on airline pricing
High-tech systems push lease rates to new altitudes
The same pricing system that frustrates airline passengers is now coming to an apartment building near you. An increasing number of city landlords are using powerful computer software by such companies as Yieldstar to set rental rates, much as airlines manipulate seat pricing. A prospective renter can view a $2,400 studio one day and return the next day to find the price is $2,600.
The systems are complex and can be customized to each landlord’s specifications. But in their most basic form, landlords input information about the apartment, the chacteristics of the building, the number of apartments left and comparable rents in the neighborhood. Then the machine spits out a number.
The system helps landlords maximize profits even as it risks maximizing renter frustration.
“It’s definitely hard for a client to understand why a rent would change so quickly,” said Anna Zarro, a broker with Town Residential. “It cuts away at the trust you have in a landlord when it feels mechanized and you can’t rely on the first number you’re being given.”
The software uses a range of market statistics, including seasonal trends, leasing velocity and supply, as well as an apartment’s particular traits, to come up with the optimal asking price for a unit, sometimes down to the cent.
And if it’s June and a landlord will get a better price for a particular unit in September, the system suggests a three-month lease for the next prospective tenant who walks through the door.
The model is becoming more popular in New York because of an influx of national real estate investment trusts and institutional investors buying up apartments in the city. These companies have been using such revenue-management systems across the country and now are bringing them to the Big Apple.
Yieldstar is working with huge landlords such as LaSalle, J.P. Morgan and Invesco as it expands holdings in New York, a company spokesman said.
Overall, Yieldstar is used to help generate rents for 1.4 million units in the U.S. and Canada.
it’s hard for a client to understand why a rent would change
so quickly.
For landlords, the company touts increases of up to 7% in revenue.
“Each unit has a specific price as far as what floor it’s on, what the views are and whether it was recently upgraded,” said REIT analyst Alexander Goldfarb of investment banking firm Sander O’Neill + Partners, who tracks some landlords using these systems. “All the units have upcharges that apply on top of the base price.”
The fluctuation in price creates a sense of urgency and can lock in deals quickly for the landlord. But urgency can be a turnoff for renters, who don’t like to feel rushed on making a decision, brokers said.
“Sometimes it feels like forced pressure,” Zarro said.