Radix Weekly Data Report – June 17th
Leading Indicators Continue to Improve from Pandemic Impact

The seven-day period ending on June 17 brought more good news for the apartment industry, according to our most recent data report.

The data reaffirmed the positive trends we saw during the preceding week, and it is becoming clearer that all the leading indicators are on the mend and are erasing year-over-year deficits. On a national basis and in most metropolitan statistical areas, traffic and leases are increasing week over week, which is leading to WoW increases in occupancy and leased percentage rates.

Net effective rents were also up WoW in eight of the 21 MSAs tracked by Radix during the week ending on June 17. The national net effective rent was $1,734; that’s down 20 basis points from the preceding week and down 4.5% from the same time last year. On a positive note, the WoW drop was smaller than the one during the preceding week.

With that background, here are some of the notable takeaways from the week ending on June 17:

  • Nationally, traffic was up 6.3% WoW and down 19.8% YoY. During the week ending on June 10, the YoY was still behind at 22.7%.
  • On a national basis, leases were up 2.2% WoW and down just 0.7% when compared with the same time last year.
  • The national occupancy (92.85%) and leased percentage (94.75%) rates were up WoW by 12 basis points and 14 basis points, respectively. The YoY deficits for both metrics are getting smaller, and with positive trends in traffic and leases, we should see occupancy and leased percentage rates continue to gain strength across the country.
  • As for individual MSAs, Miami, Riverside, Calif., and Tampa, Fla., saw the largest WoW increases in occupancy. Meanwhile, the West Coast is home to some of the largest YoY declines in occupancy, with San Diego (-3.32%), Seattle (-3.08%), San Jose, Calif. (-2.72%), San Francisco (-2.58%), and Los Angeles (-2.49%) all among the six markets with the largest annual declines. San Antonio (-2.91%) also is in the top six.
  • The $3 WoW dip in the national net effective rent represented the smallest decline in weeks. MSAs with the strongest WoW gain in rent were Riverside (1.0%), Las Vegas (0.9%) and Phoenix (0.3%).

Don’t Worry Too Much about Average Metro Rents – It’s the Rents of Your Comps that You Really Want

When it comes to apartment market data, it’s important to make a distinction between “macro” and “micro.”

Macro data refers to statistics like a metro area’s average rent or its occupancy rate. Micro data refers to the average rent or vacancy rate of a competitive set of communities. Think of it in terms of a photo – macro is the whole photo. You can see the entire picture but not the details. Micro data is like zooming in on that photo. You can now see things like a ribbon in someone’s hair or a flower just starting to bloom.

When evaluating the performance of your apartment properties, it’s helpful to consider both macro and micro statistics. In other words, micro data – the more detailed, closer view data – will provide by far the most valuable, relevant insight.

The Fallacy of Averages

To be sure, reading third-party monthly or quarterly reports detailing a metro area’s apartment macro data can give operators important context for their communities’ performance. It’s always good to understand the broader market in which your properties operate and to take in the numbers, insight and analysis regarding trends in your metro area.

But here’s the thing: when it’s time to truly put the performance of your community into perspective, micro data eats macro data for breakfast. Put simply, if your property is located in say the booming Midtown area of Atlanta, you can’t really evaluate your property’s pricing based on the average rent in metro Atlanta. Even the average rent for the individual submarket in which your community is located may not be entirely relevant. To be truly in the know about how your community is performing, you need to know the rent dynamics in your comp set.

Clearly, the average rent for a metro area is calculated using information from communities that are not competitors for your prospects. Therefore, the same can hold true for submarket averages.

For instance, say a particular average submarket rent is calculated by gathering information from communities within a certain three-mile radius. In urban areas, a three-mile radius may contain between 200 and 300 communities. If you’re in that submarket, your prospects aren’t considering those 200 to 300 communities before making a decision. So does it really help you to know what’s happening at them in terms of rent and occupancy?

The only completely relevant comparative information comes from the other communities your prospects typically consider, i.e., your comp set.

Digging Deep

It starts with selecting the right comp properties that are most likely comparative in product to your property and offer similar advantages in location.  The reason why this is so important is that any prospect who is considering making your property their home is, most likely, also considering these 5-8 properties.

So, having visibility in terms of rents, occupancy, traffic and leases to these comp properties allows you to adjust your strategy and ensure your property stays competitive. Being able to see and select specific comps is especially very important as you dig in deeper into the competitive landscape and compare renovated unit types to specific comps, excluding unit types that are not comparable to your property, and the like.

