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National Multifamily Index (NMI)
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Families are facing much bigger rent checks this year -- especially those living in cities in the South and West.
Rent prices have been rising across the country, but rents for single-family homes in these two parts of the country increased the most in the last year, according to a report from RentRange.
"The biggest increases were in the areas where the [housing] market was most depressed," said CEO Wally Charnoff.
The steepest rent hikes were in Cape Coral/Fort Myers, Florida, with the average rent increasing nearly 24% in the third quarter, compared to the same time last year. In Sacramento, rents went up almost 18%.
Seven of the top 10 cities with the largest rent increases were in Florida and California.
Strong job growth, increased foreign buyer activity and a growing Millennial population has helped push rents up in California, Charnoff explained.
"Millennials want to remain mobile and don't know if they have economic stability yet. They may have to move relatively quickly and they've learned from the recent past that you can't necessarily sell your home as easily as you used to."
While sharp rent increases can be tough on budgets, Charnoff said markets are just catching up from the Great Recession.
"Rents were artificially depressed in those markets and are normalizing."
He said homes undergoing a foreclosure were harder to rent out and often charged lower rates. Now, as more properties move through the system, investors can charge higher rents.
People living in bedroom communities are also likely writing bigger monthly checks. "As cities start to expand further and workers move their families farther from cities, that is driving prices up."
Here are the 25 cities with the largest rental increases, according to RentRange:
1. Cape Coral-Fort Myers, FL (23.6%)
2. Sacramento-Arden-Arcade-Roseville, CA (17.6%)
3. North Port-Bradenton-Sarasota, FL (17.2%)
4. San Francisco-Oakland-Fremont, CA (17.0%)
5. Charleston-North Charleston, SC (16.5%)
6. Los Angeles-Long Beach-Santa Ana, CA (16.3%)
7. San Jose-Sunnyvale-Santa Clara, CA (16.1%)
8. Denver-Aurora, CO (14.6%)
9. Dallas-Fort Worth-Arlington, TX (14.0%)
10. San Diego-Carlsbad-San Marcos, CA (13.6%)
11. Nashville-Davidson-Murfreesboro-Franklin, TN (13.2%)
12. Portland-Vancouver-Hillsboro, OR-WA (12.6%)
13. Augusta-Richmond County, GA-SC (12.3%)
14. Stockton, CA (12.1%)
15. Seattle-Tacoma-Bellevue, WA (11.9%)
16. Columbus, OH (11.5%)
17. Tulsa, OK (11.3%)
18. Kansas City, MO-KS (10.6%)
19. Little Rock-North Little Rock-Conway, AR (10.4%)
20. Tampa-St. Petersburg-Clearwater, FL (10.3%)
21. Orlando-Kissimmee-Sanford, FL (10.0%)
22. Oxnard-Thousand Oaks-Ventura, CA (10.0%)
23. Birmingham-Hoover, AL (9.8%)
24. Bakersfield-Delano, CA (9.7%)
25. Houston-Sugar Land-Baytown, TX (9.6%)
In our annual overall Best Places to Live list, many of the cities are a little on the pricey side. We get it. Not everyone can afford to live in a place like Palo Alto or Berkeley. They're great places but not for everyone. Therefore, we felt it was important to look at places that are more affordable. What follows isn’t merely a list of the cheapest places to live in America. We didn’t set out to find cities where you can live on the bare minimum. Instead, these 10 cities are less expensive than most but still great places to live by all of our usual metrics.
To find these cities, we looked at cost of living across a number of categories such health care, food, housing, and transportation using data from C2ER and the U.S. Department of Housing and Urban Development. We also examined the tax climate in the state. Then we factored in our own unique LivScore. We selected one city per state to give us some geographic balance because much of the cost-of-living data is calculated at the county level.
Sure, there are some cheaper places to live. But these are cities where most people can afford to live and would still want to live.
More than 220,000 new units were added during 2014 and another 250,000 units are projected for delivery in 2015, according to CoStar Portfolio Strategy's Francis Yuen, one of the presenters during the recent CoStar Third Quarter 2014 Multifamily Review and Outlook.
"At this point in the cycle, we’ve seen supply take hold almost everywhere," Yuen said. "Some late-recovery markets like Las Vegas aren’t yet seeing vacancy increases yet, but even there, developers are beginning to find opportunities."
Dallas, Washington, D.C. and Houston have each seen more than 10,000 units delivered over past four quarters, while apartment inventories in smaller markets like Charlotte and Raleigh have increased by nearly 5% as apartment construction fans out. Denver and Houston, each with upwards of 20,000 units under construction, will see record deliveries over the next two years, Yuen added. In the Oakland/East Bay Area, for example, the average income has risen by about 15% to over $75,000 in the strengthening economy. However, rents have grown by a staggering 30% over the same period and now require more than 25% of annual income, Yuen said.
"Lack of affordability is certainly something we are beginning to see capping rent growth, especially at the high end of the market," Yuen said.
Year-over-year growth in effective rents, which has gradually decelerated since 2013, is expected to drift below 2% in tertiary and secondary as well as the top U.S. markets during 2015 and 2016.
CALABASAS, CA—Two of the prime beneficiaries of a rallying economy have been apartments and the industrial sector, says Marcus & Millichap in a new report. In the case of multifamily, it’s due to improving employment levels among the age cohort most likely to rent.
“More than two-thirds of individuals ages 20 to 34 rent apartments, and the employment market for this group continues to improve,” writes Hessam Nadji, chief strategy officer/SVP at MMI, in the firm’s latest Research Brief. “Following a drop last month, the unemployment rate for 20- to 34-year-olds sits at 7.5%, down from more than 12% four years ago when the US economy started adding jobs.”
