Why Rent.com Sold for $415M Cash.

What makes Rent.com as valuable as a portfolio of 5,000 apartment units?


eBay’s purchase of Rent.com for $415 million should trigger a moment of pause for all apartment professionals. The ability of CEO Scott Ingraham, President Allan Hunter and their whole team to build an online apartment marketing company and sell it in four years to the market leader is a tremendous coup, and we congratulate them.

But we also think the deal should cause apartment executives to consider why Rent.com is worth as much as a portfolio of 5,000 apartment units. The answer is simple: Rent.com does a better job tracking marketing results than most apartment firms. They exploit this weakness in apartment marketing and monetize it by taking the risk of closing the deal alongside their customers. If that is worth $415 million to eBay, multifamily CEOs should start asking how they can better track their marketing results, and how they can improve their marketing strategies to yield a greater NOI.

To many, marketing seems unmanageable, but it doesn’t have to be. This issue of multifamily management and strategy examines how firms can get more leads for less money and dramatically improve how they handle those leads.

When I was in college, I threw parties that required a lot of beer. To slake the thirsts of most party-goers, I bought inexpensive beer by the keg. If I wanted something special for my roommates, I bought a foreign beer in fancy bottles after the main buying was done. I didn’t buy a lot of expensive beer first and then fill in with cheap stuff. We were 19 and the point was to have a good time, not to provide for the expensive lifestyle of strangers.

While this seems an obvious strategy, most apartment companies fail to apply it to their marketing. Instead, they often buy the most expensive ads first and fill in with the cheap ones. That’s a costly mistake. If you know the number of units coming vacant in your portfolio this year as well as your lead conversion rate and your walk-in traffic, you can estimate how many leads you need to buy to fill those vacancies. Once you understand that you are buying leads in bulk (albeit market-by-market and property-by-property), it is easy to figure out how to buy them — buy all of the cheapest leads first, and if you need more than the cheap guys can provide, fill in with leads from other sources.

According to Kevin Thompson, its Senior Director of Marketing, AvalonBay is on track to reduce their marketing costs by at least 10% for the third year in a row using this strategy of buying the highest quality leads from lowest cost sources.

Thompson notes that leads from Internet sources are their best traffic. These same leads also cost the least. From 2002-2004, Internet leads have jumped from 19% of AvalonBay’s leases to 32%, while leases from print sources have declined from 18% of leases to 10%. Nationwide, Joshua Tree Consulting estimates that the cost-per-lease from Internet sources is about one-third of those from print.

Every property has a certain amount of “organic” drive-by traffic. That’s the advertising that comes from having a building on a busy street. The rest is purchased. The data we have seen says that Internet leads from Internet sources such as RentNet.com and Apartments.com are the lowest cost-per-lead or lease, depending on how you want to count.

Referrals from existing residents cost more, and leads from print sources still more than that. Locator services top the pyramid as the highest cost-per-lease, but presumably with the highest level of value too. According to the National Association of Realtors, at least 70% of home searches start on the Internet. While companies need to consider the relative performance of ad publishers in their markets, their basic plan should be: (1) count the leads you need; (2) buy all you can at the lowest price; and (3) and fill in with the more expensive leads as needed.

But that is not clear to most senior managers, which partially explains why Rent.com fetched so much money — they add a lot of value and certainty for companies that are not sure their advertising works. Rent.com does the tracking for their customers and takes the risk that their product works. Advertising doesn’t have to be just a creative enclave that’s not accountable for what it costs.

Unfortunately, most firms do not begin their marketing strategy by determining how many leads they need, which causes them to overspend for advertising. If they did, they could make their advertising work as a cost efficient operation that consistently delivers sufficient renter traffic at the lowest possible cost.

According to data from CallSource, an apartment industry call tracking firm, only 13% of calls generated by advertising resulted in the leasing agent making an appointment for the prospect to visit the property. Even worse, 18% of calls don’t get answered at all. From other sources, we know that email inquiries fare even worse — 50% go unanswered. Among those that do get answered, most replies are delayed by more than two hours, which is the same as no answer at all to many consumers. It doesn’t have to be that way. Dedicated call centers make 300-400% more appointments than leasing agents. Here are some key opportunities firms have to improve the effectiveness of their marketing efforts by better managing their leads.

Whenever a firms asks us where they should advertise for the “best” results, we usually suggest the company first examine their lead handling to see if they can harvest more traffic simply by more effectively responding to the inquiries they are already generating. Often they can, although it may require a cultural shift or a change in management practices to get them to a higher level of performance.

For instance, property phone systems must be set correctly to ring, roll over and forward messages appropriately. And despite its obvious importance, many firms fail to provide their advertisers with updated contact information for their properties, which means email leads get sent to dead addresses. The first step for properties reporting poor results from their advertising is a periodic audit to determine how their leads are being handled.

At properties where the staff is asked to heavily multitask and does not have time to focus on new resident leases, testing call center options is a viable solution. Apartment-specific call centers such as CallSource, MessagePro, Level One and RealPage’s Crossfire not only handle overflow calls, but they can also sell a community in such a way that the prospect believes the leasing person is on site. Using technological tools to communicate with the property, these services can ensure that more than 95% of calls are answered and that prospects are sent to your communities already armed with all your marketing information. They can also help re-direct traffic from a property that is performing well to a nearby community that is under-performing.

AvalonBay has improved their responses to email inquiries such that they get responses from 95% of prospects, up from 40% three years ago. That’s management, training and tools. Not luck. Email leads are terrific for managers because they can be easily put into an inexpensive database and tracked all the way through to disposition. But maximizing the value of email leads requires personalized responses. Canned auto-reply email responses can be worse than none at all. Some firms manage this by creating a centralized office to respond to email leads.

Another option comes from upstart firm eRei.com. Their Lead2Lease product provides real-time, graphically rich custom responses that are correctly spelled. They combine this with lead-tracking tools that give managers and staff a view of all leads — phone, fax and email and analyze these leads by media source.

Phone prospect tracking firms, such as CallSource, are another valuable resource. They can provide a boatload of metrics, as well as great information about the effectiveness of your advertising. But to capture the full value of these tools, senior managers have to use that data to determine when to staff and what to do with the overflow, and they have to tie the advertising results back to cost.

Internet companies are disruptive, and they profit by creating information efficiencies. Apartment firms can benefit by exploiting those efficiencies and maximizing their lead handling, and their purchase of the lowest cost leads before anything else. eBay values Rent.com at more than $400 million because they solve a marketing problem most owners don’t manage well. That’s the market signaling loudly to managers it’s time for a closer look internally.

Author: Steve Lefkovits