Real Estate News

What's behind wild fluctuations in Beaufort County rental rates?

dmartin@islandpacket.com

Many Lowcountry renters now must let a computer determine what their new or renewed leases will cost them.

And there's usually no way of telling what the outcome will be.

That's because many local apartment offices are following an industry trend by switching to algorithm-based leasing software that calculates the price of a unit based on a number of factors -- and the rate can unexpectedly peak and valley, particularly in southern Beaufort County.

"Prices change daily," said Dorna Davani, leasing consultant with Chartwell-owned The Lakes at Myrtle Park in Bluffton. Chartwell also owns The Lakes at Edgewater.

Both apartment complexes recently started using YieldStar, a popular revenue management software by Texas-based RealPage that calculates the rate of an apartment based on a number of factors, most significantly supply and demand in the local market and current and future occupancy rates.

It's the type of dynamic pricing that airliners, hotels and online retailers such as Amazon.com have used for years. After analyzing many factors, the software produces the highest feasible cost, which fluctuates often and sometimes dramatically, in real time for a seat on an airplane or for a hotel room.

The number produced by dynamic pricing methods is sometimes beneficial to the consumer. The quoted figure plummets when demand is low and supply is high.

But at apartment communities that use this type of revenue management software, the cost to lease can jump unexpectedly, leaving current and potential tenants in the lurch -- especially in a seller's market, where rental rates are already very high.

Davani said she has seen the biggest price disparity based on time of year. Between March and August, she said, the rent is typically higher and, based on unit availability and other factors, can even skyrocket.

At one point this summer, a three-bedroom apartment at The Lakes at Myrtle Park spiked to $1,700 per month.

"That's a mortgage and a car payment," Davani said.

Now that leasing has slowed, unit prices at the complex have dropped accordingly, she said. Some recent YieldStar prices for a three-bedroom unit have ranged from $1,533 to $1,573. The average price of a two-bedroom unit has dropped from about $1,250 to a little more than $1,000 in the offseason.

Sometimes there is an unexpected cost difference between available units.

Davani said an upgraded one-bedroom unit was recently going for $1,044. At the same time, a two-bedroom was priced at $1,050.

"The gaps don't make sense," she said.

If there are only a few one-bedroom apartments available while several two-bedroom units remain empty, the price of one-bedroom units will increase and two-bedroom unit rental rates will stagnate or drop.

Other factors, including when other similar units' leases will expire and even what floor an apartment is on, are considered in the YieldStar price.

It may seem like an obvious choice for tenants to sign a lease for a two-bedroom for less than $10 more, Davani said. While some opt for the better value, others prefer a smaller space.

And when would-be tenants inquire about lowering the price for the smaller unit, Davani has to turn them down.

"The price is usually non-negotiable," Davani said. "If it's on YieldStar, we have to offer that price."

William Harrison, a lecturer at the University of South Carolina, said algorithm software is "the wave of the future" for rental industries.

He cited self-storage unit companies as an example: Rent-calculating software has created strong profit implications for landlords in that industry, resulting in pushback from tenants.

"It becomes an extortion factor," he said. "It maximizes rent for the highest economic benefit."

Harrison said although he isn't as familiar with apartment leasing software, the type of software used by many storage companies calculates tons of statistics and factors before producing the highest feasible amount a landlord can charge to his or her tenants.

"An algorithm will tell you you can charge more," he said. "That is its capability -- giving the maximum threshold."

When Davani or another consultant quotes a YieldStar price to a potential tenant, the tenant has a 48-hour window in which that lease figure is locked in. After that point, the tenant is subject to whatever new price the YieldStar algorithm produces, and it can be significantly -- or insignificantly -- lower or higher than the price quoted two days before.

Leasing an apartment then becomes a gamble.

MARKET DISPARITY

The immediate real estate market plays a key role in how much tenants throughout the Lowcountry are paying based on YieldStar-quoted rates.

In fact, some apartment communities outside of Bluffton that use revenue management software haven't seen a significant difference in unit prices since converting.

"It has the opportunity to fluctuate daily, but it's usually weekly," said Eli Koutsulis, leasing consultant at Ashton Pointe, a Beaufort property owned by Virginia-based HHHunt.

He said the complex has been using YieldStar for the past few years, and it's generally been a positive experience for the leasing office and tenants.

Part of that may have to do with YieldStar's unit rental prices, which he said don't vary dramatically at Ashton Pointe.

"It's typically a $30 difference," Koutsulis said. He added the primary factors that can determine an individual unit's price in Ashton Pointe include what floor the apartment is on, the view it has and features available in the apartment, in addition to occupancy and the local market.

Another HHHunt-owned property, Auston Chase, on Argent Boulevard in Jasper County, has been using YieldStar for about a year.

The results have been largely consistent, leasing consultant Jemal Thomas said.

But unit prices started out markedly higher than before YieldStar.

"It's been about a $150 increase since the software conversion," Thomas said.

He said response from renters has been neutral thus far, but added that daily rental prices don't yo-yo very significantly, nor very frequently. He estimated the YieldStar price for units changes about every three days, and it's usually no more than $50 lower or higher than the days prior.

Bluffton rental community Crowne at Old Carolina doesn't use algorithm-based software to determine rental rates.

"I've never been on that system, but I prefer our program," said Beverly Cowart, the community director at Crowne at Old Carolina, which is owned by Alabama-based Crowne Partners.

She said she likes having the ability to tell a prospective or current tenant the exact amount he or she can be expected to pay.

"It's flat, even -- there's no guessing with rent increases," Cowart said.

She said she feels confident Crowne at Old Carolina won't implement algorithm leasing software in the foreseeable future, adding that typical factors, including the state of the local market and occupancy rates, factor into the cost to rent a unit and percentage of increase for lease renewals.

As technology improves, more industries are on track to implement dynamic pricing software.

And it's changing the entire face of rental industries.

"It's brought decision making from the front desk to a computer," Harrison said.

Follow reporter Ashley Fahey at twitter.com/IPBG_Ashley.

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