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  • Why The High Price Landlords?

    [caption id="attachment_4997" align="alignleft" width="318" caption="Got High Rents? Blame The Computers"]Rents[/caption]

    This past summer, I had the pleasure of searching for a new apartment. It was...stressful...to say the least. But I succeeded, and found a great apartment, at a reasonable price (for Boston at least) in a nice part of the city. As I was driving with the relator to see my "hopefully new pad" I asked her about the price. She had told me that every year, the landlord increased the rent by almost $100. I wasn't shocked by this statement, but rather a bit angry. The New York Times seems to have all the answers, as Matt Hudgins discusses increased rents in his article When Apartment Rents Climb, Landlords Can Say ‘The Computer Did It’:

    The lease renewal notices that landlords send out annually have contained little good news for renters in recent years: Rents are up and vacancies down around the country. And having resigned themselves to paying more, renters may wonder whether the new number on their lease was plucked out of thin air.

    Rest assured, it was not.

    For about a decade the country’s biggest landlords, who together control about a million rental apartments, have been using powerful software tools to set rental rates on new and renewing leases. Patterned after the technology used to price airline tickets and hotel rooms, the software weighs competitors’ rental rates, market conditions, seasonal trends and hundreds of other variables to recommend the highest feasible rent for each apartment at a given time.

    The technology can benefit residents as well. Just as travelers can lower their airline fare by flying at off times, residents can often lock in lower monthly rents by agreeing to lease terms that help apartment owners avoid downtime or fill less popular units. Revenue management software can generate options for renters by varying rental rates, start dates and numbers of months on the lease — and still hit a landlord’s revenue target.

    Now landlords with as few as 3,000 units are testing the technology, which is chiefly produced by two companies, the Rainmaker Group of Alpharetta, Ga., which sells a program called Rainmaker LRO (for lease rent options); and RealPage Inc., of Carrollton, Tex., which calls its version YieldStar Price Optimizer. Both products incorporate data collected automatically from competitors along with masses of market and property information. YieldStar adds data from RealPage’s market researcher, MPF Research.

    David Romano, the vice president of pricing and revenue management at Equity Residential, one of the largest publicly traded apartment owners in the United States, uses Rainmaker LRO at more than 100,000 apartment units in 15 states and the District of Columbia. There are exceptions, including complexes where subsidies impose rent parameters, and at rent-controlled properties in New York. The overall portfolio includes 8,290 units in the New York metro area, with 4,057 of those in New York City, Equity Residential said.

    “It’s the combination of rent and occupancy which produces revenue, so we’re maximizing that optimum mix,” said Mr. Romano, who joined Equity Residential in 2004 to set up and run the centralized pricing system. “We don’t have occupancy targets per se. We let the system determine at what rate revenue is maximized at a given occupancy level.”

    Landlords pay for an initial setup as well as a monthly subscription fee based on the number of units at each property. Neither software company would disclose rates, but clients said the costs were small relative to property budgets and potential income to be gained.

    “You’re talking about $2 per unit, per month,” said Steve Gilmore, a senior vice president of Shea Properties in Aliso Viejo, Calif., a diversified real estate company that uses YieldStar Price Optimizer at all of its 14 apartment properties and 6,000 units. Mr. Gilmore said the software paid for itself in about six months.

    Shea Properties had eschewed one-month leases, for example, before YieldStar began suggesting pricing options that made short-term deals worthwhile. At the Madrid Apartments in Mission Viejo, Calif., the company recently rented out a $1,200-a-month unit on a one-month lease for $3,000, a sum Mr. Gilmore says the company would not have thought to ask for before it began relying on revenue management software.

    Revenue management is entrenched among apartment real estate investment trusts, or REITs, and has a growing following of smaller portfolio owners, said Steve Lefkovits, the president and chief executive of Joshua Tree Internet Media in Emeryville, Calif., which provides best-practice information to the multifamily industry.

    Read more at The New York Times

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