Five years ago, the effectiveness of online versus print advertising in the multihousing industry was still unclear. Many renters’ use of the Internet was hampered by the lack of high speed access necessary to take full advantage of the richness of data in the form of pictures, floor plans and site maps. Experts predicted that drawing a significant number of qualified prospects from the web was still a distant concept. Many owners and managers stepped into the new medium by advertising with one or two of the fledgling ILSs, and even a few brave souls built their own websites, but it was a largely uncharted and untrackable.
Since that time, Internet use has grown to over 172 million users or 77 percent of the population of the U.S. alone. Today, 42 percent of all households have high speed connectivity, but usage patterns seem to tell an even broader story.
“At least 74 percent of our users are on high speed connection, and many of these connections are from a LAN, which likely means they’re searching from work. In fact, our traffic tends to be the strongest in the mid to late afternoon when most people are still at work, maybe getting ready to go home, but running a few online errands before they leave for the day,” comments John Helm, CEO of MyNewPlace.com. “The significant number of high speed users has opened the door for interactive mapping and other technologies that only years ago would have been unthinkable with the majority of users on slow dial up connections. However, there are still a number of people using dial ups, so web developers shouldn’t go overboard.”
Today, there are scores of online listing services spanning malls such as Craigslist listing every type of rental and for sale dwelling as well as a hodgepodge of products and services, to industry-specific ILSs that cater directly to the apartment industry with both transaction- and listing-based pricing.
At present, Internet advertising accounts for 6.7 percent of all advertising. That’s $10 billion of a total $150 billion of U.S. ad dollars. Internet spending, excluding search, is up 13 percent this year from 2005, breaking all projections and making it the fastest growing segment in the country.
Today, many of the larger property owners and managers are reporting upward of 60 percent of their leads as coming from the Internet. At a recent industry conference, Kevin Thompson of AvalonBay (NYSE: AVB) reported that 65 percent of their leads and 43 percent of their leases are from Internet sources, while only 23 percent of their leads and 4 percent of their leases come from traditional print sources. And while one could argue that AvalonBay, with nearly all of its 39,000 units in high barrier communities on the East and West coasts is at the forefront of this change, there’s no denying that the Internet has become a critical component of any owner/manager’s marketing strategy.
“AvalonBay may be two years ahead of the curve on this, but we track all of our media and have established operational benchmarks,” says Thompson. “Our average conversion rate, traffic to lease, is 33 percent. A lead from a print guide source runs us as much as $600 per lease or as much as $1,000 for newspaper, while Internet-driven leases are between $75 and $300. Good tracking is critical and getting the greatest ROI is fundamental to our operation.” Thompson’s corporate website was relaunched in May and presently re-ceives an average 4,896 hits daily.
Bob Keator, vice president of the Lane Company with a portfolio of nearly 28,000 units agrees. “I can confidently say that the Internet is so pervasive that it’s delivering leases across all products: from conventional to student housing, as well as to our affordable and public housing product.”
In fact, Fred Tuomi of Equity Residential (NYSE: EQR), speaking on a panel at last month’s NAA conference stated that Equity was “almost” entirely out of print adverting. Equity’s 204,000-plus units are also predominantly in larger metropolitan areas. Relying solely on the Internet is still a far reach for some apartment operators in secondary markets yet driven by rental guides, newspaper, referrals or even drive-by traffic. States Keator, “While Internet traffic costs vary by market, it is by far the least expensive source in our industry today.”
As the multihousing industry is often a generation behind other retail-driven industries, a fast reference to what those industries have already learned might shed light on trending and the best use of the Internet for multihousing. Within retail, where there is inventory and a brick-and-mortar similarity to multihousing, ecommerce has already reinvented itself. Its new persona is far less myopic than the old one. Instead of being viewed as a profit center in its own right, it is now seen as a complement to brick-and-mortar sales channels.
And as such, the search pattern of apartment seekers is winding, and most agree there is overlap making tracking a challenge. Says Keator, “We can’t place the burden of tracking on our consumers. After all, when you buy a Coke, the guy doesn’t ask where you heard about Coke. Yet, we are accountable to identify lead sources and get the lowest cost per lead.”
ILSs also see the trend of the meandering consumer: “Consumers search many sites and conduct plenty of research before visiting or calling a property,” says Julie Karickhoff, senior marketing manager for Move.com. “Determining where a consumer starts is becoming harder and harder. And while many may say they’ve found a property through a pay-per-lease model in order to receive a cash reward, it’s becoming a challenge to substantiate it with certainty.”
“Consumers will typically use a blend of media before making a buying decision. The challenge is determining which media source had the greatest affect on their decision to lease, which isn’t necessarily the one they report. Accurate tracking is certainly a challenge,” says Jennifer Cypher, director of consumer source interactive, Apartment Guide.com.
While it’s true that some Internet users complete their search entirely online. Others may have started somewhere else–such as a print guide or newspaper.