Accordingly, MMI foresees that new tenants will emerge as additional individuals enter the workforce in the months ahead, thereby continuing to exert downward pressure on the vacancy rate. By year’s end, the apartment vacancy rate nationally will decline 30 basis points to 4.7%.
As for industrial, MMI notes that movement of goods from US ports to manufacturers, retailers and distributors supports a significant increase in transportation and warehouse staffing. “Including the addition of 13,300 positions in October, more than 100,000 workers have been hired year to date to handle the stocking and movement of goods,” according to Nadji. “New space needs are also arising in warehouse and distribution properties, keeping the national industrial vacancy rate on course to fall 100 bps this year to 7.1%.”
Yet there’s a potential downside to the economic upturn, in the form of interest rate increases, especially since the Federal Reserve ended its six-year program of quantitative easing. “Inflation pressures have been tame thus far, but should inflationary pressures rise, including wages, the Fed may begin to take action,” Nadji observes.
Payrolls gains in October totaled 214,000 for non-farm employment, marking the ninth consecutive month of gains exceeding 200,000 jobs. As reported on GlobeSt.com last week, the largest number of new jobs for the month, 42,000, occurred in the food services and drinking places sector, which has averaged 26,000 new jobs per month over the past year. Retail added 27,100 positions during October as stores geared up for the holiday selling season.
Professional and business services employment continued trending upward, although the 37,000 new jobs added in October for these key office-using employment sectors were well below the 12-month average of 56,000. And despite falling gas prices, the energy sector has not stopped hiring, adding 2,500 workers last month.
Although unemployment dipped again last month, to 5.8%, the Research Brief notes that “significant wage gains have yet to accompany the reduction in slack.” Hourly earnings rose “nominally” in October, and have barely exceeded the pace of inflation over the past year. READ ARTICLE
Source: MBAWASHINGTON, D.C. — Third-quarter 2014 commercial and multifamily mortgage loan originations were 16 percent higher than during the same period last year and 18 percent higher than the second quarter of 2014, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
Commercial real estate borrowing and lending continued at a strong clip in the third quarter,” says Jamie Woodwell, MBA’s vice president of commercial real estate research. “Low [interest] rates coupled with growth in property incomes, property values and sales transactions have pushed year-to-date commercial and multifamily mortgage originations five percent above last year’s pace.
Industrial, Multifamily Sectors Lead the Way The 16 percent overall increase in commercial/multifamily lending volumes, when compared to the third quarter of 2013, was driven by an increase in originations for industrial and multifamily properties.
The increase included a 41 percent increase in the dollar volume of loans for multifamily properties, a 22 percent increase for industrial properties, an 11 percent increase for office properties, an 11 percent increase for retail properties, a 4 percent increase in hotel property loans, and a 43 percent decrease in healthcare property loans.
Among investor types, the dollar volume of loans originated for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac increased by 118 percent from last year’s third quarter. There was a 47 percent increase for CMBS loans, a 1 percent increase for life insurance company loans, and a 16 percent decrease in dollar volume for commercial bank portfolio loans.
Q3 Versus Q2 Comparison Third-quarter 2014 commercial and multifamily mortgage originations were 18 percent higher than in the second quarter. Compared to the second quarter of 2014, third-quarter originations for office properties increased 43 percent. There was a 31 percent increase in originations for multifamily properties, a 19 percent increase for industrial properties, a 7 percent increase for retail properties, an 11 percent decrease for hotel properties, and a 24 percent decrease for healthcare properties from the second quarter.
Among investor types, between the second and third quarters of 2014, the dollar volume of loans for GSEs increased 57 percent, loans for CMBS increased 10 percent, originations for life insurance companies increased 9 percent, and loans for commercial bank portfolios decreased by 7 percent. READ FULL ARTICLE
With major technology companies such as Google, Microsoft, Apple, Twitter and Facebook continuing to expand their presence in the city along with numerous support firms and vendors such as eBay, the plethora of high-paying jobs translates into one of the lowest vacancy rates in the country despite an increase in completions. As for the lower-tier apartment demand, Marcus & Millichap predicts that this niche will be supported by the increased number of visitors, both tourists and business travelers, which is creating plenty of jobs in the food services and hospitality industry, especially in Manhattan and Brooklyn.
Based on Zillow's breakeven horizon - the number of years it takes before owning a home makes more financial sense than renting the same home - here are the top 15 cities where renting rules.
READ THE FULL ARTICLE HERE
Here are a few useful tips for tracking your competition online:
Identify your competition. Back in the day business owners were just competing with local companies or products, but now the entire world is your competitive oyster. Search on Google and media lists to find the leading companies within your industry. Study those at the top, in the middle and the bottom to draw relevant conclusions and see where you fit in.
Keep your enemies close. As the saying goes, "Keep your friends close, but your enemies closer." One way to track your competition is by following them on various social-media platforms like Twitter and Facebook. Use social media metrics such as Simply Measured, which allows you to track engaged users that aren't followers yet, monitor your competition's following, and use Klout to put your influence in context and allow you to track general audience engagement.
Another option is to subscribe to their newsletters, blogs or RSS feeds to keep track of their every move.
Read the reviews and news. Add a few industry specific blogs to your morning reading or RSS feed. Keep yourself educated and up to date with what's happening in your business sector. Have a look at what business analysts are saying about your field or even particular companies. This way you will understand what is newsworthy and just how far ahead your competition is.
Also customer reviews will give you an in-depth look at what the public is thinking. Don't take all these comments and reviews to heart, though. Some companies might even pay for positive reviews or eliminate any bad publicity. If you do, however, see a trend within the negative comments this might give you a glimpse into their struggles and weaknesses. Use an online tool such as SocialMention to get a clear indication of the conversation and engagement happening with a particular brand by reviewing their comments on images, posts and updates.
