Insight 16: Drive Up Revenues, Not Just Base Rent
By Jay Parsons, David Polewchak and Andrew Bowen
Once upon a time, ancillary revenue amounted to rounding errors for most apartment communities. It was a line item designed to pass through costs with a small markup for basics like parking, amenity space reservations, trash removal or even the use of the clubhouse printer.
Times have changed. Asset managers and property managers are now taking a much more sophisticated, data-driven approach to optimizing ancillary or auxiliary revenue.
Leading operators are finding that a well-managed ancillary revenue program can meaningfully impact bottom-line revenue and even enhance the value of a community. How?
- Change your definition of ancillary revenue
Think bigger than the “other revenue” line on your P&L.
What we’re focused on is everything outside of your base rent. The specific line items do not matter.
- Rethink the way you price unit amenities
Ask yourselves this: When was the last time you did an amenity pricing audit? If you’re like most property managers, the honest answer is probably “when we built the building” or “when we took over management.”
But those values can and should change over time and, even more importantly, pricing should be optimized around demand to maximize revenue.
RealPage® data has shown that in 2020, balconies were the unit amenity that residents valued most. They wanted fresh air and some personal outdoor space. Did you optimize pricing for units with balconies – or did you just add a random number?
Use external benchmarks and internal analytics to determine optimum pricing for each unit amenity. In some cases, you’re likely leaving money on the table. In other cases, you may be trying to command too big a premium, thereby letting those units sit vacant too long.
Our data shows the average apartment community has 10% of its rent roll directly associated with a specific amenity. That’s a big number. If you can improve the performance of this one aspect of your property by just 10%, that alone will result in a 100bps improvement to NOI.
- Provide residents with technology as a service
This is the “next big thing.” Renters expect a connected experience now more than ever, and for operators there’s opportunity in focusing on technologies that residents want and that add value to your community.
For example, centralized Wi-Fi is becoming a big revenue driver. Pair that with IoT smart technology services, and technology as a resident service really comes alive. (This also holds massive downstream implications for property operations, such as offering prospects on-site access for self-guided tours.) And here is the best part: You are generating $15-20 per unit per month in additional revenue for this “must-have” service.
It’s human nature to “dip your toe in the water,” so to speak, but this is an investment that will generate yield based on what you put into it. Smart locks are great, for example, but that alone won’t generate additional revenue. To turn resident technology into an NOI generator, you need a more holistic approach.
Today’s smart technology tools can help residents save money and conserve resources by monitoring and controlling energy and water usage, heating and cooling, leak detection, lighting, etc. … and integrate with popular smart technology tools. That matters especially to the younger generation of renters who value sustainability and control of their own costs. And that, in turn, creates value for your community.
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