There’s a lot of talk about both benchmarking and Business Intelligence in today’s multifamily industry. The nature of this talk is interesting – not least because it tends to treat both as if they’re the same thing.  It may be useful for us to begin with working definitions for both terms.

Business Intelligence (BI) describes any transformation of data into information that supports business analysis.  It enables us to develop insights into the characteristics of our businesses, and – crucially – to measure performance and the things that influence it.  A critical facet of BI is that individual companies choose what intelligence is important to them, and how best to measure it.  Or to use a popular term, a business must “choose its own adventure”.

Performance benchmarking, on the other hand, is the business of comparing key indicators on an apples-to-apples basis.  This is an area that the multifamily industry has yet to master.  We measure many things, using the metrics and data sources of our choice.  But none of the data sources that we use provides the level of certainty that we should expect from benchmarks.

Imagine a football game where nobody kept the score.  Football is rich with performance indicators that lend themselves to measurement.  We could each come up with our own way of tracking a team’s performance based on the things that are important to us: rushing yards, passing yards, time in possession to name but a few.  You could conceive of a stadium full of spectators, each measuring a different set of performance indicators.  In this scenario, you could reach the end of a game with thousands of different opinions on what the result of the game was.

This would – of course – be a laughable scenario.  No competitive sport would be improved by removing the characteristic of absolute winners and losers.  But that’s exactly how performance benchmarking works in multifamily.  Think about it: multifamily assets are location-bound, and are in sub-markets that are subject to fluctuating demand.  For my property to out-perform its competitors it must capitalize on that demand more effectively than its comps.  Properties compete for business.  That’s very much like a sporting contest – the trouble is, nobody keeps score among the competitors. 

That’s a bigger shortcoming than people may realize.  It’s tempting, for example, to think that so long as a property grows year over year and beats budget, it must be doing well.  But in a location-bound industry like multifamily, competitive performance matters. A rising tide lifts all boats – so unless we can compare a property’s performance against its peers, we can never know for sure how well it’s performing.  And comparisons are impossible without an apples-to-apples benchmark of performance – in other words, a way to keep the score.

Multifamily is a sector – it attracts investors for whom the relative performance of markets and sub-markets is highly consequential.  Operators compete for management contracts on the basis of their performance.  Investors scrutinize the performance of public REITs in agonizing detail.  It is clear how simple, consistent, and above all, factual performance benchmarks - much like RevPAR in hospitality - would benefit all actors in the industry.

Other industries – most notably hospitality – have solved this problem, to the enormous benefit of all stakeholders in that sector.  It’s time multifamily performance benchmarking followed suit.