However, the Internet is faster, readily available, and thus, the market has navigated to its simplicity and 24/7 accessibility for research and transactions with larger metropolitan areas leading the way. “Our lead to lease conversion is 27 percent for print guides and 36 percent for Internet leads,” states Thompson of AvalonBay. “Our Internet leads come to us more qualified because they’re more educated on our product. The evolution of the Internet has allowed for greater transparency of our business from the consumer perspective.”
In narrowing the analysis to only ILSs, ease of use and convenience statistically differentiate the players–some of the newest ILS technology even provides real time information allowing renters to reserve an apartment online and go to the community to tour it later. However, according to the numbers, the vast majority of renters looking online want to see just enough detail on a property to decide if the apartment is worth a personal visit.
With the newer ILS technology, prospects have a wide range of online options–from making a security deposit, paying applicable fees, finding a moving company, furniture rental, even signing on to the community chat room to make new friends. Yet, while the population has grown accustomed to booking hotel rooms online, the nature of renting an apartment is far more weighted and the trend of actually renting online, not statistically viable.
While prospects are not leaping into online leases, sight unseen, student housing may be the exception. Within this segment, the demographic is younger and grew up with the Internet, and market supply, far more constrained with a more compartmentalized “by the bed” leasing model.
On a broader demographic view, a recent study shows that when looking for an apartment online, renters primarily want to utilize a free service that contains detailed information on a large cross section of properties. This explains the rapid rise of major ILSs, which all have large databases of properties containing pictures, floor plans and detailed descriptions that users can sift and sort based on rent ranges and amenities.
All of this success has not been lost on the commercial portal giants–Yahoo, AOL, MSN and Google, as well as the huge community portal Craigslist–all of which offer apartment listings. What role those companies might play in renting apartments is hard to predict with certainty. Will they continue to serve ILS sites to their customers, build their own apartment ILS or simply acquire one like eBay did with Rent.com? At least one top search giant indicated they would be inclined to buy an existing ILS given the highly fragmented nature of the apartment business.
With the Internet capturing only a fraction of the over $1 billion apartment industry advertising dollars, or 20% of all real estate advertising, continued competition remains likely. Yet, the ILS market may still have some re-tooling to do.
“When consumers want things in their communities, we have to respond or we won’t exist,” states Mark Sadosky of Equity Residential. “In the same regard, I’m looking for ILSs to respond to the operational requirements of REITs. I have to justify what I spend. Yet, everyone has blindly signed on to the ILSs with no concrete data on ROI. I still see a lot of the ‘real estate’ mentality. When I ask about ROI, all I get is a more creative presentation on pricing.” Sadosky continues, “I know that we have as much as 40 percent overlap between the ILSs Equity uses. We’ve got to get our arms around the real numbers so we can be smarter about our ad dollars.”
Sadosky’s point may be lost with the market shift to smaller property owners. While Internet listing services have penetrated the apartment segment of 150 units or more, some now say that tapping the smaller apartment segment of 20 to 75 units could prove to be the next ILS frontier for growth.
“Move has realized this to be the future,” states Karickhoff of Move.com. The new Move.com (formally RENTNET) site launched last month caters to REITs, but also to small, independent property owners. Move’s site sells listings at the “floor plan” level, as opposed to community. “If a landlord has 20 units and his one bedroom is available this month, he only has to advertise that one bedroom for a month,” says Karickhoff. “Listing a floor plan for a month can range from $15 to $30 depending on the market; no more wasting money on listings you don’t need.”
Recently technological developments, primarily around mapping, are what encouraged John Helm to start a new pay for performance ILS called MyNewPlace.com. Helm was CEO of All Apartments /SpringStreet, where he led the company to the number one listing and traffic position before selling it to Realtor.com in 1999; The combined entity later went public as HomeStore, and was recently renamed Move.com.
“We saw a lot of new web technology, such as sophisticated mapping, embedded java script and streamlined search functionality, that could be utilized to make the apartment hunting experience easier and quicker for the average renter,” said Helm. MyNewPlace, the newest of the ILSs, launched 6 weeks ago and has already signed up 2,000,000 units up for its pay per lease service. What stands out about the MyNewPlace site is a clean user interface with integrated mapping and no other advertising on the site. “Our job is to drive qualified renters to the leasing office so our clients can rent them an apartment, and we’re focused solely on doing just that” says Helm.
Generating real time data is at the heart of Mike Mueller’s product, Vaultware. “Our two latest technologies are interactive mapping and real time availability with reservations,” said Mueller, CEO of Realty Data Trust. Mueller was also involved with Spring Street/AllApartments before it sold in 1999.
He states, “With this technology, if a prospect goes to United Dominion’s web page, UDRT.com, hits the search button and selects a property, all the information is there in real time. They can also click a button and request the apartment be held pending a tour. The site might ask if they’re interested in one with an extra large closet. It probably saves 20% of the emails and phone calls usually involved in the process.”
