Ever since pricing & revenue management systems became "standard" among the NMHC Top 50 (and beyond), the multifamily industry has seen higher occupancies and more stable and predictable rental growth than at any time in the history of rental housing. So, let's start by saying that legacy systems work.
Despite this success, there have always been concerns with these systems.
Little black boxes…for you and meThe leading systems have very sophisticated mathematical algorithms—so sophisticated, that virtually no one in the industry actually knows the details of how they work. The results, and pricing recommendations, look to most users as though they came from a black box. Intellectually, we "get" that sophistication is good, but emotionally it's hard to fully trust answers from almost impenetrable algorithms. Layer on bonuses dependent on revenue and/or NOI performance, and most operators are nervous about completely trusting something they can't fully understand.
Meet the new math…same as the old mathPerhaps the most damning challenge with legacy systems is how little they have changed in more than two decades. Names can change and claims can be made, but the hard truth is that the core algorithms haven't changed since the first versions of each of them.
And the beat goes on…Perhaps even more challenging, the basic workflows are essentially unchanged as well. Back when these systems were built, there were many things that the designers of those systems didn't know. In blazing new trails, they did a remarkably good job—for v1 software.
However, twenty-plus years of experience and learning should have driven many more changes, particularly in workflow and process. Here are just a few of the things that legacy systems struggle with
In short, these systems were built by hospitality and travel people for rental housing. They did an amazing job for what they and their early adopters knew at the time. However, disappointingly, none of the legacy developers have materially enhanced their systems in response to all the real-world experience that has accumulated over this time.
Donald is CEO of Real Estate Business Analytics (REBA) and principal for D2 Demand Solutions, and industry consulting firm focused on business intelligence, pricing and revenue management, sales performance improvement and other topline processes