5 Ways Unit Amenities Boost Revenue, Even in This Recession

More than six months into the health and economic crisis, most operators and revenue managers have been focusing on finding ways to defend rents. While this energy and time spent to combat declines as high as (in some urban high-rise even higher than) 10-15% are well worth it, we thought we’d take some time and talk about a place where almost every operator could gain revenue, and gain it quickly.
What could possibly be an “easy” source of rent gain in the middle of recession while heading into the slow season? It’s a renewed focus on unit amenities, an area of pricing that most of us will acknowledge does not get the same attention as base rents. In 2018, with the winds of growth in the industry’s sails, we reported seven common mistakes with amenities. Below are five “Amenity Fails” that everyone should focus on in today’s market.
Fail #1: Amenity “holes”
“Holes” are missing amenities. For example, if units 105 and 305 both have a pool view assigned to them, but unit 205 doesn’t, then that’s a “hole.” The reference comes from a method and application we’ve created that makes it easy to look at amenities by floor and stack. In such a grid, the lack of a pool view in unit 205 looks like a clear “hole” when the visualization clearly shows the amenity assigned to units 105 and 305.
Amenity holes are by far the most common error we find and also the easiest to correct. Whether the opportunity comes from mere……

Budgeting for Uncertainty and an Eviction Moratorium

It’s that time of the year when we are all deep in the process of budgeting. Most years, budgeting is hard enough, and this year the backdrop of the COVID-induced recession was already making it harder. Last week’s announcement of a federal eviction moratorium that will last through the end of the year has added another layer of uncertainty.
We find ourselves in a situation that is unique in our industry’s history. Without a clear precedent to guide us, we must examine the factors that are likely to affect 2021 performance and decipher what it all means as we budget for next year.
What’s happening with occupancy, rent growth and collections
Occupancy is holding thus far in most markets though I expect we will see unusual challenges fall through winter. We normally see small occupancy reductions in 4Q, though many operators budget otherwise. This year is likely to be worse than normal. If you want to be aggressive, you could budget for early 2Q occupancy recovery to normal occupancy levels, but we advise a more likely return in 3Q just based on our reading of likely timing for approval and distribution of a COVID-19 vaccine.
Rent Growth is the most challenging component, as it’s likely to be the most volatile. Also, with widespread and growing concessions (mostly forced to be upfront), there’s a growing difference between cash and GAAP revenue. Some markets may get by with flat or very small declines, but many are already experiencing double-digit declines in net effective rents ……

How to Approach Renewal Trade-Outs This Fall

As we begin to enter a lower season while still dealing with the effects of the COVID-19 pandemic and concomitant recession, we thought it would be a good idea to take some time and focus on renewals.
With new rents declining in new markets even during this past summer and thus almost sure to decline more at least until next spring, renewals and renewal rents are even more important than ever. So when is it ok to keep renewal increases flat versus giving minimums? And are there times where we would actively offer rent decreases in our renewal offers?
In normal times, most operators implement a 1-2% minimum increase. At the start of the recession, most operators went to flat renewals. But now that we’re almost six months into the recession, what should we do?
As with most strategy questions, there is no one single, “right” answer. The choice depends on owners’ objectives, operating culture and sensibilities around where rents are likely to go. That said, here’s what D2 Demand is recommending to its clients.
The case for renewal increases
If you haven’t done so already, we do recommend going back to renewal rent increases where market conditions justify them. In past recessions, renewal rents outperform new rents; however, this time, early renewal rent freezes, coupled with the surprising maintenance of demand in many secondary and tertiary markets resulted in the reverse. Most operators we know have gone back to renewal increases, albeit often with lower caps than before. We strongly supp……

Three Principles for Forecasting Fall 2020

Much has been written about our industry’s remarkably good performance since March, including several pieces of our own. The NMHC rent payment data has been particularly encouraging, with August 1st collections essentially on par with April through July numbers compared to last year.
We also see good news in the overall economic recovery pace despite an increase in reports around challenges with college campus openings and other event-driven spikes. At the time of this writing, the 7-day average of new cases is the lowest since early July (though still almost double April numbers). And STR reported last week that nationwide hotel occupancy is back up to 50% occupancy for the first time since March.
Why the Fall Remains Unpredictable
As we have written before, there is good reason for trepidation over what will happen September 1st…and again on October 1st. While our crystal ball is no less cloudy than anyone else’s, it does seem clear that there are three key principles at play in any forecast for this fall:

