It’s cloudy out there. The many unforeseen consequences of COVID-19 have forced us to re-evaluate our operational strategies. And the clouds keep rolling in: eviction moratoriums, an unclear timeline for a COVID-19 vaccine, mixed signals on the economy and a heated political environment on top of it all. That means we aren't necessarily assured a strong leasing season next spring. For the property management industry, questions arise. What's the fall or winter going to look like? How should you approach marketing, leasing, pricing and risk to make sense of it all?
Clearly, it’s necessary to set and execute a smart strategy for these next few critical months ahead. Fortunately, there’s some clarity to be shared from a conversation with asset management experts at RealPage during the company’s RealWorld 2020 conference. Jay Parsons, VP Asset Management, asked David Polewchak, Industry Principal and Andrew Bowen, Industry Principal to weigh in on practical, strategic approaches to pierce the fog and move ahead. Here are just a few highlights.
Dealing with reality.
COVID has created new realities for property managers. Case in point: The apartment market took a hit in spring and summer but has withstood the storm better than expected. There was a very strong summer period for leasing demand, with sky-high retention over six months as people couldn't or wouldn't move. But a lot of that came via short term lease extensions, which could create exposure issues as those leases expire.
Another fact on the ground, this time in marketing: From the demand perspective, leads are always critical. But, according to RealPage’s Andrew Bowen, the reality is that demand is finite right now. There are only so many people looking for an apartment in individual areas, with the number dropping in some places and increasing in others.
Mr. Bowen believes the industry can deal with these realities now by reframing strategy from an effectiveness standpoint. Call it pragmatic strategy.
“Rather than taking a purely strategic view to, say, marketing, we should be getting really, really tactical,” he notes. “What are the individual things that we can do to make sure that every renter in that area is looking at my building before anyone else’s?”
Reframing marketing in this environment starts at the top of the funnel. Revenues are below budget for many apartment operators, expenses need to be cut, but you still need to drive leads. The focus has been on driving down the cost per lead and cost per lease. But optimal marketing means you're getting just enough leads that would actually fill as many leases as you need. Cost per lead and cost per lease would then be equal. How do you do that?
“The only way is to take back control of your expenses with a much more go direct marketing strategy, thinking about things that you can do, or you can dial up and then dial back down as you need it,” says Mr. Bowen. “Things like pay-per-click, Google ad words, SMO, SEO—those types of strategies are really tactics to be able to bring in the leads you need.”
Leasing to the right renter.
We are seeing new risk realities that complicate leasing as well as payments. Eviction moratoriums have been extended again and again for people who can't or won't pay rent. And now we have a national moratorium in place at the end of 2020. From a leasing perspective, this puts extra pressure on property managers to capture the leads who will become the best renters. However, when demand is limited, it is very tempting to lower screening thresholds. It’s a risky strategy.
RealPage has an alternative. Traditional screening focuses on someone's ability to pay their rent. RealPage discovered through machine learning and data analysis that the real key is to focus on that person’s willingness to pay rent. Their AI Screening product does just that for property managers and delivers a better renter. You can distinguish the type of renter who is more likely to honor their responsibility and pay that rent versus one who's more likely not to. And that handily beats lowering your thresholds, opening the door and saying come on in.
Delighting residents for retention.
Demand has several faces. There’s leasing demand on the lead side and renewal demand on the renter side, for example. There are proven strategies to maximize both, of course. However, new realities have given some greater prominence and some lesser. Take pricing strategy, for example.
Pricing has gotten more complicated in areas where you see very charged political environments. Manual pricing presents more risks today, not only in leaving money on the table, but also in fair housing compliance. And it’s more important than ever to get pricing right the first time, because renewal rate increases could be much more challenging than pricing a vacant unit from any portfolio.
Meanwhile, on the renter side, solid retention and renewal strategies are highly effective. In critical periods like this, where you're not certain what the renter base is and you have a base of people who are actually paying rent, you want to ensure that you’re doing everything to keep those people happy.
RealPage’s David Polewchak points to the resident retention strategy of building engagement as an example. Says Polewchak, “There are many tools out there like RealPage’s ModernMessage® CommunityRewards™ program and ActiveBuilding® resident portal and e-commerce platform that are going to enhance an overall resident experience and bring that overall retention to bear as you look to make sure that those residents are very happy with what they're doing. This isn't a time to stop on that. This is when I would push harder on that gas pedal towards that resident retention and those reward programs to make sure that you're able to get those retention levels that are needed.”
Taken individually, the above strategies will help property managers cut through the fog. The next step is to get a higher view by looking at how pricing and marketing and leasing and risk strategies work together to generate revenue. RealPage has pioneered this holistic approach with its AI Revenue Management tool.
David Polewchak is excited about the capabilities. He notes that AI Revenue Management helps you see how price plays directly with demand drivers. How you can bring in the right amount of demand based on what you need. How you can ensure that demand is being realized and your teams are able to prioritize the true leases with risk exposure. And how you can reduce the risk of applicants coming in to ensure your ability to make long-term decisions.
Concludes Polewchak, “AI Revenue Management is about bringing that together into one approach. It will allow you to see all of this together and drive the decision that is going to drive the most revenue out.”
Clearer skies ahead.