Use hashtag searches. When it comes to the online sphere it's all about knowing what the latest conversation is about. Companies that are serious about their online presence will mostly likely have hashtag statements accompanying their tweets, statuses or Google+ updates. See what your competition is talking about by searching the hashtag terms relevant to that company.
Analyze their website. If your competition has a website of with a page rank of five or higher they are probably doing something right. A website's Page Rank rating refers to the value Google's algorithm sees in your website and content. Dissect their website and blog to understand what sets them apart. Take a look at the call to action buttons, where are they placed? What type of content are they sharing and how is this relevant to your industry? What does the web design look like and why is it user-friendly?
This might show you that it's time to update your general branding or start a blog that helps you share your expertise. If you want to check any website or blogs' Page Rank do so by downloading the Chrome extension, PageRank Status - this will show you the PR of every site that you visit.
That said, Google's algorithm is changing so quickly that these page ranks are not the full story. So take the findings with a grain of salt.
Ask the audience. This might sound rather counter-productive to discuss your competition with your followers, but they might just give you the revelatory insight that you need. If you have a few loyal clients or customers ask them if they would be open to a discussion. Inquire why they prefer your brand and why they think others choose your competitor instead.
Your following will be able to share a different perspective and insight that might give you that added edge when it comes to staying at the top.
New York City tops a new list, which may be good news or bad news depending on whether you're a landlord or renter sympathizer. With Manhattan rents plateauing and the cost of buying growing ever higher, perhaps this latest RealtyTrac listicle shouldn't come as a surprise. Manhattan, Brooklyn and Queens nabbed spots in the roundup of the worst U.S. counties for rental returns, a.k.a the worst places for landlords. In Manhattan, where the population is 1,596,735, there are 846,819 housing units, and the median sales price is $887,000. The average fair-market rent for a three-bedroom home, though, is $1,852/month (which seems low, but that's what the stats show), making the annual gross yield percentage for the landlord a mere 3 percent.
Not far behind is Brooklyn, where the population is 2,512,740 and there are 998,773 housing units, the median sales price is a more affordable $573,000. The average fair-market rent for a three-bedroom home is consistent with Manhattan's, at $1,852/month, which means the annual gross yield percentage for the landlord is 4 percent. Still not great.
As for Queens, it ranks 16th on the list of worst places for rental returns. A population of 2,235,008, coupled with 836,722 housing units, an even lower median sales price of $445,000, and the same average rent figure of $1,852, all leads to a 5 percent annual gross yield percentage.
Contrast those figures with the 16 best U.S. cities for rental returns, below, where the yield ranges from 18 to a whopping 30 percent.
RealtyTrac also made a zoomable heat map, which is handy for spotting clusters of bad-return-rate and good-return-rate cities. The coasts aren't good for landlords, whereas the Midwest seems a haven by comparison. A screenshot is pictured, but head here for the interactive version. READ ARTICLE
New pieces of research separately released by Experian Marketing Services and the Festival of Media Global shed some light on the concentration of search click activity, with some intriguing results. Based on an analysis of activity on PCs only, Experian’s latest Digital Marketer Report [download page] suggest that clicks are more highly concentrated for organic than paid search, though AdGooroo data indicates that the vast majority of paid search activity is in fact concentrated in the hands of a small group of advertisers.
Looking first at Experian’s findings, the data reveals that:
That suggests that for the most part, concentration of search clicks has remained unchanged over the past year or so.
Narrowing the analysis to the top 5 websites, Experian reveals that collectively they captured roughly 1 in 5 clicks in Q4 2013, with some variation from the year earlier:
The National Association of Home Builders found that developer confidence slipped in the fourth quarter of 2013, citing a four-point drop to 50 in its Multifamily Production Index (MPI). There was, however, a two-point drop to 38 in NAHB’s Multifamily Vacancy Index (MVI), with lower numbers indicating fewer vacancies. Both indices are based on a scale of 0 to 100, with the MPI measuring builder and developer sentiment about current conditions in the apartment and condo markets and the MVI measuring the multifamily industry’s perception of vacancies at Class A, B and C communities.
The MPI, which takes into account three factors — the number of low-rent starts, market rent starts and for-sale starts — dropped from a high of 61 in Q2 of 2013, its highest point since the recession, but despite the recent dip, the MPI has remained above 50 for eight straight quarters. The strongest component of the MPI is the market-rent starts, which has remained above 60 since Q3 2011. That element finished at 60 after sliding from a 2013 high of 67 in Q2 2013 and post-recession highs of 69 in Q1 and Q3 of 2012. The other two elements, low-rent starts and for-sale starts fell to 47 and 46, respectively.
“This quarter’s MPI results are in line with NAHB’s forecast that calls for increased production of new apartments in 2014, but at a slower pace than last year,” says NAHB Chief Economist David Crowe. “The results are also in line with recent downturns in other economic indicators, due to unusually severe weather in parts of the country that disrupted supply chains and affected confidence in several sectors of the economy.”
The MVI’s two-point drop in Q3 continues to reflect the low level of vacancy across the country. The MVI reached its peak in Q2 of 2009 at 70 and reached its lowest point since then in Q1 and Q4 2012 at 31. The MVI has somewhat stabilized since 2011 and has averaged (mean) about a 36 from Q1 2012 through Q4 2013.
“Multifamily developers are still seeing demand for apartments as the MVI shows,” says W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “However, the cost and availability of labor is putting pressure on the ability to bring new units online.” READ ARTICLE
Nashville's supply of new apartment units is expected to drastically increase in 2014, with 4,190 units expected to come online, according to a new fourth quarter report from Colliers International.
