Borrowing a page from the airline and hotel industries, Post Properties is buoying its bottom line with a high-tech innovation that’s fairly new to the apartment business — revenue management software. By applying technology to the rent-setting process, the Atlanta-based REIT (NYSE: PPS) has seen rental revenue rise at least 2% throughout its expansive portfolio.
Like Post, a growing number of apartment owners and managers are eying technology as a way to pump up profit and customer satisfaction, from revenue management software to online rent payments to high-tech amenities.
The past five to seven years have witnessed much of this tech growth in the apartment industry, says David Cardwell, vice president of capital markets and technology at the National Multi Housing Council (NMHC) in Washington, D.C. For instance, Cardwell says that based on his conversations with chief information officers in the apartment business, one-fourth to one-third of signed leases now originate from Internet activity by would-be tenants.
Tom Wilkes, president of apartment management at Post Properties, can attest to the power of technology. Last year, the company tested revenue management software from The Rainmaker Group Inc. to set rental rates at six of its complexes around the country. Rainmaker’s “revolution LRO” system crunches market conditions and historical performance, then recommends pricing for any move-in date, unit or lease term. As a means of comparison, Post set up a control group of six similar properties that continued to set rates normally — with property managers and corporate executives relying heavily on market knowledge, experience and what the software vendor calls “gut instinct.”
In the end, software-driven data beat instinct. Post was so impressed with the outcome of the six-property trial, Wilkes says, that it finished the pilot project early and installed the Rainmaker software across its portfolio, except for two properties in Manhattan. The Manhattan properties weren’t included because of pricing complexities in the New York market. The Post portfolio comprises nearly 22,000 units in more than 60 complexes.
The software diminishes the human guesswork of the rate-setting process, Wilkes says, and permits Post to raise or lower rates more precisely and gradually than it had in the past. In the traditional process, apartment management’s personal preference or emotional attachment toward certain tenants can give way to objectivity, Wilkes says. The software system “enables us to act in moderation rather than being more reactionary,” he says.
The Rainmaker software has triggered a jump of at least 2% in Post’s rental revenue, Wilkes says. Tammy Farley, executive vice president of Alpharetta, Ga.-based Rainmaker, says other apartment owners and managers using the software — available through hosting or licensing deals — are experiencing an average revenue bump of 4% to 6% a year. A 400-unit Post complex would pay $800 a month for its hosted software, Wilkes says. Given that a Post property’s average monthly rent is a little more than $1,200 and that a 400-unit complex racks up about $500,000 in transactions each month, he says, the software’s benefits more than justify the expense.
“It drives bottom-line revenue. At the end of the day, it’s all about making money,” Farley says.
Other customers using the Rainmaker software include Chicago-based Equity Residential Properties Trust, the largest apartment landlord in the country, and Denver-based Simpson Housing LLP. In January, Rainmaker launched pilot programs with Birmingham, Ala.-based Colonial Properties Trust, Memphis, Tenn.-based Mid-America Apartment Communities Inc., Irvine, Calif.-based Western National Property Management Inc. and Boston-based Windsor Property Management Co. Inc. Collectively, those four companies have more than 124,000 apartment units.
“Revenue management is relatively new to the apartment industry, but it is widely used by airlines and hotel companies for long-term revenue benefits,” Rainmaker President Bruce Barfield says.
Rainmaker’s chief competitor in the apartment tech business is Carrollton, Texas-based RealPage Inc., which offers a revenue management product called YieldStar Price Optimizer. One of the biggest users of the YieldStar software is Houston-based Camden Property Trust, which rolled out the software across its portfolio in 2005 following a five-property test. Once projects that are underway are completed, Camden will have nearly 68,000 units at nearly 200 apartment complexes.
Among the pioneers of revenue management in the apartment industry is Englewood, Colo.-based Archstone-Smith Trust, whose portfolio contains more than 88,000 units at nearly 350 properties. Archstone-Smith’s high-tech savvy has forced competitors “to take a long and hard look at what they’re doing,” Farley says. Her company bought the rights to Archstone-Smith’s revenue management software in 2005. Archstone-Smith still uses the software but no longer acts as the software vendor. These days, the company’s technological reach extends well beyond revenue management.
The newly opened Archstone Clinton, a 627-unit, two-tower apartment complex in Manhattan, provides online leasing with real-time pricing and availability. Archstone Clinton is a joint venture of Archstone-Smith and New York-based The Dermot Co. Inc. At Archstone Clinton, a prospective tenant can pick a floor plan, fill out an application, go through a credit check (accomplished with SafeRent, a software product developed by Archstone-Smith) and be approved for a lease — all in about 15 minutes and all online. Although Archstone Clinton isn’t the only rental property taking advantage of Web-based leasing, many apartment owners and managers still handle leases the old-fashioned way — entirely on paper.
“If you think about the current process, it isn’t much different than what the process was like in 1950,” says Gregory McGrath, president of Domin-8 Enterprise Solutions LLC, a Mason, Ohio-based provider of software and services for the apartment industry.
A closer look at Archstone Clinton reveals technology that even television’s cartoon family “The Jetsons” might salivate over. Web-enabled laundry machines on some floors send status reports by email or text messaging when a machine is available or a load of laundry is finished. Through a resident-only Web site, rent can be paid, and maintenance requests can be submitted and tracked. Also, residents can check the flat-screen monitor in the mailroom to see whether packages have arrived for them.
Daniel Doern, vice president for development at Archstone-Smith, says Archstone Clinton ranks among the company’s most technologically progressive properties. Even so, the complex isn’t staffed by robots. Jeremy Scholl, community manager at Archstone Clinton, says the apartment towers’ high-tech attributes let employees devote more time to customer service. “No amount of automation is ever going to take the place of that,” he says.
Clearly, Archstone Clinton is setting a high-tech example for other apartment complexes. It may stay that way for years to come, too, given the sheer size and fragmentation of the apartment business. NMHC’s Cardwell says if you consider that only 1.5 million of the country’s 17.5 million apartment units are within properties containing at least 150 units, smaller players control the bulk of the apartment supply. These smaller independents are likely to be technological johnny-come-latelys, because of their size and budgets and because of the lack of financial pressure from investors and analysts. Property management software may be prevalent throughout the apartment industry, Cardwell says, but “some folks are never going to use it.”