Multifamily pricing focuses on seasonal variations and the economy. Seasonal business variations influence the forecasts and revenue of both the multifamily housing and casino hotel industries; they also share many similarities in how seasonal demand drives pricing. Casinos tend to have more summer than winter business in colder climes; the opposite is true in hot-weather areas. The same calculus takes place in the multifamily industry, but multifamily Revenue Management calculations also focus on a community’s expiration profile to forecast when residents are likely to relocate during the year. They take into account that nobody wants to move to Buffalo or Boston in January, and structure Revenue Management terms and rates that reflect the disadvantage an operator will suffer if renters give up their apartments in mid-to-late fall. The kind of mathematical processes required for this type of lease/rent optimization and expiration-profile analysis are perfectly suited to the current generation of computerized revenue optimization systems, which share many features with their counterparts in the gaming hotel industry.

Revenue Management is not about lowering prices. Both multifamily and casino hotel Revenue Management solutions can quickly adjust their forecasts and rate recommendations for shifting economic conditions. But in each industry they respond differently to those forecasts. With multifamily, when the economy tumbles, demand and pricing may become more volatile because rental housing will draw newcomers. Since housing is a lifestyle choice for renters and not a discretionary expense, multifamily operators are not able to stimulate demand by simply offering lower lease/rents. Similarly, in the gaming hotel market, lowering prices to attract more business may send the wrong message to a property’s market and devalue the hotel for future business.

The mathematical tools that forecast demand and optimize rates are much the same in each industry’s systems, but the demand factors they include and the forecasting logic on which they base their calculations are different. In a hypothetical economic downturn, for example, automated multifamily Revenue Management may track a shadow market consisting of rental homes entering the market because owners are unable to pay their mortgages, which directly impacts the multifamily market. Lease/rent optimization systems see the multifamily industry in terms of hot and cold markets and adjust accordingly. When markets are hot, they may call for higher rents and faster rent hikes; when a market is cold, they may recommend keeping rents high at first and then lowering them gradually to spread out revenue reductions. Not so for hotel casinos, which are discretionary, luxury purchases. Gaming stays relatively insulated from economic turmoil, but other factors including nearby events such as championship fights, mega conventions and headline entertainment can cause demand to spike and may take managers by surprise if they are not watching their market.

Because rental units change hands much more slowly than casino hotels change guests, the automated model used by Revenue Management systems for the multifamily industry must take a longer view. Forecasted demand in multifamily is more correctly based on history as well as how current demand and competitive product offerings are changing.

Revenue Management tools for both the multifamily and casino gaming markets are designed to accurately forecast demand—although they sift through different sets of factors that can affect a

forecast. They use different kinds of optimization engines to recommend room or rental unit rates, although in each case the forecast function predicts how demand will show up and how much it is likely to spend on the available room inventory.

Central pricing control—taking the emotion out of pricing decisions. Casino hotel and apartment Revenue Management operations both maintain a central repository of pricing data controlled by a senior-level revenue optimization manager. Multifamily operators like Post Properties and Mid-America Apartment Communities have proven the efficacy of this structure, and many other organizations are recognizing the importance of creating this position within the management team.

One advantage of an automated centralized pricing process is that it removes the responsibility for price setting from community managers. This frees managers to focus on their other responsibilities and links price setting with the overall corporate strategy that embraces regional and national objectives. Additionally, since customer-facing community managers interact daily with residents and develop relationships, imposing rent hikes is less painful when the decision is made at the corporate level.

Automated Revenue Management also protects the integrity of the pricing decision because it instills discipline that gives price-setting credibility throughout the organization and removes human emotion from the process. Many multifamily operators have learned that when they put pricing in the hands of individuals, instead of a centralized revenue optimization system, they become vulnerable and lose money-making expertise when those individuals leave. Turnover is constant at the community manager level, but with a centralized system in place, which standardizes optimized rate setting, the result is greater continuity in business operations and pricing.

An unbiased, uniform pricing optimization system can be a shield that protects multifamily organizations from the unhappy prospect of housing discrimination action. When lease rents are automated for all incoming or existing residents, the possibility of discriminatory intent is eliminated. This preserves what multifamily operators need most of all—a reputation for fairness and integrity.

Substantial revenue benefits for both sectors. Automated Revenue Management has boosted revenues between ten and fifteen percent for many gaming properties. The IP Resort Casino Spa, in Biloxi, Mississippi, had an eye-popping thirty percent jump in its average daily rate after going to an automated solution just twenty months after being pummeled by Hurricane Katrina. Revenue optimization has produced a consistent three to five percent revenue-per-unit lift for many multifamily operators.

The most concrete advantage automated Revenue Management delivers for both multifamily housing and the casino hotel industries is the ability to assist operators to make better decisions based on better data. By accurately forecasting future demand, these systems provide a rational basis for optimal rate setting that goes beyond what is possible without computerization. In the past six years, an increasing number of REITs and privately held operators have proven the validity of lease rent optimization systems in the multifamily industry. The result is a stabilizing influence in many markets where rate setting is no longer based on emotion, but on statistical analysis that results in substantial lease rent lifts for users.

The Rainmaker Group is a world leader in Revenue Management software and services for multifamily housing, casino/gaming and other industries. Please contact Tammy Farley at tfarley@letitrain.com.

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