Unprecedented Times Call for Proven Solutions
Recent weeks have no doubt been consumed with the COVID-19 crisis’s impact on the multifamily industry. In this unprecedented time, many multifamily investors, operators and owners have had to redesign their operations and make tough decisions. Certainly, there is no shortage of resources and advice being given by the multitude of industry experts, supporting associations and vendors, as with a similar recurring theme – don’t panic. If we look at this epidemic in the most rudimentary way, changes in market behavior is nothing new to anyone in multifamily. Navigating market changes while maintaining asset value and strategy has been seen numerous times and will continue to be seen. Multifamily investors, operators and owners should continue doing what they always try to do in tumultuous times – effectively balance changing supply and demand levels and price available unit inventory and upcoming lease expirations.
Revenue management couldn’t be a better solution to leverage in these times. Why? You might ask. Revenue management was pioneered during times of uncertainly as a way to effectively price inventory despite supply and demand levels in flux. The field of revenue management has Robert Cross, among others, to thank for that.
If you don’t know who Robert Cross is, now could not be a better time to know and learn from what he has brought to not only the multifamily industry, but just about every industry that deals with varying supply and demand levels and revenue management. Back in the 1970s, shortly after the Airline Deregulation Act was passed, the airline industry was operating in a completely new way. New competitors came into the space offering low fares, inventory expanded and soon after a battle ensued as rates plummeted. This battle was about how to remain competitive amongst a similar product offering and capturing demand. Does this sound familiar?
Long story short, the introduction of revenue management principles of understanding changes to supply and demand and price elasticity led to significant management of supply, demand generation and increased revenues. Robert Cross outlines this story and more in his book, “Revenue Management – Hard-core Tactics for Market Domination.” This book is a great read and personally fed my appetite for revenue management. One specific quote that has always been a catalyst for my passion for revenue management and really puts the power of revenue management into perspective was a realized Robert Cross has when he realized the damage discounting rates would affect revenue. Robert Cross states, “I figured that if Delta was discounting just one seat unnecessarily on every flight, that translated into $52 million in lost annual revenue.” The perspective that statement extracts is invaluable, and the implications of that to the multifamily space carries the same value. An undervalued rent leased today carries not only an annual implication to revenue but establishes a precedent for subsequent leases. That statement Robert Cross made also signifies the cost associated with not leveraging revenue management.
Recently, amid the COVID-19 pandemic, Robert Cross produced an article that couldn’t have been timelier in its release. In “Revenue Managers: Rise Up!,” Robert Cross amplified the relevance of revenue management during times of flux. There were three resounding themes discussed in the article; stability, data and machine learning. Stability being the element of confidence that revenue management has seen and helped during some of the most disrupting events of the past 20 years including the two Gulf Wars, 9/11 and the Great Depression. Data presented as the catalyst that propels the understanding of changes and enables decision making. Finally, machine learning enabling the identification and predictive understanding of demand.
All three of these themes undoubtedly enable and position organizations to effectively drive revenue through market changes. The application of these themes to multifamily real estate is nothing new, as revenue management has been used in multifamily for the past 20 years and it’s easy to see why, especially now as operators look to manage inventory, understand demand and price units effectively despite restrictions to their normal interactions. As Robert Cross noted, leveraging data and analytics paired with machine learning algorithms enables identification of changes and inflection points relevant to your asset. Further mentioned, these uncovered opportunities will be missed by an ordinary top-down approach or non-data and analytics approach. Data and analytics matter, and provide a comprehensive approach to how you price your units. Robert Cross couldn’t have put it any better when he completed his article by saying, “History is on our side. We have data, tools, and mindsets to overcome the coronavirus economic challenge.”
We do have history to lean on. We do have data and solutions that leverage data and have for the last 15 years. We do have mindsets that enable strategic actions and decision making.
So if you aren’t using revenue management now, it’s time to take a hard look at RealPage revenue management.