An interview with Donald Davidoff — Multifamily housing expert and founder of D2 Demand Solutions


Donald is known as a thought leader in the multi-family housing industry, particularly in places where technology and people meet. Perhaps best known for leading the development and implementation of Lease Rent OptionsTM (LRO), the industry’s first automated demand forecasting and price optimization system, he is equally accomplished in the areas of eCommerce, marketing and marketing analytics, sales systems and automated workflow. Donald is highly sought for “C suite” consulting on operational issues that drive significant ROI, and by technology vendors for product design and “go to market” strategies. A former Senior Vice President with 10 years at Archstone, and a former Executive Vice President with Holiday Retirement, Donald works with clients to assess their operational and technology platforms and implement complex, highly impactful projects. His articles on multifamily housing are a must read for any one who has interest in the industry.

Q: Donald could you tell us a bit about yourself and D2 demand solutions?

I have almost 20 years in multi-family housing. I’m probably best known for leading the team that built LRO, the industry’s first automated pricing and revenue management system. I then went to work for Archstone from 2001 through 2011 where I left as SVP, Strategic Systems with responsibilities for pricing, all of marketing and a variety of front office oriented projects. I then spent a year at Holiday Retirement, the nation’s largest senior independent living provider, as EVP Pricing and Marketing. I founded D2 Demand Solutions in late 2012 to focus on key front office issues –pricing, sales, marketing and BI.

Q: In multifamily sales effectiveness you point out that the sales are capped by the number of units available for lease. Do you think then that the traditional metrics for sale are inapplicable in the multifamily industry?

Yes. The most classic metric for sales is the “closing ratio” with the clear implication that higher is better. The challenge with that metric in multifamily housing is higher isn’t always better. Higher is better if we have high exposure; but if we have very low exposure, we want to charge a rent high enough that we actually have a low closing ratio. If we have a high closing ratio at low exposure, we’re clearly leaving rent on the table.

Q: While increasing the rent per unit will increase the profits don’t you think that the leasing agent is largely limited by the “what everyone else is charging” factor? Or can they get away with charging higher prices as compared to the market rate. What would be the strategy here?

There’s obviously some limit–you can’t charge $2000 for rent if similar competition is at $1000. But that doesn’t mean you can’t get $1020…or $1040. I’ve seen two things at play. First, operators act like they know what the “market rent” really is. But the only way to know what the market rent is to let the market tell you by what they buy. No two competitors are exactly the same. They have different amenities, different specific floor plans, different finishes, different sales and service teams and different locations. So we can’t “know” the right price. We have to let the market tell us by moving our prices up or down reacting to how the market responds to our offerings.

Second, the competitors strategy and situation are frequently different. I worked for a publicly-traded company whose primary operating goal was to drive revenue up to grow the stock price. We often competed with local players who were perfectly content to “coupon clip”–i.e. just get their x% return on equity by keeping the property over-occupied thus reducing sales and marketing needs and actually leaving money on the table. If we stuck to their rents, we wouldn’t grow ours (and often they didn’t have availability). Other times, we presented a good product and were at low exposure. Our comp was struggling with high exposure. So they needed more leases than we needed. We could charge a higher rent than they could because they needed a high closing ratio and we met our leasing and revenue goals with a lower closing ratio.

Q: Considering that once a unit is leased the rent will remain fixed. What do you think then, from the point of view of rent increases, should be an appropriate lease period for a unit?

In normal market conditions, I’m not a fan of leases longer than 12 months. 12 month leases give an appropriate level of price certainty to residents while allowing us to react to market conditions in a reasonable time period as well. They also have the advantage of matching expirations to the same season as demand–so if we can get our lease expiration profile in good shape, we should be able to maintain that. In recessions, I’m more inclined to offer leases all the way up to 24 months to lock in a rate for a longer period of time.

Q: “ Selling in multifamily is a relatively high volume, low variance process. There are not a lot of moving parts in the process and demand is structural, not discretionary. This means that the organization has more ability to control and influence the experience between the customer and seller. This is a powerful opportunity that very few operators are taking advantage of.” Could you expand a bit on how the experience can be controlled and improved? How can it be made prospect centred?

The key to making the system prospect-centered is to stop making it all about our process and start making it about their process. Every sales model I’ve seen in this industry claims to be customer-centered, but isn’t. I don’t doubt operators’ desire to be customer-centered, but their sales pipelines (and training) talk about dealing with first contact, conducting the tour, selling features and benefits, asking for the business, overcoming objections and closing. Those are our processes and needs, not the prospect’s. If you require sales associates to ask for the lease on every tour, no matter what, then that’s a clear indication it’s all about you and not about them.

I’ve been involved in deep analysis about the prospect’s journey. Prospects go through 5 explicit phases during their journey. The emotions they feel and the questions they have at each phase are highly predictable. So being prospect-centered means understanding what they’re going through and addressing what they need at each stage. Do that well, and getting the lease can actually be anti-climactic. You can find the prospect asking you for the lease instead of the other way around. But that only happens when you authentically morph your process to fit their journey, not treat them as cattle coming through your chute.

Q: Do you think that current tenants could be a good source of new leads? If so, do the leasing agents explore this avenue of lead generation?

Absolutely. Leasing agents should pursue this avenue. In my marketing career, I’ve always had a formal referral reward program; but more importantly, I’ve encouraged the local teams to more informally inquire about whether residents know anyone who might be looking for a place to live. And of course in today’s “social media” world, word of mouth is spread more quickly and more widely than it’s ever been before–whether you’re asking for it or not.

Q: What metrics would you use to measure the productivity of a leasing agent?

For new leasing agents, I advocate “time to proficiency.” So measure how many leases per month a typical leasing agent does, adjust for seasonality and measure how quickly a new leasing associate gets there.

For established associates, I advocate a monthly review of exposure and the establishment of reasonable volume goals for each. This target will be higher when exposure is high and lower when exposure is low, so it avoids the problems associated with “closing ratios” as a metric. It takes a little bit of work each month (though it could be automated), but there’s nothing more important for a sales manager (and community managers are, among other things, also sales managers) than setting goals and coaching their salespeople.

Q: Donald, do you think that a lead scoring system would be much more beneficial in student housing where they get a huge inflow of applications as the semester starts?

Akshat, I don’t pretend to be a student housing expert though I’ve worked on pricing for communities that were near universities and thus were heavily influenced by student populations. It’s certainly possible that could be the case with a couple of caveats:

  1. While they all move in near the same time, the leads come over a period of months–so often there’s still time to contact each lead,
  2. Since a student property is essentially “a cruise ship that leaves once a year,” it’s even more critical that no possible lease be lost than it is at a “normal” property.

Again, I’m not “anti lead scoring”–I’m pro-“match the right solution with the right problem.” If the volume of leads is so high that it’s impossible to personally contact each, then lead scoring becomes critical. If not, then lead segmentation (or lead categorization or lead triage or whatever you want to call it) is IMO a better solution. Both require you to understand the prospect journey, apply a pipeline model (which requires you to have one) and be disciplined in the use of human and IT resources.

Thank you Donald for talking to us

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  • On September 27, 2015