Is Rent Comp Data Leading You Astray?

Today, most PMCs rely on rent comp data from call-arounds and websites to help decide on pricing, build forecasts, and create strategies. But how accurate are rent comps? Not very, it turns out.

There can be a huge gap between what’s advertised and what actually ends up on the lease. And that’s in stable times. Now we're in a time of uncertainty due to the COVID-19 upheaval and downturn. There are no more givens. PMCs need better data if they’re going to avoid risky, hunch-driven bets.

It is possible to navigate the COVID-19 downturn effectively. But what you need is access to real transactional data -- that is, the actual numbers that end up on the leases -- coupled with advanced market analytics.

According to Natalie Long, Manager of Client Success for Market Analytics at RealPage, “Market research is critical in a time of uncertainty, like COVID-19. PMCs only outperform competitors by using accurate, real-time data to drive operational strategies while their competitors remain reactive. They need a solid market, submarket, and property intel to identify the best opportunities, minimize risk, and maximize returns. Transactional data is a must-have. It’s the gold standard. And then they need market analytics to go from data to decision. At RealPage, we aggregate executed transactional data from millions of units to power our Market Analytics solution.”

In a recent RealPage webcast entitled Smart Solutions: Play Ahead with Next-Gen Market Research, Long engaged a team of RealPage executives and customer experts to bring some clarity to the issue of rent comps vs. real-time data.

Webcast participants included Bryan Hilton, SVP Revenue Management at Simpson Housing, Sierra Garza, Senior Revenue Manager at BH Companies, Steve Pribonic, Senior Research Analyst at White Oak Partners, Rich Hughes, RealPage SVP of Data Science, Greg Willett, RealPage Chief Economist and Jay Parsons, RealPage VP Multifamily Optimization and Deputy Chief Economist.

To watch the RealPage webcast Smart Solutions: Play Ahead with Next-Gen Market Research, please go to 

https://www.realpage.com/webcasts/smart-solutions-next-gen-market-research/

The truth about comps

Traditionally sourced rent comp data is usually considered reliable and usable. But the RealPage team and PMC execs shared insights that told another story:

• Rent comp data varies based on the source and the strategy of the operator pushing the data out. Is the PMC’s strategy all about marketing? Are they pushing loss leader units? Using pricing to address an occupancy issue? It matters because your inventory and strategy are probably different.
• The comp numbers vary by methodology. You can get different prices on a website vs. a phone call.
• Timing factors in. Look at an Internet listing site, another internet listing site, and the property website, and you'll get three different answers on rents for the exact same property and the same floor plan. Often this is due to time lags. Information goes to different places at different speeds, and it's updated with different frequencies.
• The margin of error can be enormous. Look at a given rent comp on a given day and the likely error rate is about 8%. That's enough to disable anyone's strategy.

In the webcast, RealPage’s Greg Willett pointed out the glaring difference between executed transactional data and rent comps. “Sometimes the transactional data and the survey data tell the same story, and sometimes they don't. We certainly see that right now in the marketplace, when the survey data says that rents are coming down a little bit and the transactional data says the rents are coming down a lot. Obviously, the transactional data is a more accurate piece of information.”

Simpson Housing’s Bryan Hilton added his perspective on rent comp reliability. “During this downturn, communities are getting much more competitive and we’re not getting good data from our traditional call-arounds. When we call competitors, they may not always tell us their specials, they may be fudging on their occupancy a little. Transaction data allows us to develop a strategy, react properly, and measure our reaction to what we know is happening versus what we hear is happening.

Sierra Garza at BH Companies agreed. “Asking rent data gives us an idea of what communities are attempting to achieve, or what their strategy and approach are with their clientele. But it’s those transactional metrics that we’re able to present to our clients and how we’re actually able to measure our performance against. We can prove this data has worked. Even if someone is asking $1,500 in rent doesn’t necessarily mean that’s what they’re getting. So, we are looking at what people are coming in and saying yes to, what residents are moving in for and what kind of gain or loss we’re expecting to see over that previous lease.”

The analytics imperative 

The RealPage team stated that transactional data was not only the gold standard vs. rent comps, but those predictive insights were locked inside it. To uncover them, they developed their Market Analytics platform, the only solution in the industry that uses actual transactional data. The approach has paid off.

“RealPage Market Analytics gives complete visibility into true market performance,” said Natalie Long. “Data from websites and phone calls shows less than 5% of a property's true performance. Market Analytics reveals the remaining 95%. It provides executed rent roll data sourced from over 15 million units to assess real-time true performance metrics. This lease transaction data provides insight into early indicators of market performance, such as renewal conversion, new and renewal lease trade-out, average vacant days, and more.”

The rent roll is the key. RealPage’s Rich Hughes pointed out that after all the uncertainty, noise, and irrationality in the market created by COVID-19, accurate rent roll numbers, the foundational touchstone data that really drive enterprise value, were harder than ever to get. Powerful market analytics based on actual transactional data could bring those numbers to the surface.

“First, the prices that you see on the Internet aren't really representative of the prices that hit the rent roll,” said Mr. Hughes. “Lots of things can happen between an advert for a piece of inventory at a certain price and the signing of a lease. Also, most people these days are actually renewing their lease and going again. And that part of the rent roll is completely invisible unless you have lease transaction data.”

Hughes went on to explain that RealPage provides access to phenomenal data sources and that RealPage Market Analytics uses machine learning (AI) that dredges through the data. The software, used by research establishments from NASA to top universities, is the only of its kind that can actually derive laws of real estate from experimental data. RealPage data scientists use the tool to create accurate market models, which lead to equally accurate real estate forecasts. Hughes and his group are able to see, through all the data and methodologies, what true rent roll performance is.

This kind of sophisticated market analytics driven by machine learning and real transactional data looks to be the way forward. To be fair, rent comps will always have their use for making gut-level decisions. But in an age of uncertainly, it takes more to perform and outperform. The goal is to arrive at a new age of clarity.