The ideal way to get data about your comp set is through market surveys. So, as I’ve detailed before, the traditional manual approach to market surveys has its own set of issues.

Automating the collection of asking rents and other performance data from comps can streamline the process significantly while also improving the accuracy of the information gathered.  As such, associates can now concentrate on the many other tasks they have to tend to that are critical to signing new residents and keeping current ones happy. In the end, it’s how your community compares to its comp set that’s the most important indicator of performance. Having a firm grasp of the rents and occupancy rates of the competitors is what allows an operator to know when it should push or scale back rents at its own communities.

Why Casting a Wide Data Net Isn’t Always the Best Approach

When it comes to understanding your apartment community’s performance, it certainly doesn’t hurt to look at as much market data as possible.

Monthly and quarterly market reports compiled by research and brokerage firms about your metro area are worth reviewing, but they also have limitations. By the time they arrive on your desk or in your inbox, the data is at least 30 days old. Sometimes the data contradict each other and its projections.

Also, these surveys are usually conducted at the market level and then a regression analysis is performed to determine submarket data. This means the survey reports don’t offer true insight into your surrounding submarket, let alone your property’s comps.

In the end, the information you really want to dig into and spend the most time with comes from your comps. It doesn’t matter if Manhattan rents were rising a month ago if your community is in Chelsea and rents there are flat today.

Getting Vital Data the Right Way:
The problem facing a lot of operators is they don’t have an efficient process for obtaining the kind of data that will benefit them the most.

Too many property managers rely on the traditional market survey approach. Busy onsite associates spend hours calling comps to collect data about asking rents, occupancy rate, concessions, etc. When, and if they’re finally able to collect this information, they enter it into Excel spreadsheets. And we all know this presents a whole host of problems and hampers meaningful data analysis.

The Value of Submarket and Competitive Data

Put simply, real-time submarket data eats monthly market data for breakfast. It optimizes leasing and revenue performance when used in conjunction with revenue management. If your community is located in the booming LoHi area of Denver, you can’t evaluate your property’s pricing based on month-old information about the average rent in metro Denver.

Only when operators are up to date about what exactly is happening among their competitive set and in the surrounding submarket can they make the proactive pricing decisions that best position their communities to maintain occupancy rates and drive revenues.

To be sure, I’m not discouraging operators from taking note of monthly and quarterly metro reports produced by third-party organizations. It is important to be cognizant of the broader market and to take in the insight and analysis regarding trends in your metro area.

But when all is said and done, the most valuable data is the real-time information that you gather from your competitors in your immediate area. It is worth remembering the story of the statistician who drowned crossing a river that was, on average, 3 feet deep.

In the Beginning:
BI:Radix Helps Redwood Residential and Maverick Residential
Get Off on the Right Foot

When Redwood Capital Group decided to launch its management division, Redwood Residential, Mary Herrold knew the new company could benefit from a departure from the traditional market survey process. She knew they needed something simple, innovative, comprehensive and streamlined.

A multifamily veteran with nearly 30 years of experience in the industry, she is all too familiar with the numerous problems presented when onsite associates call comps to ask about rents and other data and then compile that information into Excel spreadsheets.

Long story short: the process takes way too long and frequently results in data that is not trustworthy.

Herrold, Senior Director of Marketing for Redwood Residential, wanted the company to get market surveys right from the start. So, she turned to BI:Radix.

“We love it. The onsite associates who are tasked with completing weekly surveys find it easy to use,” Herrold says. “I’ve never had a question or a complaint from a team member about it. I also know that I can rely on the data because the input flows easily.”

A Problematic Process

One of the primary problems with the traditional market survey process is its considerable inefficiency. Onsite associates with a lengthy list of other responsibilities place time-consuming phone calls to comparable properties. 

Inevitably, they aren’t able to reach the people they need to speak with and then have to follow-up with another round (or two or three) of phone calls. To add insult to injury, oftentimes associates are not trained to ask the kinds of questions that will produce accurate data and true apples-to-apples comparisons.

Incorrect Data

Another set of problems arises when it’s time for associates to manually input the information they collect into Excel spreadsheets. To start with, they may enter the data incorrectly and with inconsistent formatting. They may spend too much time adjusting the column widths and the row heights to make the spreadsheets easier to read for other associates. And then, once a market survey in Excel is passed along for review and analysis, team members begin saving and emailing each other different versions of the same spreadsheet, creating unnecessary confusion. It’s like the game of telephone. Each time a spreadsheet gets shared, the data gets diluted. Also known as, data erosion.

