Discovering Hidden Treasure in Your Unit Amenities – OverbundlingAmenities

November 18, 2024 by Donald Davidoff

This is the fourth in a 9-part series of “quick hit” blogs on the quickest way to uncover hidden revenue from leasing based on the presentation Bryan Pierce, Carol Enoch and Donald Davidoff gave at NAA’s 2024 Apartmentalize conference.

The good news is that our fourth “amenity fail,” overbundling, comes from a place of proactive efforts from operators to get amenity pricing right. The challenge, though, is that it’s still a “fail” that costs operators revenue.

Fail #4: Overbundling Amenities

Overbundling most frequently happens in high-rise buildings. The classic scenario is the combination of floor level and view premiums. Imagine a 40-story San Francisco high-rise overlooking the Bay Bridge. Ten dollars per floor is more than reasonable, and so is a $250 Bay Bridge view premium. However, add those up and the 40^th floor $640 premium which may be too much.

Wait, you say, wouldn’t that be $650 ($10 x 40^th floor + $250)? Remember that the base should always be $0 so that you put as much rent into the base for your revenue management systems to manage. Thus the 40^th floor is the 39^th $10 increment on top of the 1^st floor (38^th if you follow the superstition of not having a 13^th floor), and you get to $640.

This situation can be exacerbated if there are “penthouse” premiums on the top floor or other similar add-ons.

While not as dramatic in garden-style communities, this can still happen when a 3rd-floor premium is combined with a corner unit and two different view premiums since the corner units face two different directions.

The key to avoiding this “fail” is to pay close attention to how quickly these homes lease compared to others. Sometimes the market will give you the combined value, but sometimes it won’t. And since these are, by definition, your higher-priced leases, additional vacancy days are more painful than lower-amenitized units. If you see the bundling effect, capture that in a new negative amenity for the bundling and watch your vacancy loss plummet!

One last warning. We’ve also seen places where multiple negative amenities pile up (e.g. two negative views on a corner unit) resulting in under-charging. If these homes are leasing more quickly than the others, that’s proof you can take off one of the negative views or add a positive bundling premium. Let the market tell you what you should do!

Stay tuned for the next “quick hit” in this series