The multifamily market ended 2013 with an additional supply of 2,464 units. Nashville's occupancy in the fourth quarter was at its highest level since the third quarter of 2007, at 96 percent. That's above the Southern region's average of 94 percent, the report says. READ ARTICLE
Manhattan apartment rents fell for a third month in November and the vacancy rate reached the highest in at least seven years, signs the market is weakening amid a spike in homebuying and the lure of leasing in Brooklyn.
The median monthly rent in Manhattan dropped 3 percent from a year earlier to $3,100, according to a report today by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The vacancy rate climbed to 2.8 percent, the highest since the firms began tracking the data in August 2006.
Rents had been climbing for almost two years and approaching the 2006 peak of $3,265 a month before they began to slide in September. Manhattan home purchases jumped to a six-year high in the third quarter as buyers rushed to make deals before rising mortgage rates pushed costs higher, Miller Samuel and Douglas Elliman said. Sales of one-bedroom units reached a 15-year high, suggesting an influx of first-time buyers. READ ARTICLE
U.S. multi-housing rents are expected to grow approximately 2.5 percent each year for the next three years, even as the level of new construction increases, according to a report from CBRE.
The report shows that the pace of new multi-family construction in the U.S. will level off at approximately 216,000 units per year over the next five years, a figure slightly higher than historical averages. READ ARTICLE.
People are living longer than ever. Nearly 80% of the population now lives past the age of 65. What does that have to do with apartments? Well, we spend so much time talking about Millennials and trying to figure out what their needs and desires are that we have sort of ignored this huge opportunity with the Silent generation.
Who is the Silent generation? They were born between 1925 and 1945. This generation is also known as Traditionalists and children of the Great Depression. Because of what they experienced as young children, they have a very strong military connection. They are patriotic, and in their minds conformity leads to success. READ ARTICLE
The U.S. economy created 203,000 jobs in November, according to the Bureau of Labor Statistics on Friday, roughly the same as in October, and a bit more than expected. Employment increased in transportation and warehousing, health care and manufacturing, while federal government employment declined somewhat. The official unemployment rate dropped to 7 percent.
Job growth has averaged 195,000 per month over the previous 12 months, so the current report is also a little above the norm. The change in payroll employment for September was revised from 163,000 to 175,000, and the change for October was revised from 204,000 to 200,000. READ ARTICLE.
WASHINGTON (AP) - U.S. developers received approval in October to build apartments at the fastest pace in five years, a trend that could boost economic growth in the final three months of the year. Permits to build houses and apartments were approved at a seasonally adjusted annual rate of 1.034 million, the Commerce Department said Tuesday. That's 6.2 percent higher than the September rate of 974,000 and the fastest since June 2008, just before the peak of the financial crisis. Click LINK to read rest of article.
Please plan to come by for a visit or a brief demo. We are easy to find: walk straight through the Exhibit Hall and bear right to the corner: we are at Booth 143, across from Grace Hill and ResMan: see floor map by clicking MAP. You can schedule a demo today and reserve a time by clicking DEMO. #NMHCTech #Spherexx.com #RentPush #ILoveLeasing #MarketSurveyTools #Apartmentwebs
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By Dees Stribling
U.S. residential prices continued their upward climb in May, according to the latest S&P/Case-Shiller Home Price Indices on Tuesday. From April to May, the 10- and 20-city composites rose 2.6 percent and 2.5 percent, respectively. Home prices gained 11.8 percent and 12.2 percent for the 10- and 20-city composites indices in the 12 months ending in May 2013.
All 20 cities showed positive monthly returns for May. Ten cities—Chicago, Denver, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Seattle and Tampa—showed acceleration, according to Case-Shiller. Chicago, for example, posted an impressive monthly gain of 3.7 percent in May. Miami and Seattle had their largest monthly gains since August 2005 and April 1990, respectively. READ FULL ARTICLE
By Brad Doremus and Victor Calanog
In our last column on the multifamily sector, we noted that improvements in the apartment sector slowed a bit in the first quarter. Preliminary second quarter data from Reis indicates a decline in the rate of net absorption and a stalling of declines in vacancy. While this seems to show a continuation of this trend into the second quarter, the reality is more of a mixed bag.
Vacancy was unchanged during the first quarter at 4.3 percent. This marks the first time that the quarterly vacancy rate has not fallen since the first quarter of 2010. Over the last four quarters national vacancies have declined by 50 basis points, a bit slower than last quarter's year-over-year decline in vacancy of 70 basis points. FULL ARTICLE
By Dees Stribling, Contributing Editor
“Rising home prices have swept the country,” Jed Kolko, Trulia’s chief economist, noted in a press statement. “Local markets that suffered most during the housing crisis are seeing the biggest price rebounds today. Now even markets that escaped the worst of the bust, like Chicago and Baltimore, are seeing prices climb. However, these runaway price gains won’t last: both rising mortgage rates and slowly growing inventories should start tapping the brakes on home prices.” FULL ARTICLE
Another measure of the U.S. residential market, coming on the heels of strong Case-Shiller numbers last week, came in positive on Tuesday. According to CoreLogic, home prices nationwide, including distressed sales, increased 12.2 percent in May compared to the same month in 2012. That's the largest annual increase since February 2006, and the 15th month in a row in which home prices were up nationally, by the company's calculation. Month-over-month, the increase was 2.6 percent. READ ARTICLE
By Maria Lawson
I had heard about this ‘shopping the competition’ thing from friends in the industry, but I had just chalked it up to simply spying on the competition with no real understanding of the benefits.
I have shopped thousands of apartment communities in one manner or another. In doing so, I learned many lessons, not the least of which is that there are three distinct levels of shopping your competition and the best results come from using all of them together.