Over the course of her time in the apartment industry, Herrold had grown exhausted with the traditional process and felt the new management company couldn’t afford its numerous drawbacks. “I’ve used different templates. I’ve written step-by step instructions, conducted in-depth training, and still found data that I couldn’t trust. The spreadsheet method is unruly.  It is easy for busy site associates to forget to go back and complete information they may have missed inputting during the first pass. Although platforms are a better way, I found a lot of them cumbersome, time consuming and wrought with too many options to get any consistent measures over time.”  

A New Day

Herrold’s search for a revamped market survey methodology led her to BI:Radix. She and Redwood Residential were quickly impressed with the product.

The solution dramatically streamlines the data collection process with its SurveySwap™, which enables communities to automatically exchange information with comps through the BI:Radix platform. As such, the result is more accurate and timely data and less time spent by associates making comp calls.

The cloud-based product also provides a centralized database for team members to view data. Its analytical tools illuminate pricing trends over time, something Excel can’t do.

“One of the best things is the tracking of updates,” Herrold says. “I get a weekly report telling me the date each comp was surveyed. Our teams are updating surveys weekly (with ease), giving us 52 points of data versus the typical 12 over the course of a year.

Everything is accessible through the platform, and we trust the data,” Herrold says. “We rely on it for our decision-making and we especially like the trend report. Our market surveys aren’t something we just check off of the to-do list so we can add them to the financial reporting package. We’re truly getting value out of the platform.”

Engaging Onsite Teams

Similarly to Redwood Residential, Maverick Residential Company implemented BI:Radix when it launched. Jeff Krohn, President and Co-founder of the company, says his experience with the solution has been very similar to Herrold’s.

One of the main things that was important to us and our management style, was to get our onsite associates out from behind their computers. Instead of doing data collection, we want them to be able to focus on taking care of the residents and creating an atmosphere that’s conducive to people wanting to live at our properties,” he says. “Every technology we selected needed to reduce the manual labor that goes into so many of the various tasks that onsite associates have to do.

“BI:Radix was our first choice for market surveys because it eliminates the monotonous process of picking up the phone and talking with comps,” Krohn adds. “As the old saying goes: ‘garbage in, garbage out.’ A lot of the data was erroneous – human beings are fallible, and their ability to collect information and interpret information and then put it into a spreadsheet was taking way too much time.”

True Analysis: The Value of Apples-to-Apples Comparisons

Both Herrold and Krohn applaud BI:Radix’s ability to highlight pricing trends and provide true apples-to-apples comparisons between communities.

“We’ve had instances where we’ve identified: ‘This fee’s too high,’ or we’ve said, ‘Nobody charges this, we shouldn’t either,'” Herrold says. “It’s that eye-opening moment when we realize we could charge more because we weren’t meeting market performance. It helps us stay competitive and push the envelope where we can. And that’s invaluable to any organization, especially one that is just starting to establish itself as a strong management company.”

Data Drives Decisions

Above all, the information gathered by BI:Radix and the analytical power of the solution has helped Maverick Residential communities adjust their comp sets, according to Krohn.

“It allows us to really dive into the details and show our communities that certain properties they think they’re sharing traffic with are not, in fact, comps,” Krohn says, “On the flip side, it helps us identify properties that are comps that weren’t previously in the comp set.”

Community owners may sometimes balk at moving away from the traditional Excel-based system because BI:Radix carries an acquisition cost and Excel spreadsheets are free. But that line of thinking is extremely short-sighted, according to Krohn. “The Excel-based system certainly carries a significant cost,” he says. “You have to account for the hours your associates lose trying to collect the information and also for impact that bad data has on your pricing decisions at the end of the day. So to us, the minimal cost of BI:Radix is a no-brainer.”

The Competition: Your secret pricing power

When it comes to successfully pricing your apartment homes, it’s critical to know who your competitors are and what rental rates they are charging.

Unfortunately, though, too many operators don’t have a true, clear-eyed understanding of their properties’ comp sets. Below are some common mistakes property managers make when trying to determine who the competition is.

Assuming neighboring properties are comps.

For sure, nearby communities – say, those within a one-mile radius – have a strong chance of being a competitor, but that’s not always the case.

Perhaps your community is a Class B asset, and the one down the street is a Class A or a Class C. Those may not be a comp. But the Class C across the street that is doing some value-add renovations, well, they may be another story. Visibility into property specifics like units, amenities and renovations can really help better determine what neighboring properties you really should be watching.

Assuming that communities with the same floorplan types are comps.

