optimally pricing your apartments jennifer nevitt and brad marting

Optimally Pricing Optimally Pricing

Your ApartmentsYour Apartments

Jennifer Nevitt

and

Brad Marting

The Importance of Proper Pricing

“Fiduciary Responsibility”

Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments

Are you leaving more money on

the table than you think?


Mistakes of the Past in

Apartment Pricing


Flat Rate Pricingversus

Variable Pricing


“Nickel andDime vs. Bundling”


How to Price Future Apartments


Seasonality


Lease Expiration Management


Graph the results



Which would you Which would you rather have?rather have?

OccupancyPercentage

Is higher better?


Market Demand Curve Market Demand Curve Specific Unit TypeSpecific Unit Type$825

$800

$775

$750

$725

$700

$675

$650

$625

$600

$575

80% 85% 90% 95% 100%

Occupancy Rate

Ave

rag

e R

enta

l R

ate

$730

$690

$650

$610

$775

$186,000

300 Apt. Community

$183,000

$185,250

$186,300

$186,150

255 apts 270 apts 285 apts 300 apts240 apts.

Concessions

1) Value-Added


Concessions

2) Tangible Goods


Concessions

3) Free Rent


Concessions

• Pro-Rated vs. Upfront

• Net Effective Rents


Base Rent / Market Rent

1) What is base rent?


Base Rent / Market Rent

2) What is market rent?



Laying the Foundation for a Profitable Pricing Model

Supply/Inventory – What does it mean to have a lot of a floor play type versus very little of a floor plan type?

• • Do you have an idea of what the Do you have an idea of what the most desirable apartment floor plan most desirable apartment floor plan type is?type is?



Demand – Do you know your customer’s preference?

• • Are you tracking requests from Are you tracking requests from the Internet to telephone to foot the Internet to telephone to foot traffic?traffic?



Absorption – How can you use this to monitor pricing?

• • How many pieces of traffic How many pieces of traffic actual lease? How many actual lease? How many actually move in?actually move in?



Performance – How are you rewarding your leasing team?

• • Should you reconsider Should you reconsider and adopt another bonus and adopt another bonus strategy that not only has strategy that not only has short-term but long-term short-term but long-term benefits?benefits?



Inventory Management – What does this mean to you?

• • Why apartment management Why apartment management continues with only short-term continues with only short-term goals instead of short and long-goals instead of short and long-term goals.term goals.



• • When to use a short-term When to use a short-term strategy …strategy …

• • When to use a long-term When to use a long-term strategy …strategy …



Competing Properties … Do as I say, not as I do

• • Look at your property first Look at your property first before considering pricing before considering pricing strategies – only then, look at strategies – only then, look at the competition in the sub-the competition in the sub-market.market.



Competing Properties … Do as I say, not as I do

• • Adopt a strategy for attracting Adopt a strategy for attracting and winning the lease by NOT and winning the lease by NOT doing what your competitors doing what your competitors are doing.are doing.

Application of Limited Resources

Internalvs.

External

How do you know?


Calculate your Hurdle Rate:*

Number of vacant apartments at the beginning

of the month (carry forwards) 6

+

Number of scheduled unrented move-outs in next 30 days 8

Net to lease 14

Divided by last 60 days’ closing ratio (30%) .30

HURDLE RATE for monthly qualified traffic 47

Average Number of monthly traffic (previous 2 months’ average) 51

* (150 unit property, 70% average turnover)


If the number of monthly traffic exceeds your Hurdle Rate, you have an INTERNAL challenge

Solutions:Market Ready ProductSales Training

Telephone Conversion RatiosSufficient Quality Labor Curb Appeal Enhancement


If the number of monthly traffic is less than your Hurdle Rate, you have an EXTERNAL challenge

Solutions:Sufficient AdvertisingEffective AdvertisingWritten Marketing PlanCorporate Outreach ProgramsOthers


Pricing ModelPricing Model Marting Rent Matrix

• Has been used for more than 10 years

• Subject of award winning article for JPM

• Increased cash flows and values by

millions of dollars

• Removes burden of arbitrary price setting

• So simple it works!


Marting Rent MatrixMarting Rent Matrix

Dynamic vs. Static Pricing

Supply vs. Demand Pricing

Customer ultimately sets price

Taking baby steps . . .



ASSUMPTIONS– Rents are market driven (Supply & Demand)– There is a point at which rents are maximized

RANGE OF RENTS– 100% Occupancy at $1.00 mo. rents– 0% Occupancy at $10,000 mo. rents– What is the point of maximized rent?


Are You Prepared to Adjust Your

Rents?


First Things FirstFirst Things First

PROMOTION PEOPLE PRODUCT PRICING


Promoting Your

Product


Prepare PeopleTrain, Train, Train!



PricingLast, Not First


Product

Preparation



How Do We

Adjust Prices?



MOTIVATIONS TRIED AND FAILED


Marting Rent MatrixMarting Rent MatrixHuman Reaction



When Do We

Adjust Prices?


HISTORICAL METHODHISTORICAL METHOD

JAN 1ST FEB 15TH MAR 15TH APR 15TH MAY 15TH91

92

93

94

95

96

97

98

99

94 94

92

95

98

Occupancy %



Set up is very important Break apt. mix into homogeneous groups 20 - 60 apts. per group 6 - 9 groups



Use base rents - can add premiums Count all apts. (incl. models,

employee, guest suites, etc.)

Set a benchmark occupancy %


Marting Rent MatrixMarting Rent MatrixAdjust prices weeklyAbandon prejudicesAbandon paradigmsLet the numbers guide youUse some common senseSet a strategy and be able to

explain it



NO CHANGE =NO CHANGE


Jennifer Nevitt is CEO of Bravo Strategic Marketing, Inc, a national consulting firm building return on investment strategies for real estate investment portfolios with a capitalized value exceeding $6 billion dollars. She is also CEO of Apartment Marketing Coach.com, which offers operations teams performance enhancement content via the Internet on a subscription basis. She was also inventor and co-founder of YieldStar Technology, a yield management software program whose assets were acquired by RealPage. Her newest program offered to multifamily real estate firms is a two-day pricing workshop, "Increasing ROI and Asset Value Through Proven Pricing Strategies," that provides participants with an in-depth review of pricing theories and practices to improve return on investment potential.

Brad Marting, CPM, CCIM, CAPS currently serves as Second Vice President and Portfolio Manager of Real Estate for Delaware Investments. His formal education includes a Bachelor of Science degree in Business and a Masters of Business Administration degree. He is a licensed real estate broker and holds designations as a Certified Property Manager® from the Institute of Real Estate Management®, Certified Commercial Investment Member from the CCIM Institute®, and Certified Apartment Property Supervisor from the National Apartment Association®. He has more than 25 years of real estate experience and has served as an officer and past chapter president for both IREM® and NAA®. He is an Accredited Apartment Association Instructor (A.A.A.I.) and placed second for the "Article of the Year" Award from the Journal of Property Management.

optimally pricing your apartments jennifer nevitt and brad marting

Documents

pricing strategies

shortterm strategy

longterm strategy

floor play type

apartment pricingoptimally

shortterm goals

longterm goals

apartment management