Let’s review the 3 O’s of shopping your competition...Click for FULL ARTICLE
So I thought it would be a good idea to get a sense of exactly how important ratings sites are. The first step I took was to dig up some research I had done for a client back in February. In it I wanted to identify whether there was a clear "category killer" or whether multiple ratings sites were important. In an admittedly un-scientific way, I just looked at 10 communities in the Washington, DC market. TO READ ARTICLE CLICK HERE.
Customers prefer options, especially in today’s world where they face a plethora of choices regarding who, when, what, and how to patronize a business. Contemplate these examples:
We simply must get over the false idea that there is one optimal price for a customer. There is a range of optimal prices, commensurate with the value being created. Dutch psychologist Peter van Westendorp developed the van Westendorp Price Sensitivity Meter (PSM) by posing these five questions:
There is strong empirical evidence-from both the rational and behavioral schools of economics-that offering customers at least three options can often times result in them purchasing more, at a higher price, than merely offering one take-it or leave-it option.
In his book, Predictably Irrational, behavioral economist Dan Ariely illustrates the utility of offering options by illustrating The Economist magazine’s offerings. First, he presented the following two options to 100 students at MIT’s Sloan School of Management:
Now compare those results to the actual ad that The Economist offered, which contained three options, not two:
Ariely concludes that there is nothing rational about this change in choices. The mere presence of an option that was not desired—known as the decoy or dominated option—affected behavior, leading to a potential 42.8% increase in incremental revenue for The Economist.
When two options are presented, the decision is mostly made on price, yet when three options are offered it becomes a decision based on value.
Offering options creates the anchoring effect, whereby the customer is now comparing prices to your highest offering. This is why Victoria’s Secret offers a diamond ornamented bra for $6.5 million that no one probably ever bought; and Prada stores always display one incredibly high-priced article that acts as an anchor for all the other products.
All of these high priced items act as an anchor, even if the customer never buys them—throwing a halo effect over the other offerings, allowing for prices to be higher, while increasing average per customer sales.
The first lesson from the above is if you do not offer a high-end premium package, how could you customers ever select one? Second, list your most expensive option first. The third lesson is that by offering three options, you almost always sell more of the middle option, and less of the cheapest offering.
This confirms what most pricing experts know: people are not price sensitive; they are value conscious.
Another behavioral phenomenon is the framing effect. What you compare something to will determine an acceptable price to pay. If I offered to sell you my Unicorn, you’d have no idea what to pay since no one has ever purchased one. But you’re happy to pay for coffee in little pods—which are more expensive than coffee purchased in bulk—because you are comparing it to Starbucks.
This is why brands pay so much attention to what you’re comparing their offerings to: Red Bull is packaged in a skinny can so it will not be compared to a Coke or Pepsi, and Woolite is in a bottle so it’s not compared with Tide, but rather dry cleaning.
When you present three options to the customer, you are also subtly changing their psychology. Rather than thinking about whether or not they will do business with your company, the options nudge them in the direction of thinking about how they are going to do business with your company.
If one were to lay the two theories of valuelabor and subjectiveside by side, it would look like this:
Cost-Plus PricingLabor Theory of Value
Product » Cost » Price » Value » Customers
Pricing On PurposeSubjective Theory of Value
Customers » Value » Price » Cost » Product
Notice how value pricing turns the order of cost-plus pricing inside-out, by starting with the ultimate arbiter of valuethe customer. Goods and services do not magically become more valuable as they move through the factory and have costs allocated to them by cost accountants.
The costs do not determine the price, let alone the value. It is precisely the opposite; that is, the price determines the costs that can be profitably invested in to make a product desirable for the customer, at an acceptable profit for the seller.
When Lee Iacocca developed the Ford Mustang, he reversed the order of the usual car-making pricing up to that point. Rather than giving his engineers carte blanche to develop a sports car and then marking up the resulting costs to arrive at a price—as GM did with the Corvette—he solicited the opinions of potential customers as to what features they would want in a sports car and what price they thought they would be willing to pay.
Knowing people liked the Corvette, but thought it was too expensive at $3,490, Iacocca wanted the price to be low enough to entice the potential sports car enthusiast. He then went to his engineers and asked if they could manufacture a sports car, with the desired features, sell it for no more than $2,500, and still turn an acceptable profit for Ford.
By building the Mustang on the Falcon’s chassis, in the first two years, it generated net profits of $1.1 billion (in 1964 dollars), far in excess of what GM had made on the Corvette. The average customer was spending another $1,000 on options, and while Ford projected that 75,000 units would be sold in the first year, the 418,812th Mustang was sold on April 16, 1965, only 13 months after the first rolled off the assembly line.
By comparison, the Corvette reached 1 million in sales in July 1992, with the release of a white convertible with red interior, mimicking the first one introduced in 1953.
With all of the evidence assembled, why does cost-plus pricing remain so endemic in the business world today? This turns pricing into a sort of wishful thinking, with no attention being paid to the external value created.
As an economist grounded in the assumption that people, generally, are rational, and businesspeople, specifically, are profit optimizers—or at the least, satisficers—one is drawn to the conclusion that executives perpetuate this pricing method because it is safe and simplistic. Sometimes a theory is accepted because it serves a purpose for the individuals using them, not because it is right or wrong.
Another reason for the popularity and widespread use of cost-plus pricing is the rule of the bean counters. Cost accountants have had a significant impact on pricing decisions in companies, and it is time to bring their tyrannical rule to an end.
Fortunately, this is beginning to happen with the appointment of pricing managers in many companies, often at the C-Suite level.
There is a long history of companies that became obsessively focused on cost, at the expense of providing a product or service of value to the customer. The fact of the matter is you can make a pizza so cheap no one is willing to eat it.