Many ILSs work on a flat-fee, monthly subscription basis, a byproduct of their print media roots and a model that avoids the legal licensing and fees of a real estate broker. While ApartmentGuide bundles its Internet listing service with its print product, ForRent offers the option of one or the other, or both. Rent.com and MyNew-Place.com, on the other hand, both offer a pay-for-performance model.
One of the newest pricing models emerging last month is that of Move.com’s “price per click” (PPC) model. Similar to Yahoo and Google “sponsored links,” owners/managers only pay when consumers click their listing. The site also offers a subscription-based product along with the PPC option.
All of NMHC’s top 50 use at least one ILS in their marketing.
Rick Blair, executive VP for interactive marketing at Equity Residential, said it’s difficult to say whether the pay-for-performance model is more or less cost efficient than the subscription model because most properties appear on more than one ILS and there are so many sites out there.
“The difference with the performance model is we can understand what we get for every dollar we pay for advertising,” Blair said. “Generally, a performance-based model is easier to predict and easier to manage. But because of the fragmentation of Internet listing services, it’s hasn’t worked out that way. It can be difficult to determine the real source of a lead.”
“Managing companies should look for a site that gives the most bang for the buck,” states Jennifer Cyphers, director of consumer source interactive, Apartment Guide.com. “Giving consumers consistent information in an easy-to-use format both in print and on the Internet yields the highest number of leases at the lowest cost per lease. Blended media marketing, similar to efforts by such retail giants as Pottery Barn, Red Envelope and J. Crew is the most effective way to advertise.”
Terry Slattery, VP and general manager of For Rent magazine and ForRent.com contributes the rapid growth of ILS companies to a consistent shift of advertising dollars from print to the Internet.
“I would say it’s around 60-40 print to Internet now, where a year ago it was probably 70-30,” Slattery said. “What you’re really talking about is shifting revenue between website and magazine. Offering both is the most appealing option to the apartment industry right now. Not only do you get traditional print people coming to the door, but 40% of our traffic from the Internet is driven there by our printed magazine.”
To the question of whether apartment ILSs will bring about the demise of print classifieds for apartments Slattery said: “The frank reality is that we print 25 million magazines and try to maintain 90% to 95% pick-up range. We track every magazine. We’re running at a 96% pick-up rate this year. People still pick up these magazines at the same rate they have for the past 14 years. What they do with the information may be changing, but they still look at the magazines at the same rate they always have.”
“The Internet is a great tool for apartment hunters and compliments print advertising,” says Cypher of ApartmentGuide.com. “The common misconception is that the Internet is replacing print, which it is not. Our research and that of OpinionResearch.com shows that over 60 percent of renters use a guide as part of their research; about 40 percent use the Internet. There is a lot of overlap.” Cyphers believes that ILS data is weighted, “Companies with statistics showing that most of their leases come from the Internet advertise mostly on-line, which obviously skews the results.”
ApartmentGuide offers a bundled product called “Printernet.” Cyphers says, “Our bundled product covers all bases; it incorporates the strength of each medium, interactive and portable advertising with a shelf life. The result is a well-informed, captivated audience.”
Kevin Doyle, senior VP and general manager of Apartments.com adds that print publications define the apartment market as 150-plus units spanning 30,000 properties. He gives this breakdown of the major apartment ILS sites: “Apartments. com has a little over 14,000 properties and ForRent.com is around there, too. Apartment Guide has about 20,000. Rent.com, I’m sure has more than 20,000. MyNewPlace has also signed 7,000 properties to date. Then there’s the rental market on a per-unit basis. We’re all starting to go after that market–the 20-to 75-unit buildings as well as the for-rent-by-owner space,” says Doyle.
What’s ahead can be a little harder to see in the rapidly growing ILS environment. Some wonder how the apartment advertising business might shape up in the years ahead.
Slattery believes that among the Internet portal giants, Google would be the most likely to become a competitor to apartment ILS providers. But he points out that what they and all of the search engines lack is content. “It’s not easy to gather information on 50,000 apartments with photographs, virtual tours and everything else. Compe-ting without content is pretty difficult to do,” he said.
Karickhoff of Move.com thinks otherwise. “We realized long ago that content was king and built a website specifically around ‘crawling’ or ‘spidering’ the web,” she said. “We’ve built an aggregate database of millions of rental homes and apartments in one place for consumers. And really, it takes a little more than search algorithms to understand the dynamic of multifamily. Our CEO (Maria Pietroforte), a certified property manager (CPM) herself, has a long history in the business.”
“Internet advertising is getting a lot of attention because of all the ILSs out there, but it’s just one piece of the puzzle,” says Cyphers of ApartmentGuide. “Manage-ment companies all have a common goal: It’s not necessarily to advertise as much as possible on the Internet, but to have the highest ROI.”
Predicting what may happen in the ever evolving ILS world is difficult. One thing is certain, it’s no passing fad–the Internet is here to stay. The questions is, which ILSs will be standing in 5 to 10 years, and who will own them?