A Conversation With Eric Griffin of Pearlmark Real Estate Partners-Part 1
In 2008, Pearlmark, a principal-oriented, private equity real estate investment firm based in Chicago, embarked upon its journey to leverage revenue management. After experimenting with the two primary providers in the rental housing industry, Pearlmark now uses YieldStar exclusively.
Revenue management has become a core part of how Pearlmark handles pricing and performance analysis. I sat down with Eric Griffin, vice president of multifamily asset management, who shared his thoughts with me about revenue management with YieldStar.
Janine Steiner Jovanovic (JSJ): Why is YieldStar revenue management important to Pearlmark?
Eric Griffin (EG): Rental income drives property performance more than anything else. Maximizing rental rate while maintaining a high level of occupancy is one of the most important management functions. We have daily, weekly, monthly, quarterly, and annual conversations about rent and occupancy. Over the last couple years, our multi-family portfolio has maintained a six to eight percent net rent gap between in-place rents and new lease rents. At the same occupancy levels, this gap represents about $3 million of additional annual revenue across our portfolio. That’s over $50 million of value at today’s cap rates.
It’s very difficult to increase the bottom line by $3 million through expense reductions, but right now there is a very real opportunity to do so on the revenue side of the equation. Actually, our same-store in-place net rent passed its pre-recession peak in September. We’re heading into uncharted territory and we still have our foot on the gas. Balancing rent and occupancy to maximize revenue is extremely important. YieldStar plays a critical role and forces a constant conversation that helps us find the right rent/occupancy balance.
JSJ: You’ve said that YieldStar causes a clear shift in pricing approach and how you look at rents. Can you explain what you mean by that?
EG: YieldStar brings your revenue to the highest possible level, instead of artificially depressing your potential based on some flat assumption that was put in a budget. We want to move our rent roll as quickly as we can to capture the opportunity we know exists.
JSJ: As a private equity firm that outsources management, how does YieldStar change the relationship dynamic between you and your management providers?
EG: We are extremely hands-on asset managers. YieldStar makes our job easier because it creates a standard price and performance conversation across management companies. They each have a different language. How they define rent, for example. Some talk about desk rent, street rent, or market rent while others talk in terms of concessions. We care about net rent, the amount of the check being cashed. YieldStar speaks in one language – the language of net rent, which is what we should be talking about. Plus, a lot management companies are occupancy or lease-trend focused. YieldStar incorporates all the variables that matter and works to balance occupancy and rent. So the conversations with our different management providers are more structured and consistent. We can streamline conversations about rent and move on to other value creating tasks.
JSJ: What do you get from an automated pricing system that you can’t get from the best property manager?
EG: Our third party property managers do a great job for us. They are highly aware of rent and occupancy movement within their submarkets. An automated pricing system gives our property managers a tool that largely automates what used to be a manual and time intensive process. It allows our best managers to focus on anomalies in the data and tailor marketing much more accurately.
Revenue management systems also provide tremendous continuity in a business where employee turnover and employee movement is significant. There’s so much that goes into pricing, so many variables. Generally speaking, there are multiple supply side variables and there are multiple demand side variables. These variables are fluid and change daily. These changes should be factored into pricing daily, not only for the property as a whole, but at each individual unit type since each unit type has its own supply and demand drivers.
There’s also daily movement within the property’s competitive set to consider. If someone were to try to stay on top of all the moving pieces, it would be a full-time job at each property. YieldStar does much of this automatically and has a very unique way of forecasting supply and demand.
Pearlmark is a principal-oriented, private equity real estate investment firm that pursues domestic, value-added investment strategies through a series of institutional equity fund vehicles. Since its inception in 1996, the firm has made approximately 470 office, industrial, retail, multifamily, and mezzanine loan investments nationwide representing a gross investment of over $11 billion. The current equity portfolio includes 41 office buildings, seven retail properties and two industrial assets totaling over 23.4 million square feet, as well as 15 multifamily assets with approximately 4,100 units. Pearlmark and its partners, including insurance companies, public and private pension funds, foundations and endowments, banks, corporations, and high net worth individuals and families, have committed nearly $4 billion of equity capital to the firm’s investment activities. The company currently employs 60 professionals and is based in Chicago with offices in Denver, Los Angeles, and New York City.