeling pressure on their revenues, but these are steps they can take to mitigate the effects.

Bousquin: Tell me more about Universal Data Source, a.k.a, UDS Direct. What is it and why is it important?

Winn: It's very important to a certain segment of the market. They want to be able to mine their data, and they want to do it when they want it. This gives them the ability to use a reporting tool—such as Excel or any other reporting engine they're comfortable with—and tap in to all of their data.

Today, we have a download every night, and that’s the problem—it's just every night. This allows you to go in and get it any time you want. My expectation is that it will be very important to the larger players.

Bousquin: Will managers be able to use it in a meaningful way?

Winn: Managers will use it in many instances for the benefit of owners. They want to be able to produce reports that impress the owners. To the extent that I can produce an owner package that's better than what the fee manager down the street offers, that's a plus.

Bousquin: You called Peer Watch "the eighth wonder of the multifamily world." What distinguishes Peer Watch from some of the other information services out there?

Winn: Other sources are really just looking at asking price. You're not seeing what you actually leased the apartment for. That's what we get. The data is much more reliable. If you're going to base decisions on that data, the accuracy is quite important.

I’ve seen published reports that are generally producing some very poor quality information about this industry, numbers that are just wrong.

This is actual data from 13,000 sites in real time. I know what my renewal rates are. I know what my new leases are.

And renewal rates, by the way, are a big chunk of it that you just can’t get by looking at published asking prices. Renewals are 45 percent of your leases. If you’re ignoring them, you cannot possibly get to the right answer.

Bousquin: As operators begin to use Peer Watch in their respective submarkets, what further potential do you see for this application?

Winn: The key, I think, is to just keep expanding the database. We’re at 13,000 properties now, and at the rate we're growing, it's going to be 18,000 next year and then 22,000 the year after that.

We want to add even more functionality to Peer Watch, which really just focuses on the rent, occupancy, and revenue per square foot right now. But over time, we want to see those benchmarks expand.

For example, we'd like to see the credit worthiness of an apartment asset relative to its peers, and how that has changed over time. You could look at the delinquency rates, too. What are your make-ready days? How fast do you process work orders? How efficiently do you buy? What percent of your spend is in-network, versus on the spot market?

By looking at that number, I can tell really quickly how well you manage that apartment asset.

So when you come down a level and start to look at some of these operating metrics, you glean so much about the management of the property. I really think this tool is still very early in its life cycle, but it is a very significant product. Of all the things that we sell, the implications of this particular product, in my opinion, are extremely broad.

Bousquin: You talked again this year about "Open for Business," and the ability to integrate with other vendors. Obviously, it was important enough to bear repeating. Why?

Winn: We have to be open. We have to build Web services and data exchanges that other companies can tap into.

If you are not open, people will not buy your core platform. And it can't be a wink and nod kind of commitment. We publish our specifications, and we give you the code.

Bousquin: You've been busy over the last year. Most people in this environment have been tightening their belts. You've been shopping. OpsTechnology was obviously a major acquisition. But you effectively also bought the JPI Resident Solutions Group and Evergreen’s APT Budget, which is now OneSite Budgeting. What allowed you to be in a position to buy at a time when most people are cutting spending anywhere they can?

Winn: We were fortunate to have a balance sheet that will support acquisitions when we need them, and an investor community that will support us with more equity if we need it. We have a lot of additional capacity, so you have not seen the end of this.

Bousquin: What's next?

Winn: I'm not telling. (Laughs). But you haven't seen the end of this. There's a lot of interesting product, and some good companies out there that I think are really complementary to what RealPage does. We're looking at everything.

Bousquin: You said you hope people take one or two things away from the conference to help them make it through this environment. What would you like those one or two things to be?

Winn: What we try to do at the conference—in the keynote, and in all of our sessions—is really talk about net operating income improvement. The message here is don't give up on this economy. There are ways to deal with it. There are fairly significant opportunities to cut costs and increase revenue.

I think there were seven or eight examples in the keynote of ways people could do that. I hope everybody heard at least one of them.