Whether or not Congress acts in a material fashion
No matter what, seasonality will be a headwind
The wild card is the pandemic itself along with how good or bad a flu season we will have

First, let’s talk about the wild card. The aforementioned decline in infection rates is certainly good news though we need at least an additional 80% reduction to get down to numbers anywhere near Europe. As for the flu, another piece of good news is that South Africa reported an almost non-existent ……

Week of July 19 Brings Welcome Improvement in Multifamily Market

Week of July 19 Brings Welcome Improvement in Multifamily Market

That’s more like it.
After the week ending on July 12 brought with it a bevy of bad stats, the following week showed a nice upturn.
In general, the apartment market has shown fairly steady improvement since its low points early on in the pandemic. Last week, I cautioned that one bad week can be just that: one bad week. I urged readers not to worry too much until we saw leading indicators like traffic and leases continue to decline over several weeks in a row.
Fortunately, during the week ending on July 19, we saw moderately positive uptick across most data points and most markets, according to Radix. 
Nationally, leases and traffic increased on a week-over-week basis, with the former also increasing when compared to the same time last year. The national occupancy and leased-percentage rates were up slightly from the preceding week, and the metrics also closed their year-over-year gaps that were so large in the initial stages of the pandemic. Impressively, even the average net effective rent in the U.S. rose 10 basis points from the week before.
To be sure, these were, overall, not outsized gains. But when we consider the July 12 data, it certainly is a positive to see the declines of that week come to a stop. We will continue to monitor the data to see if the gains morph into a longer-term positive trend over the next several weeks. 
Below are some of the specific takeaways from the week ending on July 19:……

18 Months That Shook Multifamily Leasing (And What’s Next)

navigating_post_covid_mfhSeveral months ago I started to write a post about the extraordinary changes to leasing processes that we had seen over the previous 12 months. The post, which was to be called “12 months that shook multifamily leasing” went on hold as COVID-19 took over our industry discourse. Few would have predicted the breakneck acceleration of automated leasing that has taken place in the first half of 2020. It has caused us at D2 to discuss extensively and to speculate on what this all means for the future of leasing. I will share some of our thoughts in this post.
First, the research. Which tells us that this isn’t a new thing
We know that forward-thinking operators were already on the path towards many of the changes that we see today from research that we conducted at the end of 2019. We interviewed 20 COOs and CIOs for our annual 20 for ‘20 white paper, to provide an outlook on multifamily operations and technology for the years ahead.
The full details are available in the white paper, and the main points are summarized below: 

When we asked: “Did any technologies play a bigger part in your 2019 than you expected?”, half identified projects that had, with Access Control and Smart Home technology among the most frequent examples. Several leaders described the need for “curb-to-couch” access control as a foundational requirement to several other capabilities, including self-guided tours
Per-door IT spending had increased year-over-year for yet another year (the same was true in 2019). Several interviewees described a gre……

Two Multifamily Misconceptions About Smart Home Technology

Now I’ll admit that it’s hard to remember what was going on in the days before the COVID-19 lockdown disrupted our industry, but stuff was going on. New technologies were already transforming operating models before any lockdown started. Forward-thinking operators were already reaping the benefits, removing friction from the day-to-day lives of their residents and site teams, and creating new automation opportunities.
In our March 2020 “20 for ’20” white paper, we noted the remarkable acceleration in the industry’s acceptance and adoption of self-show in the previous 12 months. As social distancing measures have forced operators to find ways to show apartments without human interaction, adoption has accelerated more quickly than anyone anticipated.
Self-show provides an excellent example of an innovation that both streamlines multifamily operations and improves prospect experience. To deliver self-show, multifamily operators must solve for access control, a foundational component of the smart community. Lockdown has increased residents’ dependency on delivery services, increasing the need for smart locks and building access. But despite these drivers of change, a couple of misconceptions about this technology are still holding some operators back.
Why we’re curious about Smart Communities
This week we published a brand new white paper: “Smart Building Technology in Multifamily Housing, a guide to smart home technology investments and how to underwrite them.” In researching the paper, we spoke to a variety of multifamily organizations, all at different stages of implementing smart home technology. We wanted to understand their technology choices and how they approached their investment decisions.
Smart ……