Cost accountants focus on the inside of an organization, yet all value takes place in the external world, beyond the four walls of the organization. By and large, accountants are not well equipped to judge and measure value, despite all the recent blather about activity-based costing.Read last section of this article at: http://www.linkedin.com/pub/ron-baker/10/988/270
Since the turn of the century the U.S. population has grown almost ten percentage points. That’s a lot of heads in beds! Recognizing a full one third of the population rents, how do we find these new customers for multifamily property owners? Where are all these new people? Let’s find some clues in pattern recognition.
In this post we are excluding high-tech or big dollar data sources (like thematic mapping). We will discuss easy-to-find data points that provide guidance about demographics. This discussion relates directly to the acquisition of multifamily property and methods for gaining information about an acquisition candidate.
Consider this a due diligence starter kit for gathering market intelligence. Demographic data can tell us much about an area as we create layers of information related to a specific address- a specific acquisition target.
The following information sources are all public. There is little or nominal costs to obtaining information from these sources. CLICK HERE FOR FULL ARTICLE
So, where do you start to get this information? Some of it you should have on hand if you maintain a resident profile of your community population. If not, we recommend beginning to track this information, as it will provide answers to many of your questions and help develop effective marketing strategies and plans.
But let’s take this a step further. Remember, markets are constantly in flux in that they’re affected by economic events, demographic shifts and government policies such as changes in local tax laws. So maintaining constant awareness of marketplace changes is crucial to the ongoing success of your properties.
How do you do this? Well, the answers are easy but it takes dedication and involvement with the community to really understand how best to implement these changes.
Area profiles, population, income, households and economic forecasts of a given market and submarket can be accessed online through recent Census bureau stats, the websites of the local Chambers of Commerce, the Bureau of Labor Statistics, and other research sites.
In addition, many areas have economic development groups whose main goal is to bring new businesses into the market. Websites for these groups are a great way to keep abreast of new developing projects, businesses they are contacting and how they are promoting the area. Establishing relationships and networking with those who spearhead these groups will assist in knowing the in and out migration of the businesses and the population of your markets.
Networking in your business arena is also important. You should join as many organizations as you are able and can afford to. And be sure to participate in the events they sponsor. This form of networking is rewarding on many levels and can provide some of the information you seek when segmenting your market.
Finally, knowing your competition and their position in the market is crucial. Online research of other apartment communities in the area helps to identify who competitors are, but what does this really tell you? Not much, actually, other than what they want you to think, location, contact information, floor plans and amenities. The other information you are seeking changes rapidly, and a great way to find this out is to visit the community in-person. Drive the site, take photos and visit the offices and models. Shop your competition as a prospective tenant. This will provide you with the ‘down and dirty’ of the community. During the tour be observant of your surroundings. How are you greeted and treated by the staff? What questions do they ask? How do they respond to your questions? Make note of the cleanliness and tidiness of the office, presence of children’s toys on property, articles found on balconies and patios, types of vehicles, amenities offered and, for occupancy hints, open and closed window coverings and their condition these will tell you a great deal about this competitor and how you stack up against them.
Each of these steps is crucial to the outcome of your research. Overlooking any one could result in adopting a flawed marketing strategy.
Housing indicators for the fourth quarter of 2012 show the recovery in the housing market is gaining strength, although there is regional variation. In the production sector, the number of housing permits, starts, and completions all rose for single-family units. Permits and starts increased for multifamily units, although completions fell. In the marketing sector, sales rose for new and previously owned homes. The seasonally adjusted (SA) Standard & Poor's (S&P)/Case-Shiller® and the Federal Housing Finance Agency's (FHFA) repeat-sales house price indices reported increases in the value of homes in the third quarter of 2012 compared with the previous quarter and the previous year (both indices are reported with a lag). Inventories of available homes for sale at the current sales rate remain at low levels. The months' supply of new homes reached an average rate of 4.7 months, up slightly from 4.6 months in the previous quarter, while the rate for existing homes was 4.8 months, down from 6.0 months. READ FULL REPORT
Is it single-digit vacancy rates and double-digit rental rate growth? Can investors simply look at the most recent data from industry researcher Axiometrics Inc. and make their decisions based on numbers alone? If they do, they might end up investing in markets that are performing well today but lack any future growth prospects.
Or should investors take their cue from Wall Street and stick to the coastal markets-the so-called Sexy Six that regularly attract institutional investors? In doing so, investors might end up competing with every other investor and paying cap rates below 4 percent for assets that have little or no upside.
"You don't want to confuse rent growth, occupancy or architectural attractiveness with the top markets for investments," warns Jeffrey Friedman, chairman, president and CEO of Associated Estates Realty Corp., a Richmond Heights, Ohio-based apartment REIT with a portfolio of 52 properties containing 13,950 units in 10 states.
Ella Shaw Neyland, president of Steadfast Income REIT, agrees. The Irvine, Calif.-based non-traded REIT doesn't limit its activity to coastal markets, nor does it focus exclusively on large markets. Most recently, for example, it purchased properties in Louisville, Ky., and Des Moines, Iowa. "We're looking for signs of vitality," she explains.
Likewise, Camden Property Trust has focused its attention on areas that "are going to grow faster than other areas," says Chairman and CEO Ric Campo. "For example, we bought zero properties in D.C. in 2012 because we don't think it is going to grow as fast as Texas, the Carolinas and Florida."
Campo and other industry experts outlined five elements that create a top market for apartment investment.
Strong population growth
Nothing generates demand for rental housing like population growth. Markets experiencing significant influxes of new residents are the best locales for apartment investment, according to Neyland.
