Pub. 2 2017 Issue 3

19 ISSUE 3 2017 have if you didn’t know demand was going to increase. As a result, you can probably get a couple of units rented and then wait for revenue to start increasing again once the projected demand materializes. • Consider a different scenario. There is a good market for units and the forecast for demand continues to be a strong one. You can confidently push prices up higher than you would have been comfortable with if you hadn’t had an understanding of the situation. The goal is to rent the right unit to the right tenant at the right time for the right price. A unit rented for too little will not make as much money as it could have; a unit rented for too much will motivate tenants to move somewhere else. By predicting consumer demand, you can optimize inventory and availability. The result is maximized revenue growth. Bryan Hilton, who is the Senior Vice President of Revenue Housing at Simpson Housing, has some insights to share about achieving a balance between the use of revenue management software and human insight. Simpson Housing is based in Denver, Colorado and had a portfolio of 17,500 units in 2012. It was founded in 1948 and has become one of the largest privately held U.S. residential developers andmanagers. SimpsonHousing operates throughout the U.S. and is continuing to expand. Revenue management software, called Lease Rent Options (LRO), is an important part of doing business at Simpson Housing: • The revenue management department sets up each property on LRO. To do this, it uses data from the team that operates each property. • Employees make pricing calls for stable communities about once every couple of weeks. With lease-up or new communities, those calls take place every week. • Pricing calls involve a review of every metric that will determine pricing: demand, traff ic, the number of competitors (including news ones) and what those competitors are doing in the submarket, and demographic or economic changes caused by factors such as new or departing businesses. Each community has a couple of hundred different parameters that are considered. Simpson Housing also asks directly for community feedback about what is going on in the submarket, especially when that concerns competitors or customers. • The system recommends rents. The revenue management department looks at the recommendations and considers that along with the community feedback. • The revenue management department then looks at units on the property level. They see how one-bedroom and two- bedroom units are doing, how many units have been leased, and whether the current pricing is successful. If it isn’t, the revenue management department works with property management to figure out what the problem might be, and then to solve it. How effective has the software been? When Simpson Housing first started using it, they did a pilot study involving twelve communities, half of which were using the LRO system. Two of the communities were very similar. They were within a block of each other, had been built by the same construction company, had the same floor plans, and the same advertising sources. The difference between the two was in the expiration profiles. Both were quite competitive, but one was an LRO community and the other was a control community. The control community started calling up the LRO community every day to copy whatever pricing was being used that day by the LRO community. Ultimately, however, that strategy didn’t work because of the difference in expiration profiles. Management at the control community couldn’t figure out what they were doing wrong; what they didn’t understand was that they were getting tripped up by the one thing that was different between these two communities. Bottom line, at the end of the test study, LRO test communities ultimately outperformed control communities by three to five percent. No system is perfect, but using statistics to help you determine the best possible pricing for unit rentals is a good way to increase your chances when it comes to setting the right price for the rents you charge. How effective has the software been? When Simpson Housing first started using it, they did a pilot study involving twelve communities, half of which were using the LRO system. Two of the communities were very similar.