It’s tempting to assume that a nearby community in the same asset class as yours is definitely a comp if it offers the same floorplans as yours. But operators need to be more discerning than that.

For instance, say that nearby community’s one-bedroom units are only 450 square feet and yours are 900 square feet. A significant discrepancy between the size of your two-bedroom homes and theirs also exists. Should this property really be included in your comp set?

Not adjusting your comp set based on your community’s current situation.

Imagine that all of the one-bedroom units in your community are leased and occupied for the next half year. You have no upcoming exposure among this floorplan. However, occupancy is lagging among your two-bedroom units.

In this instance, you should adjust your comp set to make sure you’re paying the most attention to communities with similarly sized two-bedroom homes.

Assuming comp properties stay static.

Market dynamics today are fluid. Properties that might have not been comps can suddenly compete against your property. Say they renovated and do major upgrades to the community and interior units. Sometimes properties can compete for a specific period of time until they stabilize. This is especially the case with brand new lease-ups. For example, if your property is a Class A- and generally does not compete on price or product with brand new lease-up properties. However, these lease-up properties frequently offer high concessions in order to lease up as quickly as possible. They may take traffic and leases from your property that ordinarily would not be the case. This can last a few month or longer until they stabilize and concessions are phased out.

Get your comp set right by using as much information as possible. And periodically evaluate if all your properties on your market survey are truly comps. Don’t just settle for the old ways of doing things. Push your team to find new solutions and the right solutions for gathering data about potential comps. As business intelligence grows, your ability to better evaluate your competition will grow as well.

Make it as easy and automated as possible for other properties to consistently provide information. Pricing, floorplans, finish levels and amenities data can allow your team to make a rock-solid decision about whether those properties are truly competitors.

To make sure your community is performing optimally is to understand exactly who the competing communities are. And how they compete in terms of rental rates and occupancy. Determining exact competitors may take some digging and some new approaches, but the efforts will be more than worth it.

Rental Data Delays Are Not OK

Life moves pretty fast.” So said the wise philosopher Ferris Bueller in the 1986 classic movie.

I can’t help but think of that line sometimes when thinking about apartment rental rates. They move pretty fast, too. In fact, they’re changing on an almost daily basis.

To make the most effective decisions regarding pricing and concessions, apartment communities need access to real-time rental rate data, or something extremely close to it.

The problem is, though, many operators are relying on data that – especially in the lightning-fast world we live in now – seems downright out of date.

Delayed Data

Operators rely on a number of data points when trying to determine how rates for their communities compare to the competition. These data points include everything from market rent, concessions (upfront and/or amortized) for each unit type, occupancy and leased percentage, traffic and leases, amenities, etc.

Similarly, and to help ease the process of gathering all these data points, operators sometimes turn to market surveys compiled by third-party research organizations. These surveys are usually conducted at the market level and then a regression analysis is performed to determine submarket data. While this methodology seems to offer the most robust and logical look at how an entire market or metro is performing there are two key areas of concern: 1) the survey data is, in the best-case scenario, 30 days old and 2) the surveys don’t provide true insight into the surrounding submarket, let alone at the property/comp level.

It is also a common practice for research firms to collect market data through a variety of tactics including ILS scraping and cold calling properties within a market. These practices can result in erroneous data sets due to inaccurate ILS listings and timing needed to conduct property calls.

Onsite Team Efforts

In an effort to combat the potential pitfalls of third-party market surveys, communities also leverage onsite associates to research rental rates and vacancy data for competing properties. This manual process is also problematic. First, it can take awhile for associates to actually get in contact with someone who will give them the information. Furthermore, there is an assumption that the person on the phone is providing the most accurate information – which unfortunately is not always the case.

Also, overextended associates are understandably prone to human error when gathering this data and inputting it manually into market survey spreadsheets. Finally, by the time rental rate information has been gathered and the resulting spreadsheets have been compiled and passed, the data within the spreadsheets is often out of date.

Put simply, the methodologies used to collect and manage comp data in the multifamily industry today are seriously flawed. So the result is poor pricing and management decisions that cost millions if not billions of dollars in revenue.

The Benefits of Real Time

Furthermore, it’s time for operators to commit themselves to put automated processes in place that allow them to gather and analyze real-time rental data about the submarkets in which their communities are located.  

When they have access to this type of data, they develop a true understanding of how their properties are actually competing within their submarkets. As a result, they can make effective, relevant decisions about pricing that reflect where their competitive set truly is at that point in time. In short, they can be sure that their pricing is never too high – or too low.