Revenue management system recommendations are “statistically and economically sound,” says Janine Steiner Jovanovic, president of the M/PF YieldStar division at Carrollton, Texas-based RealPage. Her division's product for revenue management in multifamily is called Price Optimizer. Without the technology, some apartment owners and managers make rent decisions based too heavily on competitors' rates.

“If you are trying to match yourself constantly to the person next door — who might, by the way, have a terrible leasing staff — you're not necessarily putting yourself in the best possible position,” Jovanovic says.

Jeff Adler, vice president of Denver-based Apartment Investment and Management Co. (AIMCO), agrees. AIMCO owns and operates more than 1,100 properties and nearly 189,000 units. The company uses its own proprietary system for revenue management.

“Prices do move more quickly now. That does place an added responsibility on the team to be able to understand and explain the volatility of pricing,” Adler says. “The technology is only a small part of what it takes to implement a revenue management process.”

Cultural shift

San Diego-based ConAm Group of Cos. is realizing that technology is a small part of the equation. The company, which oversees a portfolio of more than 45,000 third-party-managed and company-owned apartments, is gearing up to test Rainmaker's Lease Revenue Optimizer product at a small number of properties.

“Culturally it will take some time for our associates to rely on, and feel comfortable with, having a system generate the rents versus the manual process we do now at the site level,” says Art Dramby, director of systems strategy at ConAm. That manual process involves gathering the same sort of information found in a software-driven setup, but without the data-collecting frequency, accuracy and efficiency afforded by revenue management technology.

One big change is that the technology removes emotion from rent-setting. Some apartment managers tend to give price breaks to longtime tenants at lease-renewal time. With the software in place, a reliable tenant in good standing might pay a rental hike of $50 a month instead of an artificially low increase of $25. Letting the technology set rents allows the staff to devote more time to customer service and marketing.

Alexander of Essex points out that the software also gives executives confidence to bump up prices more than in the past. During Essex's recent software testing, the revenue management system triggered a proposed monthly rate of about $1,600 for a studio apartment being vacated at the Bunker Hill Towers in downtown Los Angeles. Executives at Essex were surprised, since a similar unit had been fetching about $1,300 a month.

The software determined that none of the 34 other studios were available, and few of the studio leases were scheduled to expire over the following 90 days. Essex ended up renting the studio for more than $1,500, gaining a monthly premium of more than $200. Before buying RealPage's product, Essex wouldn't have taken such an aggressive pricing stance.

Another way that users of revenue management technology are reaping higher rents is by relaxing their leasing terms. Standard lease lengths are six, nine or 12 months. With this software, apartment owners and managers find they can extract higher rents for shorter leases, perhaps two or three months.

On the other end of the spectrum, some users of the software are considering lease terms up to 18 months to shore up occupancy and keep cash flow steady.

For some apartment owners and managers, concessions now are nearly nonexistent, since those deals usually reflect artificially bumped-up rents. With revenue management, if someone wants to rent a unit that's available for five months with a move-in date two weeks away, the price may be $800 a month. But the system can quickly calculate that the same empty unit may fetch $750 if the prospect is willing to move in right away.

In the second quarter, leasing concessions dropped 53% at Mid-America over the same period a year ago as a result of the new revenue management system.

“The vast majority of our clients have discontinued the use of concessions and have experienced only positive results. My clients tell me that apartment prospects believe concessions are a ruse,” RealPage's Jovanovic says. “You don't have to use concessions to make people feel like they are getting a bargain.”

While technology does most of the work, the human touch remains important, says Rainmaker's Farley. “We don't believe that [revenue management software] is something that you should turn on, then let it magically do its work as a magic box and spit out prices.”

John Egan is an Austin-based writer.

SOFTWARE SERVES AS REVENUE ENHANCER

Apartment executives tout a bump in revenue as one of the benefits of revenue management software. Here are the revenue gains reported by seven users of this technology.

Company	Revenue Increase	Software Vendor
AIMCO	1% to 2%	AIMCO
Archstone	3%	The Rainmaker Group
Camden Property Trust	1% to 2%	RealPage Inc.
Essex Property Trust	2% to 4%	RealPage Inc.
The Laramar Group	3%	The Rainmaker Group
Mid-America Apartment Communities	1.5% to 2.5%	The Rainmaker Group
UDR Inc.	1% to 2%	RealPage Inc.
Sources: Company executives