But not all population booms are created equal. Demographics matter. For example, is the growth primarily because of births or is it due to people relocating to the market? Apartment owners benefit from the creation of new households and from migration. Adding people to existing households is less of a stimulus.
Multifamily experts point to Texas as an example where an influx of residents is taking place. From 2010 to 2011, the Lone Star State boasted four of the five fastest growth metro areas with at least 1 million residents, according to the U.S. Census Bureau.
The Texas markets were Austin, San Antonio, Dallas-Fort Worth and Houston. In fact, Dallas-Fort Worth and Houston added more dwellers between 2010 and 2011 than any other metro area (155,000 and 140,000, respectively).
These two metro areas also were the biggest gainers during the 2000 to 2010 period (with Houston gaining more than Dallas-Fort Worth over the decade).
The fifth market was Raleigh-Cary, N.C., and a number of high-profile apartment investors have identified this college market as one in which they hope to expand. Associated Estates' Friedman ranks Raleigh-Cary as one of the top investment markets for the REIT.
In 2012, the REIT invested nearly $110 million in three Triangle properties including: The Apartments at the Arboretum, a 205-unit community in Cary; the 211-unit Southpoint Village Apartments in Durham; and the 344-unit The Park at Crossroads in Cary.
Young, mobile residents
The age of the new populace influences the desirability and performance of multifamily markets as well, according to Friedman. Younger residents tend to be renters rather than homebuyers since they want to maintain mobility for employment and choose to avoid being weighed down by a mortgage.
Many of the markets that rank in the top 10 for greatest average annual net migration by young adults also rank near the top for apartment investment. According to the Brookings Institute, four of the top 10 markets for in-migration for adults ages 25 to 34 were in Texas, while the number one market was Washington, D.C.
For college graduates ages 25 to 34, the top market for in-migration was Dallas-Fort Worth. Other cities in the top 10 include: Washington, D.C., Houston, Denver, Seattle and Charlotte, N.C.
The impact of younger residents is obvious in Charlotte, Campo notes. "Charlotte has been a surprise for us in terms of performance since a large part of the job base is generated from the financial sector, which is still shedding jobs," he says.
Nonetheless, the REIT's properties in Charlotte have outperformed its other assets, particularly those in California. "If you look at who is losing jobs, it's not young adults," he says.
Expanding employment base
Industry experts point out that job growth plays a huge role in creating demand for the apartment sector, and multifamily investors are keen to put their money into markets that have a strong and expanding employment base. Steadfast Income REIT, for example, is looking to invest in markets that show job growth across multiple sectors and various employers, and has several Texas markets on its radar, Neyland notes.
In Texas, the Dallas Federal Reserve predicts statewide job growth of 2 percent to 3 percent in 2013, down slightly from 2012's 3.2 percent growth but up from 2011's job growth of nearly 2 percent. Energy, exports and construction have driven Texas employment above its pre-recession level.
Recent data from Axiometrics Inc. shows the apartment markets with the highest rental rate growth and occupancy also are the areas that have generated above-average employment growth. Northern California's Bay Area is a perfect example-it consistently shows up as one of the most desirable for apartment acquisitions and is one of the "Sexy Six" coastal markets for overall real estate investment.
San Francisco posted job growth of 3.4 percent from January to October 2012. As of November 2012, its occupancy rate was 94.9 percent, and its year-to-date effective rent growth was 7.4 percent, according to Axiometrics.
Similarly, Houston recorded job growth of 3.2 percent for the same period, according to Axiometrics. As of November 2012, the market's occupancy rate was 93.1 percent, and its year-to-date effective rent growth was 6.5 percent.
Meanwhile, Camden Property Trust experienced much more impressive growth in Houston, according to Campo. He says the REIT's same-property NOI was up 11.1 percent for 2012, following an increase of 9 percent in 2011.
In comparison, some of the worst-performing rental markets have little or no job growth. In fact, some of them have negative job growth. Albuquerque, for example, posted a 1.0 percent decline in jobs from January to October 2012 and a 0.14 percent decline in rental rates.
Job growth alone cannot compel investors to make a bet on a specific market. Norman Radow, president and CEO of the RADCO Cos., says it's the type of new jobs that determine the apartment investments his firm makes.
For example, RADCO recently inked a deal to acquire seven properties in suburban Atlanta. Radow says the firm sees plenty of demand for class-B properties since much of the job growth in Atlanta is blue collar.
In the multifamily world, investors are familiar with the concept of high-barrier-to-entry markets. In fact, some of the most desirable investment markets are classified as having high barriers to entry-the coastal markets of New York City, Boston, Washington, D.C., and San Francisco, for example.
It's worth noting, however, that many investors are interested in markets that do not have high barriers to entry. In fact, most major markets in Texas and Florida have a reputation for being "easy"-that is, easy to build in.
"For us, it's a submarket story," Friedman explains, adding that there are a number of situations in which specific submarkets are more attractive than overall market. In Dallas, for example, Associated Estates is developing an apartment property in the Uptown submarket just north of Dallas' city center. The Uptown submarket has little or no land left to build upon; moreover, there is plenty of demand in the Uptown market to absorb new inventory.
And in Florida, Campo points to Camden's recent developments as examples of strong submarkets in a state that is well known for its housing woes. Camden Montague, a 192-home project in Tampa, Fla., is currently 96 percent occupied, while Camden LaVina, a 420-home project in Orlando, Fla., is currently 96 percent occupied.
Based on research by economist Stephen S. Fuller, Ph.D., of George Mason University's Center for Regional Analysis, the report covers the economic contribution of apartment construction, operations and resident spending on a national level plus all 50 states. In addition, construction and operations data is available for 12 metro areas: Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York City, Philadelphia, Seattle and Washington, D.C.
