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Incremental and Ancillary Revenue StrategiesDriving Revenue, Returns and Value

Mark P. Vernon

Vice President

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Ancillary Income: Driving revenue, returns and value

• Compete with others to drive revenue

• Transform the landscape to create value

• Seek out the opportunities

• Project the returns (ROI)

• Track the income

• Watch for the tipping point

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• Multi-family Owners

• Multi-family Property Managers

• Multi-family Developers

• Self Storage

• Big Box Retailers

• Hotels

• Airlines

“Relax, Roger, everybody's doing it…” Bud Fox, Wall Street

Ancillary Income: Who are our competitors?

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Ancillary Income: Transform the landscape

•Utilize the economies of scale to leverage income opportunities•Increase property portfolio income through multi-stream revenue sources•Monetize resident service demands •Impact property valuation at sale or refi •Boost property bottom-line value

#MAMConf14Ancillary Income Opportunity: Gumball machines

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Results: Gumball machine usage increases resident tooth decay at the community

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Ancillary Income Opportunity: Community Rickshaw Service

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Results: Increase in the number of beer cans, cigarette butts and volume of emesis to clean up

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Results: Corresponding increase in the number of internal transfers

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Ancillary Income: Seek out opportunities• Income generating measures

• Services• Cable and wireless (must have ample bandwidth)• Laundry (in unit and internet based laundry facilities)• Rooftop antennas for wireless transmission• Vending (traditional versus healthy vending)• Renters insurance (standard versus self administered)• Furniture rental• Coffee services• After hours concierge services• Alarm monitoring• Parking space rental• Pet washing stations• Carwash income• Language interpretation services (dial-in)

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Ancillary Income: Seek out opportunities (cont’d)

• Utilities• Resident utility pass through• Deregulated markets – electricity and gas related• Mineral and gas rights• Rate increases through applicable regulatory authorities• Rate negotiations – flat rate versus spot rates• Tax incentives, energy conservation and utility audits• Vacant utility recovery• Recycling /waste reduction• Valet Waste• In-house utility billing

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Ancillary Income: Seek out opportunities (cont’d)

• Property fees• Pet fees• Pet DNA fees• Amenity fees• Transfer fees• Lease break fees• Late fees• Charging station fees• Bicycle rack fees

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Washer and Dryer - 5 Year Lease Projections (2012-2017)

             

                   Months Monthly Rental Total Rental/Set  

  (Cost)Lease Washer and Dryer 60 $40.00 $1,800.00  

    7% taxes     $126.00  

    Total Costs:     $1,926.00                                  Months Monthly Income Total Income/Set  

  (Benefit) Monthly Income 60 $45.00 $2,100.00  

    Total Yearly Benefit:     $2,100.00                   Net Income     $174.00                       5 Year ROI: 9%                     Payback Period (Mos): 55.0  Assumptions:            * $5.00 is the leasing premium/set; The rental fee is $40 and resident pays $45.    **Based on a 5 year lease cycle.          ***Net income achieved after 55 months of rental; 4.5 months maximum vacancy allowed.    

Ancillary Income: Define the risks (return on investment – simple case study)

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Washers and Dryers - 5 Year Purchase Projections (2012-2017)

                                W/D Cost Install Labor Total Cost/Set    (Cost) Purchase W/D $1,100.00 $20.00 $1,120.00  

    7% taxes     $78.40      Total Costs:     $1,198.40                                  Months Monthly Income Total Income    (Benefit) Monthly Income 60 $35.00 $2,100.00      Total Yearly Benefit:     $2,100.00                   Net Income     $901.60                       5 Year ROI: 43%                     Payback Period (Mos): 34.2  *$600 for top load washer and $500 for top load dryer.        **$300 buy back after 5 years          ***5-7 year life based on usage. Calculation assumes 5 years.      

Ancillary Income: Define the risks (return on investment – simple case study)

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Ancillary Income: Track Performance

• Identify income opportunity

• Negotiate the terms

• Track income and performance

• Drive ancillary income strategy through reporting

• Renegotiate the terms

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Ancillary Income: The tipping point

“Are we simply trading rent increases for ancillary revenue.”

“This property nickels and dimes us to death.”

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Thank you!

Mark Vernon, Vice President PurchasingBell Partners Inc.336.232.1900mvernon@bellpartnersinc.comPhotos uploaded via internet Google search

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Incremental and Ancillary Revenue StrategiesDriving Revenue, Returns and Value

Kevin Huss

Director of Revenue Management

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Maximizing Revenue is about Balance

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Ancillary Revenue

The

Basic Fees

• Application

• Administration

• Pet Fee/Rent

• Water/Sewer

• Trash

• Gas/Electric

• Common area deduction

The

Resistin

g Fees

• Door to door trash pickup

• Parking fee (every car)

• Bulk cable or internet

• Amenity fee

Reven

ue Shares

• Cable, internet or voice services

• Laundry centers

• Vending

• ATM’s

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Optional

• Parking – garages, carports & reserved

• Storage

• W/D rentals

• Accent walls

• Clubhouse rental

• Guest suites

Indirec

t Revenu

e

• Food truck festival

• Farmers market

• Wine and cheese events

• Blood drives

• 5K walk/run

Risk

Manag

emen

t

• Renters Insurance: liability, pet & bed bug

• Deposit alternatives

Ancillary Revenue cont.

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Understanding your property is key?

In place rents vs. current

asking rents

Current asking rents vs.

market rents

How long will you hold the

property? Short? Long?

Are your ancillary fees consistent

with your market?

Indirect income

generators

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How do you sell your monthly ancillary fees?

Include in the rent?

Rent$635

Payment from resident $635($25 door to door trash pick up and $10 parking fee included)

Not include in the rent?

Rent$600

Door to Door Trash$25

Parking fee$10

Payment from resident $635On the surface this looks no different, but when you market your

property there could be a calculated difference….

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How will a buyer underwrite your property?

Include in the rent?

Rent$650

Door to Door Trash$0

Parking Fee$0

Total Revenue Per Unit$650

Not include in the rent?

Rent$650

Door to Door Trash$25

Parking fee$10

Total Revenue Per Unit$685

• The next buyer will underwrite a targeted rent value• Existing ancillary accounts will be included

$685 vs. $650 = $35/unit of additional revenue$35 x 12 months x 300 units = $126,000$126,000 at a 7% cap rate = $1.8 million of value

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Kevin HussDirector of Revenue ManagementHarbor Group Management Co.khuss@harborg.com212.644.0513