Yield management is a go: yield management software is now suitable for portfolios of all sizes. At one community, it helped to accelerate rents by 20 percent.

Rental lifts. Flexible pricing. Fast turnover rates. Add those to the list of reasons a new yield management technology is causing excitement industry wide.

Yield management--the ability to set pricing based on daily market conditions--is receiving impressive reviews across the country. Users are reporting steady increases in revenues and rental prices. It is also rapidly changing workplace culture, apartment executives said.

"Under the system, we can offer virtually any combination of lease terms and movein dates that prospective residents desire," said John Ghio, Senior Vice President of Finance and Asset Management for Prometheus Real Estate, which owns 9,000 apartments in the West and is the largest private owner of apartments in the San Francisco Bay Area.

"That is huge," Ghio said. "Flexible lease terms have given us the ability to use short-term leases to help drive revenue growth. We are offering flexible lease terms to our prospects that are contributing to better revenue days."

Revenue in the Fast Lane

Hospitality, airline and other industries have long used the technology to achieve revenue increases of as much as 8 percent, according to revenue management experts.

After years of research and much debate over the accuracy of market data, yield management software entered the apartment market a few years ago. At first, only large apartment companies invested in the technology. Today, medium- and smaller-sized companies are lining up for revenue management systems.

About 34 multifamily operators representing 2,727 communities are using, testing or on the waiting list for the technology, according to the software providers, including Douglas Allred, AvalonBay, BRE, Colonial Properties Trust, Home Properties, Grand Peaks, Mid-America Apartment Communities, Morgan Properties, Nolan Real Estate, Skyline Property Management, United Dominion Realty Trust, Windsor Property Management and Western National Property Management.

They attribute increases of 1.5 percent to 2.5 percent in gross revenues annually to yield management. For some, that amounts to millions of dollars quarterly in additional revenue. Communities report rent lifts averaging between 4 percent to 6 percent.

Tom Wilkes, President of Post Apartment Management, which owns 12,872 apartments in 62 communities, said he quickly was sold on the software after watching rents lift 20 percent at key locations, including Atlanta; Charlotte, N.C.; Dallas; Tampa Bay, Fla.; and Virginia, during the pilot phase.

"The pilot showed that we missed significant revenue opportunities every day we operated without the system," said Wilkes, who expanded the technology company wide after only three weeks in pilot. "We also discovered that the benefits of automated revenue management extended beyond the lift in rates. The system enabled us to make more objective, consistent pricing decisions."

Speed Bumps and Surprise Turns

Benefits outweigh any bumps or challenges during startup, management companies using the software said. They reported fewer vacant days, increased revenues from higher rents for shorter leases and more free time for employees to focus on customer service.

Todd Pope, President of Simpson Property Group LP, Housing, which owns 24,000 apartment homes in 14 states, was surprised when income streams stabilized after six months during a pilot of the software at a community in Scottsdale, Ariz.

"While the non-yield management software communities had extreme spikes from month to month, the yield management communities had steady growth and income and a much more stable income stream," Pope said.

Other executives were surprised when renewal conversions did not drop dramatically when higher renewal rates were offered. Camden Property Trust saw a 53 percent renewal rate after increasing the price per renewal $200 to $300 at its first pilot community in Houston.

Employee Sticker Shock 

Initially, many employees were nervous. One of Simpson Property Group's veteran managers called her boss ill a panic when the system recommended substantial increases for an East Coast community.

"She told her to give it a try and within one week, the manager had rented 10 apartment homes at the new rate," Pope said. "She became an advocate overnight."

Sensitivity to employees and residents is crucial during the transition to yield management, said several company officials who spent months preparing them.

"It's a new concept and change management is a real aspect of it," said Ghio, who has an employee monitor the system full time. "We made sure that there was a lot of dialogue and communication with the operation team and made sure that everyone's opinion was valued. Inputs were welcomed beforehand."

This dialogue is ongoing, Ghio said. Every community continues to discuss pricing strategy at least two times per week. The central pricing authority at Prometheus has ultimate responsibility for pricing decisions.

Overall, employees have adjusted, company executives said. The software is easy to use. Alerts and thresholds can be built in to monitor occasional quirks.

Some employees are glad to be relieved of the pricing burden. Gone are the days of pouring over pages of computer printouts to set pricing. Traditional benchmarks for pricing--including gut instinct and negotiation--are disappearing. Now, it is a more disciplined, objective process.

Residents have more choices. They can request any move-in date or lease length.

Most companies pilot the program first with lead employees. Once fully deployed, they continue to monitor the software carefully to ensure as consistent a pricing experience for the prospect as possible.

Costs range from $1.50 to $4 per unit per month depending on the software and method of operation. Fees vary based on the number of apartment communities, the number of apartment homes in each community and whether the software is licensed or hosted by the vendor.

Service providers collect timely data from a variety of sources to set pricing, including property management systems, guest cards, competitor's pricing, seasonality and traffic. They use research data on past, present and projected apartment market fundamentals.

Driving Prices Too High?

While heralded by many, there still is concern that yield management will drive prices too high, too quickly. Some insiders question whether it can adapt quickly to rapid shifts in the market.

Proponents brush off concerns, swing there are levers in the software that adjust to sharp turns in markets. Revenue management operates at an individual community level because pricing is specific to the unique supply and demand characteristics of each neighborhood. Eventually, it will create more intelligent, realistic pricing across the board, they said.

Meanwhile, customers are clamoring for more business intelligence.

"I think the next step would be to expand on the competitor piece and make it more usable from a new development standpoint, to make decisions on whether we should buy, sell or build," said Regin Noel, Director of Business Services for Camden Property Trust. "In the future, I'd like to see the market analyzer tool give a more analytical view of con> petitors in the marketplace for decision making purposes."

No More Mixed Signals

Yield management uses forecasting models and other tools to automatically adjust or "optimize" rental prices to maximize revenues and still attract paying residents.

Also called revenue management, the software analyzes daily market conditions to make rental price recommendations. Customers are provided with an unlimited number of prices for any given move-in date, apartment home and lease duration.

"It is changing the mindset among all employees. Employees have more sales options with this system. They no longer are limited to offering six- or 12-month leases."

--Regin Noel, Director of Business Services, Candem Property Trust

Standard Features

Yield management can provide tools including:

* Supply and demand forecasts

* Price adjustments based on amenities, lease terms and move-in dates

* Rent summary, availability and rent matrix reports

* Data on fluctuating seasonality effects and recent demand levels

* Separate calculations for renewal-demand and new-demand

* Early termination adjustments for skips, evictions and other lease breaks.

Traffic Control

Apartment owners and managers report positive outcomes with yield management:

Camden Property Trust. This REIT was one of the first to roll out yield management software across its 63,843 apartment homes in December 2005. The software added 1 percent to 2 percent to net operating income. That increase amounted to an additional $6 million in its first quarter of full deployment. It also saw the number of turn-around days drop to five from seven.

Post Properties. With more than 21,872 apartment homes in 62 communities, Post saw its rental rates lift as high as 20 percent in several locations after implementing yield management on a pilot basis recently.

Prometheus Real Estate Group. The company owns more than 9,000 communities in the West and is the largest private owner of apartments in the San Francisco-Bay Area. Prometheus has had success with yield management to rent infill and high-barrier-to-entry apartments.

Simpson Property Group LP. Owner of more than 24,000 apartments in 14 states, Simpson saw income streams stabilize six months into the pilot phase. It showed increases in net revenue collections of approximately 2.5 percent in the first year.

Victoria Harker is a freelance writer who lives in Phoenix.