Highlights from the report include:
"Last year was a banner year for the multifamily market, and our baseline forecast calls for further steady growth in the rate of multifamily production," said NAHB Chief Economist David Crowe. "We are forecasting construction of 299,000 new multifamily residences in 2013. While this is an improvement from just a few years ago, it is still well below the 350,000 units that are required to keep supply and demand in balance."
Click here to read the full article.
Headlines continue to chronicle the nation's demographic growth of its minority populations. So it should come as no surprise that each new data release from government agencies shows the trend growing in momentum. For example, in 2012 the U.S. Census Bureau reported that, for the first time in U.S. history, more minority babies were born than white, non-Hispanic (non-minority) babies. Projections suggest that the United States as a whole will become "majority-minority" sometime in the 2040s. Read the full story.
MarketSurveyTools.com users have recently noticed upgrades appearing inside their apartment market survey software. No-cost upgrades are most welcome during these difficult economic times, especially when focused on sharpening a competitive edge.
MarketSurveyTools.com is a sophisticated, business intelligence program that creates a competitive market profile and comparable analysis. It references pertinent pricing data available online and generates some magnificent reports in presentation format. Being web based, it eliminates many of the difficulties associated with desktop spreadsheets: incompatibilities, corrupted formulas, advanced learning curve, and mediocre presentation options, to mention a few.
It’s interesting to see how companies use mystery shopping programs, and how they adjust their schedule of shops during certain times. We are into one very interesting period of the year – the holiday season – where companies are mixed on ideas for their mystery shopping programs.
We’ve seen some companies opt to reduce their programs during the holiday shopping season, citing that customer traffic is much higher, and they want to focus on holiday traffic and not have mystery shoppers “take up” time that can be spent with true customers.
Interesting concept, and in a way I can see the point. For example, we would never send shoppers into retail venues on Black Friday, unless it was requested by the client. This is a completely non-typical shopping day, and any results gained at that time would not be truly reflective of service standards (possibly).
However, there are other retail and restaurant clients that actually increase frequency during the holiday shopping season. Their thinking is that this is when the bulk of their sales come into play, and with all of the competition out there, they have to be on top of their game. Mystery shopping is used to measure their service levels, and they watch reports very carefully and make adjustments as needed to ensure that holiday shoppers keep coming back to them.
With that said though, I do see value in adjusting frequency based on typical consumer traffic. Park districts, for example, tend to be busier in the summer months and, for those with fitness center options, at the start of every new year when people are making resolutions to lose weight or become more fit. There are lulls in traffic patters during slower times of the year, and mystery shopping programs are reduced slightly, not only to keep costs down, but to mirror customer traffic.
Another example is based on performance. Some businesses, especially with several locations, may employ a performance based schedule. For example, if a particular location scores over a specific percentage for several months in a row, their frequency will decrease. Conversely, locations who score under a specific percentage will receive a follow up shop within two weeks, or their frequency will increase.
Companies need to consider the benefits of the mystery shopping results when determining frequency of their program. We are always a slave to budgets, but mystery shopping programs have great value and can actually save money in the long run.
Mystery shopping doesn't apply only to retail stores. Companies in all business sectors engage in the practice because they need to know what their competition is doing.
Why bother shopping your competition? You already know what they do -- the same thing as you, right?
But what's most important is how they're saying it. It's not about what they actually do, it's about what they say they do. If your prospects aren't experts on your industry, it may be hard for them to determine who offers the best value. That's why learning what the competition is saying is important -- so you can differentiate yourself.
Mystery shopping also allows you to test new product or service ideas, and find out if anyone else is offering them.
But is spying on your competition ethical? On the continuum of black and white, this common -- and necessary -- business activity is generally considered gray, mostly because nobody wants to dupe or be duped.
Here's what we learned from an attorney: Mystery-shopping one's competition is not illegal. In fact, it's done in most industries. Anyone is entitled to ask questions. If people don't want to answer them, they don't have to. But the propriety depends on your approach.
There's a difference between seeking general information that helps you benchmark your sales efforts and being disrespectful. It's inappropriate to request a proposal or ask for a meeting. Your call should remain within the time and content boundaries of a typical information-gathering inquiry.
Most companies don't put competitors on their mailing list. Requesting collateral isn't illegal, but it may cause problems. Why? Because it's asking them to spend hard dollars on printing and postage. If they volunteer to send something, let your conscience be your guide. And remember that today, most collateral can be found on the company Web site.
Respect their time. If the sales rep is continually following up with you, know when to draw the line. Tell them the initiative has been abandoned or you've been assigned to another project. You'll want to note that they have a strong follow-up process, but don't let them pursue a bogus lead.
What you're really fishing for is what their sales force is saying and how they treat their prospects. You'll encounter behaviors you'll want to model and others you don't. Afterwards, visit your competitors' Web sites for information that wasn't covered in your call -- especially differentiators. Make note of whether their site is more user-friendly, thorough and/or clearer than your own.
Make note of how many transfers it took to get you to the right person. Did someone get back with you promptly? Did they take time to ask you questions or instead direct you to their Web site? Did they even seem to care?
Did they offer to send you information? Did they follow up, especially if promised?
Take great notes during your call. Don't expect to remember everything. Immediately write a report about your experience and keep a separate file so new hires can learn about the players in your marketplace.
What should you do if you discover you're being mystery-shopped? Pretend you don't know and have fun with it. Answer their questions with great enthusiasm.
Whether the caller is a legitimate prospect or not, you shouldn't give any proprietary information, but you can always be proud of your company's strengths and differentiators.
If you're good at what you do, you have nothing to be afraid of. And when you treat your competitors with respect, you'll earn their respect in return.
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