An essential pricing tool in the hotel, airline and rental car industries for years, revenue management software has yet to gain widespread acceptance in the apartment sector. Fewer than 10% of apartment owners and operators in the United States have adopted the technology. But apartment professionals predict that in three to five years the software will become an industry staple in order to boost the bottom line and maximize pricing efficiency.

Seven years ago, Archstone, one of the country's biggest players in the apartment sector, became the first owner or operator to introduce revenue management software. Then Camden Property Trust and other big competitors followed in Archstone's high-tech footsteps.

Archstone, Camden and their brethren have trumpeted the benefits of revenue management, claiming an estimated 1% to 4% bump in revenue. It usually occurs within days of installation and continues indefinitely, with increased precision in the rent-setting process. More owners and operators have overcome their skepticism about the return on investment versus the price of admission.

Like an apartment in need of new carpet, fresh paint and updated appliances, the pricing model throughout the multihousing industry is undergoing an extensive makeover. Apartment REITs, particularly the publicly traded ones, have led the way in revenue management primarily because they're under intense financial scrutiny from investors and Wall Street analysts, says Donald Davidoff, group vice president of strategic systems at Englewood, Colo.-based Archstone.

In an industry that's slow to implement any type of technology, the last converts to revenue management software likely will be small, cost-conscious owners and operators who dominate the industry. For the owner or operator of a 500-unit portfolio, the annual tab would range between $9,000 and $18,000, according to industry estimates.

“There are still a bunch of people sitting on the sidelines, waiting to jump in,” says David Woodward, CEO of The Laramar Group, which owns or manages about 20,000 apartment units. Laramar, with dual headquarters in Chicago and Greenwood Village, Colo., uses revenue management software from The Rainmaker Group Inc., one of the two key suppliers of the technology to the apartment sector. The other is RealPage Inc.

Once they jump in, owners and operators realize the benefits of revenue management, say users. The benefits include more consistency and accuracy in pricing, less subjectivity in setting rental rates, more flexibility in lease terms, and fewer concessions, like one month's free rent.

Furthermore, apartment owners and operators that use revenue management can react more quickly to ever-shifting market conditions than they could in the past. In a business where expenses already are tightly controlled, unearthing new ways to mine more revenue is crucial.

Revenue management technology accomplishes more than apartment managers or leasing agents possibly could with calculators, spreadsheets, market surveys, educated guesses and other methods they've traditionally used, experts say.

“Anything that reduces how far rents and occupancies go down in bad times and increases how well they go up in good times is vital,” says Davidoff of Archstone, a Rainmaker customer.

Data wizards

A revenue management system crunches various data to determine rents based on supply and demand. The information is updated regularly, often daily or weekly. Depending on what type of software a company installs, that data may include leasing patterns, upcoming lease expirations, competitors' rents, and walk-in and Web traffic from prospective tenants.

RealPage's software pairs lease transaction information entered into a property management system by property personnel with market data collected by RealPage's M/PF research unit. Rainmaker's software analyzes more than 200 pieces of data each day. Most of the information comes from a client's property management system.

Revenue management software “has revolutionized our industry,” says Kristy Simonette, CIO at Houston-based Camden, whose portfolio comprises more than 180 properties with nearly 63,000 units. Camden is a RealPage customer.