Apartment Market Recovery Hits a Bump in the Road

Apartment Market Recovery Hits a Bump in the Road

Recently, we’ve seen several positive signs indicating that the apartment industry had shaken off the worst impact of the pandemic and was headed in the direction of a recovery. 
Unfortunately, that forward momentum wasn’t present during the seven-day period ending on July 12, according to data from Radix. 
Traffic and leases were down for a second straight week in most metropolitan statistical areas (MSA), and the national occupancy and leased-percentage rates took noticeable week-over-week dips.
The resurgence of new coronavirus cases in many MSAs and the resulting partial shutdowns in lots of those areas are certainly part of the explanation. Still, it is too early to draw sweeping conclusions about what the rest of the summer and the early part of the fall will look like. At Radix, we will continue to monitor the leading indicators (traffic and leases) for any signs of a deepening downward trend, which would invariably impact occupancy and leased percentage within weeks if the trend continues.
Below are some of the specific takeaways from the week ending on July 12: 

Nationally, traffic and lease were down pretty significantly WoW, suffering dips of 8.5% and 11.1%, respectively. This is one of the steepest WoW declines for the two metrics since the very early stages of the pandemic in March. On a national basis, both metrics had closed their year-over-year gaps quite a bit in recent weeks. However, if precipitous WoW declines continue, then we are likely to see those YoY gaps widen once again. 
The national occupancy rat……

How to Win Big in a Downturn with Revenue Management

Watching pricing performance since the downturn started and reflecting on all the things we’ve done with our clients over the past three months reminds me of a key lesson I learned about pricing and revenue management (PRM) in the 2002-03 and 2008-09 recessions. The opportunity to outperform competitors with PRM is actually GREATER in a downturn than in growth conditions.

That may sound a bit odd until you consider a few realities of PRM and recessions. For example, we should recognize the psychological bias that PRM systems are there to help increase rents. In reality, they exist to maximize rental revenue. Most of the time, that means controlling the pace of rent increase, but there are times when maximizing revenue means lowering rents to grow or protect occupancy. Not surprisingly, a recession is one of those times.
“Outperformance” does not necessarily mean sequential growth. My experience from the two past recessions was that LRO helped our sequential reduction in rent to be materially lower than the competition. We outperformed the competition, but it didn’t feel good because revenue was still down. Growing revenue by 4% when comps are up 3% feels great while reducing revenue by 2% when comps are down 4% doesn’t feel all that good, even though the latter is outperforming comps by an extra 100bps!
When PRM Systems Come Into Their Own
Since the current downturn started, on this blog, we’ve counseled system users not to blindly “trust the system” as they manage through unusual market conditions. It’s critical to understand how the ……

Multifamily’s BI Evolution (Not Revolution)

When we come to write the history of the changes that coronavirus forced upon multifamily, there will be plenty to say about its impact on technology. With social distancing virtualizing property operations, demand for proptech has skyrocketed, for example (as we will discuss on this blog in the next few weeks). But as companies have accommodated work from home, another, more traditional technology has come to the fore: Business Intelligence (BI).
With social distancing and virtual office arrangements now commonplace, we have fewer opportunities to walk properties, meet with teams, and understand at first hand what is going on. In this environment, the need to draw insight from data is greater than ever, heightening the focus on the quality and accessibility of this most precious of assets. It is interesting, then, to consider the ways that companies are adopting BI in our industry.
What We’ve Learned About Multifamily Adoption
Over the last couple of years, we at D2 have researched an industry white paper: 20 for ’20, which is based on 20 interviews with senior multifamily leaders. Somewhat surprisingly, in each of the last two years, BI emerged as a major finding, but for different reasons each year. 
In our 2019 edition, we noted that the adoption pattern of BI was different from other enterprise technologies. Unlike with CRM or revenue management, for example, there has been no “big bang” of BI adoption. The pattern is more like a slow trickle of implementations over many years. Second, we were struck by ……